Living Trust

[Brian EA]

Has anyone ever heard of someone opening a living trust using their Social Security number?
One of my clients passed away a few days ago and the son-in-law transferred his in-laws brokerage account into a trust which he claimed was originally opened in 2005.The IRS wrote him saying that they need Trust tax returns from 2005..These returns should be prepared and mailed by 07/07 otherwise he will have to pay penalty and interest.
I know that a trust should have its own EIN. Anyone thinking differently?

[JoshinNC]

A living trust is a grantor trust

Has anyone ever heard of someone opening a living trust using their Social Security number?
One of my clients passed away a few days ago and the son-in-law transferred his in-laws brokerage account into a trust which he claimed was originally opened in 2005.The IRS wrote him saying that they need Trust tax returns from 2005..These returns should be prepared and mailed by 07/07 otherwise he will have to pay penalty and interest.
I know that a trust should have its own EIN. Anyone thinking differently?

It serves no tax purpose, is not considered separate from the grantor and does not need to file tax returns. At the grantor's death the trust becomes irrevocable, needs an EIN and files a return until all assets are distributed.

[appelman]

Verify that it really was a living (revocable) trust.

If it was, and all income was always reported under the SSN of the Grantor (the usual situation) there should be no EIN and no reason to file tax returns. See Optional Filing Method 1 on p. 12 of the Form 1041 instructions. This is the method used by almost everyone who qualifies. I would give them an argument on it. Also, you need to look at the trust provisions to see just what happens on the grantor's death.

[John of PA]

Living Trust are treated just like a non-trust account for annaul 1040 tax filing. The trust ID is the Soc Sec # and the income from the trust goes on the grantor's 1040 just like a normal taxable brokerage account would. When the grantor passes away, the living trust assets are taxed for inheritance tax purposes just like any other assets is. The only difference is the will does not control the disposition of the assets in the living trust, the beneficiary designation does.

[appelman]

Yes and no.

If the grantor has obtained an EIN and given it (rather than his/her SSN) to payers of trust income, then a 1041 must indeed be filed, using the special instructions on p. 11 of the 1041 instructions.

A living trust may distribute its assets on death of the grantor, but probably more often it will transform into an irrevocable trust, as Josh noted.

[Roberts]

Sounds to me like maybe the IRS doubts the assets were within the trust prior to death?

[appelman]

That shouldn't much matter to the IRS.

They'll be part of the estate in any case.

[Roberts]

They'll be part of the estate in any case.

Yes but who's estate?

Per the OP:
One of my clients passed away a few days ago and the son-in-law transferred his in-laws brokerage account into a trust which he claimed was originally opened in 2005

That says to me the brokerage account may not have been named as being in the trust prior to death. There are serious implications for this if the estate is large enough to trigger estate taxes. If it's not in the trust, most likely it just automatically rolls into the name of the spouse.

[appelman]

That of the decedent.

Part of the practical definition of a grantor trust.

[Burke]

Has anyone ever heard of someone opening a living trust using their Social Security number?
One of my clients passed away a few days ago and the son-in-law transferred his in-laws brokerage account into a trust which he claimed was originally opened in 2005.

It is an important distinction here as to WHO established this trust, which is not clear from your post. Did the decedent open the trust in 2005? Using the decedent's SSN would be normal if it were a RLT and it was while he was living. And the assets would have been distributed according to the trust document at his death. OR they may have been "poured-over" into such a trust at death, at which time an EIN would have been applied for.

Or did the son-in-law put the funds into a trust HE opened in 2005? In that case, if it were an RLT he would use his own SSN. If another type of trust, he would use the trust EIN.

In either case if it was an RLT, then you just need to notify the IRS as much and confirm that any income was reported on the proper individual return(s) each year.