How to fill out W-9 on living trust when bank requires it

[rwg]

What is the name of your state? Colorado

My spouse and I moved our bank accounts into a living trust last year (we are trustees). This year the bank says the IRS tells them that the name on the account (the living trust name) does not match the SSN, which is my SSN. The bank says they were told to get a W-9 or take 24% as backup holding.

The question remains, how is this W-9 filled out.

 

[LdiJ]

What is the name of your state? Colorado

My spouse and I moved our bank accounts into a living trust last year (we are trustees). This year the bank says the IRS tells them that the name on the account (the living trust name) does not match the SSN, which is my SSN. The bank says they were told to get a W-9 or take 24% as backup holding.

The question remains, how is this W-9 filled out.

When someone has a living trust the assets normally remain in the name of the trustor and are reported on the trustor's tax return.

Apparently the IRS has told the bank that they want the name on the account and the TIN to match. That means that you will have to apply for an EIN number for the trust (if you don't already have one). These can be obtained quite easily, online at irs.gov. You would then fill out the W-9 with the trust's information and trust's EIN. An EIN is like a social security number for an entity.

You can still report the income from the trust on your personal return, but you may get the occasional letter from the IRS asking why you haven't filed a trust tax return. Those would be pretty easy to answer. You would just explain that it's a living trust and that the income was reported on your personal return.

You definitely don't want backup withholding to happen.

 

[Zigner]

When someone has a living trust the assets normally remain in the name of the trustor and are reported on the trustor's tax return.

Are you sure about that? Do you really mean to say that people don't put their houses and bank accounts in to a trust? The whole idea behind a trust is that the trust owns the assets to allow for easier disposition once the person/people die.

The IRS states that a revocable living trust doesn't typically need an EIN, although it may apply for one (https://www.irs-ein-tax-id.com/faq/trust-need-tax-id-number/).

The following may also be of help to the OP: https://www.sec.gov/Archives/edgar/data/1127342/000119312511290891/d220153dex992.htm

Lastly, the instructions on the W9 state that, for "The usual revocable savings trust (grantor is also trustee)" that the name and SSN to be provided is that of ""The grantor-trustee". I suspect that the wording should be along the lines of "rwg, as trustee of the RWG Family Trust dated 3/1/2015" (for example).

 

[Zigner]

More information can be found in IRS Pub. 1586. Refer to the bottom portion of page 16 and the top portion of page 17. It explains that the "name control" that the system uses is derived "... from the first four characters of the individual's last name."
Using the format I mentioned above should yield a correct match to your social security number.

https://www.irs.gov/pub/irs-pdf/p1586.pdf

 

[Taxing Matters]

What is the name of your state? Colorado

My spouse and I moved our bank accounts into a living trust last year (we are trustees).

While everyone else is assuming that the living trust is a grantor trust, I will not. Not all trusts are grantor trusts and it makes a huge difference whether the trust is a grantor trust (of which revocable trusts are the most common by far) or a non grantor trust. So let's start with this: is the trust revocable?

 

[TrustUser]

When someone has a living trust the assets normally remain in the name of the trustor and are reported on the trustor's tax return.

Apparently the IRS has told the bank that they want the name on the account and the TIN to match. That means that you will have to apply for an EIN number for the trust (if you don't already have one). These can be obtained quite easily, online at irs.gov. You would then fill out the W-9 with the trust's information and trust's EIN. An EIN is like a social security number for an entity.

You can still report the income from the trust on your personal return, but you may get the occasional letter from the IRS asking why you haven't filed a trust tax return. Those would be pretty easy to answer. You would just explain that it's a living trust and that the income was reported on your personal return.

You definitely don't want backup withholding to happen.

i will also assume we are talking about a revocable grantor trust. you do not apply for an ein number for this.

the federal govt does not recognize a revocable grantor trust as any sort of entity

if it did, wealthy people would all have a million trusts, with each entity making very little money, and having to pay no tax on it !!

the irs does want the tin to match the name. the bank should be reporting this income with the name of the person and his social security number.

i have quite a few accounts at various credit unions. they are all reported under my social, and my name

 

[Taxing Matters]

the bank should be reporting this income with the name of the person and his social security number.

