Do we really need to file for an estate EIN after the loss of a loved one?
This is a great question because it strikes at the confusion of how the process of probate and post-death responsibilities work. Like most things, there’s a legal answer based upon how laws and rules are governed.
And in that sense, yes, technically speaking an estate EIN should be created for every estate.
That being said, there’s also the everyday approach to understanding the way in which things routinely work in the “real world.”
So when approaching the question from that angle, the answer is generally.... also “yes.”
Okay, but are there any situations when this is not the case?
Actually, also yes.
As a hard and fast rule, an estate EIN should generally be filed for and opened anytime there is an estate containing assets which will need to pass through probate.
The primary times an estate EIN might not need to be established for an estate is when an individual passes away with all (not some) of their assets owned and properly titled within some combination of revocable or irrevocable trust(s), qualified retirement accounts or life insurance policies bearing valid separate beneficiary designations, or when there is a sole inheritor and ownership of all assets were correctly held and titled in specific forms of jointly-held ownership.
But seeing as matching those collective circumstances is far from the norm, let’s dig a little deeper into the question by looking at each of these factors separately.
Let’s begin by breaking down an explanation of what an EIN is, what it’s used for, and when it’s actually required.
What is an estate EIN?
For starters, the term EIN is an abbreviation which stands for Employer Identification Number. From the start, this already presents a level of confusion for surviving family members navigating estate settlement because one would think it might stand for Estate Identification Number since we’re talking about a loved one’s estate and not establishing an employer/company. For this reason, you might also frequently see the EIN term referred to as an estate EIN in order to help differentiate.
What is an estate EIN used for?
An estate EIN is the tax ID number setup for a loved one’s estate after their death. Much like everyone has an individual Social Security Number (SSN) that is used for tracking financial matters during their lifetime, such as their income, debt or taxes, an estate EIN likewise serves to track the financial activities related to a decedent’s estate after the pass. Essentially, once an individual passes away, their Social Security Number is no longer recognized as usable by the Internal Revenue Service (IRS), in which case a new number must be obtained to track ongoing matters until their estate is fully distributed and resolved.
Commonly, filing for an estate EIN is one of the first responsibilities that one’s surviving family members are required to take, and must do so anytime there are assets which need to be probated or administered before final distribution to heirs and inheritors. Considering the reality that the estate settlement process often takes a matter of six to twelve months to resolve, and the fact that a deceased individuals S.S.N. is no longer appropriate to use, an estate EIN is the proper way for documenting anything related to ongoing expenses, receipt of earned income, or interest and gains on investments.
Taxable events such as these must be reported to the IRS separately from the individuals social security number, which often means filing multiple tax returns as executors account for both the portion of year that the individual was still alive as well as the period of activity within their estate after their death.
Below are a few examples of the many transactions which would often require the filing of an estate EIN:
- Receipt of earned income
- Distributions from royalties, licenses or annuities
- Proceeds from sale of assets in an estate sell
- Ongoing payments for services, bills and accounts
- Investments into cosmetic upgrades to one’s home before staging for sale
- Earned interest, dividends or realized capital gains from stocks, bonds and mutual funds
When determining the necessity of filing for an estate EIN after the death of a loved one, there are a handful of questions to address since every estate is different and depends upon the collective set of unique circumstances surrounding the assets and relationships of the estate.
Where did they live and was that their primary residence?
Because trust, estate and probate laws vary from state to state, an important factor in determining the need to file for an estate EIN begins with identifying the location in which their estate is domiciled.
Generally speaking, determining where an estate is domiciled, or located, can be as simple as knowing where the deceased individual lived. In some cases, however, individuals have multiple homes or split their time seasonally between two places. It can come as a surprise, even to close family members, but sometimes individuals actually claim their primary residence in a different state than you would have guessed, often for tax or financial reasons.
For these reasons, it’s important to know that one’s residence could differ from where their estate is domiciled. In situations when a person is a resident of one location and yet considered domiciled in another location, the state in which they are considered domiciled will be the governing set of laws around their primary estate.
Did they own assets located in a different state or country?
While each state has their own set of probate and estate settlement laws, the authority of those laws will usually only apply to assets located within that location. If, for example, an individual lives in Texas, but also has assets in California, it’s very likely that an estate will need to be opened to deal with property based upon the local laws of both locations.
