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Q: As successor trustee of a revocable living trust to be administered in California, do I request an EIN for a revocable living trust or an irrevocable trust after the death of the grantor? Would I request the 645 election? How do I know if it is a qualified revocable trust?
If you become successor trustee prior to the death of the grantor (due to incapacitation or disability), then you will not need to obtain an EIN (employer identification number) for the revocable living trust. The grantor will continue to report all of the income and expenses of the trust on his or her individual tax return. Once the grantor dies and the trust becomes irrevocable, you will need to complete the application for an EIN as soon as possible so you can properly report all post-death transactions under the trust EIN.
You may obtain an EIN by completing Form SS-4 online at irs.gov. Although you are not required to do so, you should make an election under IRC Sec. 645 prior to obtaining the EIN in order to request the appropriate yearend of the trust.
An election under IRC Sec. 645 treats a qualified revocable trust as part of the decedent’s estate for Federal income tax purposes. California follows the Federal election. This will generally simplify the administration of the estate and can provide several tax advantages, since the electing trust will follow the income tax rules for an estate rather than a trust for the first two years. The electing trust can select any fiscal year that falls within 12 months from the date of death. A trust that does not make the election must use a calendar year. For example, if the date of death is 9/10/2011, the latest fiscal yearend that you can select is 8/31/2012. You would not need to file fiduciary income tax returns until 12/15/2012. This gives you additional time to gather the necessary documents and make appropriate decisions. The electing trust also does not need to make estimated tax payments during the first two years.
If you will be unable to distribute the assets of the trust within two years of the decedent’s death, this election can result in a small administrative headache. The election is only valid for two years. At the end of the two years, the IRS will no longer treat the trust as part of the estate, and you will have to follow the income tax rules for trusts. The trust then would have to obtain a new EIN and revert to a calendar yearend. In the example above, if you did not distribute the trust assets by 8/31/2013, then you would have to file a short year trust return for the period from 9/1/2013 through 12/31/2013.
As to whether or not the revocable trust is qualified, most living trusts are. To be qualified, the grantor/decedent must be treated as the owner of the trust (IRC Sec. 676) because he or she had the power to revoke the trust prior to death.
Estate and trust rules can be very complicated, so make sure you are working with a professional who is experienced in this area.
Jennie Hoopes, CPA, a team member with Sweeney Kovar, LLP, in Danville, Calif.
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In accordance with IRS Circular 230, the information on this website is not intended or written to be used, and cannot be used as or considered a "covered opinion" or other written tax advice and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein; for IRS audit, tax dispute or other purposes.