Los Angeles trust administration is basically an unsupervised process through which property is transferred from the person who has died (the decedent) to that person’s beneficiaries as specified in the trust. There are many steps required for the proper administration of a trust and our Los Angeles trust administration attorneys can help you with all of them. This article will look at when and why you may need to obtain a Federal Tax ID number.
Which Types of Trusts Need a Federal Tax ID Number?
Whether or not a trust needs its own Federal Tax ID number depends on the type of trust. If you are dealing with an irrevocable trust, then a Federal Tax ID number is required. The estate is also required to have its own, separate Federal Tax ID number. However, a revocable living trust does not usually require one because the grantor’s social security number is used for identification while the grantor is alive. Once the grantor passes away, the revocable trust becomes an irrevocable one, at which time the trust would need a Federal Tax ID number.
What Happens with a Living Trust When My Loved One Dies?
Clients who are responsible for serving as a trustee for a loved one’s revocable trust are often at a loss about what to do when that loved one dies. First, when your loved one passes away, the revocable trust automatically becomes an irrevocable one. At that point, the trustee must apply for a Federal Tax ID number unique to that trust. Your loved one’s social security number can no longer be used to report income from the trust as was done before their death.
Why Do Irrevocable Trusts Need a Unique Federal Tax ID Number?
Once a grantor passes away, all income earned by the trust must be reported under a tax identification number. If the trust was revocable before the grantor’s death, the income was reported using that person’s social security number. This procedure cannot continue once a person dies. If an irrevocable trust earns more than $600 in income during the calendar year, the trustee will be required to file a 1041 tax return using the unique Federal Tax ID number. The Federal Tax ID number is also required to open a bank account under the trust name.
The Purpose of Federal Tax ID Numbers
Unique identification numbers are required by the IRS in order to identify and track trusts, as well as businesses. When it comes to trusts, obtaining a Federal Tax ID number as soon as you can. This will make it easier to file taxes, manage assets and conduct various financial transactions.
Can I Avoid Getting a Federal Tax ID Number by Quickly Distributing Assets?
You should not try to avoid obtaining a Federal Tax ID number by simply distributing the trust assets immediately. This is not a wise move because there are steps you need to take as a trustee in order to perform proper Los Angeles trust administration. It is important that you make sure all estate-related expenses and taxes are paid before assets are distributed. If you are not careful, you could be held personally liable as the trustee for any trust obligations that are not paid before the assets are distributed. The last thing you want to have to do is try to recoup those assets from the beneficiaries.
What is Expected of a Trustee?
The services of a trustee are critical to successful Los Angeles trust administration. As the trustee, you are the person responsible for seeing to it that the provisions in the trust agreement are complied with. The trustee is also responsible for managing the assets that have been placed in trust, as well as maintaining accurate records of all transactions that involve the trust property.
What Does it Mean to be a Fiduciary?
Trustees have a fiduciary duty to take only those actions that are for the benefit of the trust and its beneficiaries. Trustees are expected to always be honest in all dealings related to the trust. Trustees are also required to make sure all actions they take comply with the regulations established to protect beneficiaries from improper investment choices made by trustees. Ultimately, a trustee is expected not to violate their duties, and if they do, they can be held liable for those violations.
Using Professionals for Los Angeles Trust Administration
In the face of the significant responsibility placed upon a trustee, it is very common for trustees to need advice or assistance from a professional as they carry out certain aspects of their responsibilities. This is most likely the case when it comes to investing the trust property. If you do not have experience with investments, then it would be wise to seek the advice of a professional. The management of investments is the probably the most frequently litigated issue in Los Angeles trust administration.
Join us for a free seminar today! If you have questions regarding estate planning, trust contests, or any other trust administration issues, please contact the Schomer Law Group either online or by calling us in Los Angeles at (310) 337-7696, and in Orange County at (562) 346-3209.
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