Banks vary on their understanding and comfort level with federal tax matters, and in particular dealing with entities that are are disregarded for federal tax purposes — like revocable living trusts and single member LLCs — but that are legally separate legal entities. While reporting the interest on the 1099 under the name and SSN of the trust grantor is the preferred way to handle reporting of the income of a revocable living trust, if a bank simply won't do it because it does not have that comfort level there is the option of getting an EIN for the trust instead. It's not ideal, but it does work.

 

[TrustUser]

hi tm, that is absolutely so ridiculous, that i needed to look it up, for myself. i did go to the "create ein for a trust" page. it asks for type of trust. there are about 20 different options, but 1 option is a revocable trust.

it then asks for the social of the grantor of the trust.

so does the person actually have to file a 1041 for this trust ?

or is the irs system smart enough to know to use the social of the grantor, from the application, because it is a revocable trust ?

https://app.irs-ein-tax-id.com/trust?utm_content=trust&gclid=CjwKCAiAzNj9BRBDEiwAPsL0dxFb5JUM61IsGT55doBegAzLeZ1t8bm1bO-ErTbB3RRXJy61tN3lBRoCNy0QAvD_BwE

 

[Taxing Matters]

so does the person actually have to file a 1041 for this trust ?

No, they do not. Getting the EIN for a trust does not automatically create a filing requirement for Form 1041. If you correctly fill out the EIN application and check revocable trust and then provide the SSN of the grantor the IRS system will not turn on the indicator for Form 1041 filing. Even if you messed it up and the computer thought a Form 1041 was required, responding to the IRS letter that comes after the IRS doesn't get a return it expects and telling the IRS it's a revocable living trust and all the trust income was reported on your return with your SSN will result in the IRS employee coding in the change to turn off the filing requirement.

By the way, one of the reasons that there is an option on the EIN application for revocable living trusts (and single member LLCs too) in the first place is that some banks and other financial institutions insist on that for those entities because, again, they are not comfortable with accepting that those entities are disregarded and that proper reporting can be done under the name and SSN of the grantor/owner.

or is the irs system smart enough to know to use the social of the grantor, from the application, because it is a revocable trust ?

Yes.

 

[TrustUser]

thanks. i had that problem, early on - about the name matching the tin

my credit union contacted the irs, and we added my name to the titling, such that there is both the trust name and my personal name on it

but i know it gets reported to the irs with my name and social

it is my opinion that a financial institution needs to learn the correct way of doing things, when it is "uncomfortable"

 

[Taxing Matters]

it is my opinion that a financial institution needs to learn the correct way of doing things, when it is "uncomfortable"

Banks are highly regulated and also rely heavily on customer confidence for their business. As a result, they tend to be conservative about these sorts of things. Asking for an EIN for the trust is not "incorrect" as the IRS does allow for that. However, it's an extra hoop for the bank customer to go through for no benefit other than getting the account at the bank. And it can sometimes cause the customer to have extra contact from the IRS if the EIN application is not done right. So as I indicated before, it's not ideal for banks to do that, but it works.

 

[TrustUser]

well a lot of customers, INCLUDING ME, would simply use another institution to do it the correct way. just because it is allowed, it is still incorrect. forcing a customer to do something that is extremely inconvenient because you are not able to do it the best way for your customer is not a good way to stay in business !! and i will leave it at that.

 

[rwg]

More information can be found in IRS Pub. 1586. Refer to the bottom portion of page 16 and the top portion of page 17. It explains that the "name control" that the system uses is derived "... from the first four characters of the individual's last name."
Using the format I mentioned above should yield a correct match to your social security number.

https://www.irs.gov/pub/irs-pdf/p1586.pdf

thanks for the reference.

 

[Taxing Matters]

well a lot of customers, INCLUDING ME, would simply use another institution to do it the correct way. just because it is allowed, it is still incorrect.

It's not incorrect. The IRS is good with taxpayers doing it either way, so long as they do the necessary forms correctly. Rather, it is simply an issue of customer service and how flexible the bank is going to be to accommodate its customers. Note that some people have few choices for banks — in some rural areas if a town has any banks at all there may be just one or two of them. In the town I lived in while in high school there were just two banks, one that was a single bank unique to that town and the other a branch of a slightly larger state bank. Neither of them would have had the money to pay for specialized tax counsel to advise them on this kind of stuff.

 

[TrustUser]

my credit union contacted the irs, found out what needed to be done. and it was the simplest thing ever, to do. there is absolutely no need to require someone to create a brand new ein. there may be 2 ways to get a job done. in this case, one was the correct way of doing it. you can attach any other word to the other way.