Estate planners scurrying to set up trusts
on behalf of wealthy clients and fund them with tax-free gifts before the end
of the year hit a new snag this week. On the IRS website page where they would
normally go to apply for a tax identification number for the trust, the following
notice has appeared since Thursday:
“Planned Outage: December 27 — January 2,
2013”
If you
procrastinated and waited until the last minute to set up a trust and fund it
with tax-free gifts before the end of the year, you may just be out of luck.
A Forbes recent article, “IRS Is Grinch Who Stole Tax ID Numbers,”
explains how trusts are taxable entities and need a tax identification number –
most estate planners use an Employer Identification Number (EIN). In most
situations, the online
application found on the IRS website can be completed in a matter of
minutes. A notice posted on the IRS website, however, states that the online
EIN application will be unavailable beginning 4:00 p.m. EST on Thursday,
December 27, 2012 until approximately 6:00 a.m. EST on Wednesday, January 2,
2013.
A possible
way around this latest snag is to form a grantor trust – a trust in which the
person who creates the trust, the grantor, retains certain rights or powers. A
grantor trust is not treated as a separate entity for income tax purposes and
therefore, the grantor’s social security number can be used to form the trust.
One downside
to a grantor trust is that the grantor, rather than the trust or its
beneficiaries, must pay taxes on any trust earnings. But the grantor can limit
any taxes due by releasing the grantor trust powers and applying for an EIN
when they are available January 2, 2013.
For more
information about estate planning in Torrance, CA, please visit my website.
Reference: Forbes (December 23, 2012) “IRS Is Grinch Who Stole Tax ID Numbers”