One of the many advantages of a living trust is it's simplicity at tax time. Before 1981, a revocable living trust had to file its own tax return (Federal Form 1041) and apply for and use its own Taxpayer Identification Number (TIN). In 1981, however, the Internal Revenue Service issued new regulations that not only permit the creator (grantor) of a revocable living trust to use his or her own Social Security number and file Form 1040 only but also specifically encourage them to do so.

Prior to 1981 any trust was required to apply for and use its own TIN and report income on Form 1041. The IRS wisely figured out that while it was processing tens of thousands of Form 1041's for revocable living trusts, it wasn't bringing in any more revenue to the Treasury. These extra 1041's instead were costing the IRS more money to process so it eliminated the requirement.

In order to avoid the requirement for filing Form 1041 or obtaining a new TIN the trust must be what is called a "Grantor" trust. This means the creator of the trust is also the donor of the funds in trust and the recipient of all income generated by the trust. When you think about it this makes perfect sense. You create a revocable living trust, act as sole trustee, transfer your assets into the trust under your own Social Security number, manage the assets in the trust, and receive all income under the trust. Using Form 1040 is the only reasonable thing to do.

Occasionally you may find that a bank or other financial institution tells you that in order to put an asset owned by you that is held in their institution into your trust you must get a new TIN for the trust. The financial institution may tell you that this is "their policy." Not only is this not required, it is clearly wrong. The IRS requirements for tax returns and TIN's for grantor trusts are found in Internal Revenue Code Regulation sections 1.671-4 and 301.6109-1. If you run into this situation, ask the financial institution to look up these regulations so that you can use your own Social Security number.

• 1.671-4 Method of reporting.

(a) Portion of trust treated as owned by the grantor or another person. Except as otherwise provided in paragraph (b) of this section and § 1.671-5, items of income, deduction, and credit attributable to any portion of a trust that, under the provisions of subpart E (section 671 and following), part I, subchapter J, chapter 1 of the Internal Revenue Code, is treated as owned by the grantor or another person, are not reported by the trust on Form 1041, “U.S. Income Tax Return for Estates and Trusts,” but are shown on a separate statement to be attached to that form. Section 1.671-5 provides special reporting rules for widely held fixed investment trusts. Section 301.7701-4(e)(2) of this chapter provides guidance regarding the application of the reporting rules in this paragraph (a) to an environmental remediation trust.

(b) A trust all of which is treated as owned by one or more grantors or other persons

(1) In general. In the case of a trust all of which is treated as owned by one or more grantors or other persons, and which is not described in paragraph (b)(6) or (7) of this section, the trustee may, but is not required to, report by one of the methods described in this paragraph (b) rather than by the method described in paragraph (a) of this section. A trustee may not report, however, pursuant to paragraph (b)(2)(i)(A) of this section unless the grantor or other person treated as the owner of the trust provides to the trustee a complete Form W-9 or acceptable substitute Form W-9 signed under penalties of perjury. See section 3406 and the regulations thereunder for the information to include on, and the manner of executing, the Form W-9, depending upon the type of reportable payments made.

(2) A trust all of which is treated as owned by one grantor or by one other person

(i) In general. In the case of a trust all of which is treated as owned by one grantor or one other person, the trustee reporting under this paragraph (b) must either—

(A) Furnish the name and taxpayer identification number (TIN) of the grantor or other person treated as the owner of the trust, and the address of the trust, to all payors during the taxable year, and comply with the additional requirements described in paragraph (b)(2)(ii) of this section; or

(B) Furnish the name, TIN, and address of the trust to all payors during the taxable year, and comply with the additional requirements described in paragraph (b)(2)(iii) of this section.

• 301.6109-1 Identifying numbers

2) A trust that is treated as owned by one or more persons pursuant to sections 671 through 678

(i) Obtaining a taxpayer identification number

(A) General rule. Unless the exception in paragraph (a)(2)(i)(B) of this section applies, a trust that is treated as owned by one or more persons under sections 671 through 678 must obtain a taxpayer identification number as provided in paragraph (d)(2) of this section.

(B) Exception for a trust all of which is treated as owned by one grantor or one other person and that reports under § 1.671-4(b)(2)(i)(A) of this chapter. A trust that is treated as owned by one grantor or one other person under sections 671 through 678 need not obtain a taxpayer identification number, provided the trust reports pursuant to § 1.671-4(b)(2)(i)(A) of this chapter. The trustee must obtain a taxpayer identification number as provided in paragraph (d)(2) of this section for the first taxable year that the trust is no longer owned by one grantor or one other person or for the first taxable year that the trust does not report pursuant to § 1.671-4(b)(2)(i)(A) of this chapter.

(ii) Obligations of persons who make payments to certain trusts. Any payor that is required to file an information return with respect to payments of income or proceeds to a trust must show the name and taxpayer identification number that the trustee has furnished to the payor on the return. Regardless of whether the trustee furnishes to the payor the name and taxpayer identification number of the grantor or other person treated as an owner of the trust, or the name and taxpayer identification number of the trust, the payor must furnish a statement to recipients to the trustee of the trust, rather than to the grantor or other person treated as the owner of the trust. Under these circumstances, the payor satisfies the obligation to show the name and taxpayer identification number of the payee on the information return and to furnish a statement to recipients to the person whose taxpayer identification number is required to be shown on the form.

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