Real estate and homes are often easily identified or known multi-location assets that a friend or family member owns, but there are many other types of assets that executors may become aware of during the process of administering a loved one’s estate. A few of these could include:
- Shared vacation homes
- Vehicles, RVs, boats, trailers or farm equipment
- Commercial or residential rental properties
- Leased real estate or farmlands
- Ownership interest in family-owned or closely-held business assets
- Interest in income producing oil, gas, timber or mineral rights
As technology and transportation has evolved, families have begun settling down more geographically separated than families of prior generations. Due to this trend, these days it’s quite common to see sentimental or financially significant family assets that are jointly-owned and shared by two or more family members living in different locations. Even if these assets aren’t initially known to an executor, an estate EIN would often need to be opened knowledge of these assets is obtained during the process of closing a loved one’s estate.
Internationally owned assets can become an even more complex process, as the laws have more substantial differences across different countries. International estate planning situations can also involve increased barriers of communication like different languages, colloquial practices or even poor technology and internet infrastructure to support frequent communication from afar. If you are the executor of an international estate, it is advisable to seek guidance from a professional advisor, or qualified self-help resources, which offers a level of support and familiarity of best practices across both regions involved.
Did the deceased loved one leave a last will & testament?
A will is a critical piece of the estate plan as it documents an individual’s wishes and advises how their assets will be divided after they die. When someone passes away without an estate plan, they’re considered to have died intestate. While intestate laws exist to help outline who will receive an individual's estate, the process also ensures that an intermediary will be appointed to serve as the personal representative or executor in order to ensure those transfers happen fairly through the formal process of supervised probate.
Nearly 64% of individuals pass away without a will or estate plan, meaning this is surprisingly the norm in a majority of instances. Undoubtedly, when an individual passes away without a last will and testament, an estate EIN will need to be established as their estate will need to pass through the formal process of probate as a means of intestate law.
Is there a likelihood for a will contest by heirs or beneficiaries?
A will contest is a formal objection raised against the validity of a last will and testament which challenges that the estate plan does not reflect the actual intent of the testator. A will contest often surfaces when there are disagreements between heirs as to the authenticity or existence of an estate plan, objection to the provisions stated within the last will & testament, when multiple wills are found with varied dates and wishes, if there is a question of one’s mental capacity when the documents were signed or if there is suspicion of undue influence or fraud.
In circumstances involving a will contest, there’s nearly a guarantee that an estate will remain open longer than minimum time period, during which the assets must remain in the estate. During that time many of the assets will appreciate in value, earn income or dividends, or potentially be sold as resolutions to ongoing disagreements. In these scenarios, an estate EIN will be necessary to help identify and report applicable earnings and losses at the end of each calendar year or upon the close of the estate.
Are there multiple beneficiaries or is there a sole heir?
In some situations an individual passes away and legally only has one heir. A good example of this scenario is when a married adult dies and leaves behind a widowed spouse. Commonly these married individuals already hold their assets in joint name, either intentionally or unintentionally due to the nature of the marital laws in their state. However it’s also very likely that an individual passes away with more than one heir and their assets intending to be divided across multiple classes of beneficiaries, such as surviving spouses, children, or even ex-spouses as parents of children from a prior marriage.
If an executor is the sole heir of an estate, it increases the chances that the estate settlement process will qualify for a streamlined or simplified probate. That said, it doesn’t guarantee that all assets were legally titled or held in the appropriate estate planning vehicles to ensure an immediate transfer upon death. In these situations, an estate EIN will typically need to be applied for and used, even if it’s just a matter of submitting to formally open and close the estate with the estate EIN for purposes of passing estate assets through the probate process.
What types of estate assets were left behind?
Some types of assets automatically pass outside of probate, regardless of whether the deceased individual had an effective estate plan or last will & testament. Generally these assets are identified as accounts with beneficiary designation forms, and must typically be completed individually for each account, at each institution the accounts are held.
- Life insurance and annuities
- Retirement accounts such as IRAs, Roth IRAs, 401(k)s, 403(b)
- College savings plans like a 529 account
- Transfer on Death (TOD) or Payable on Death (POD) accounts
It’s important to note that the individual owner is responsible for assigning beneficiaries to these accounts by means of completing beneficiary designation forms. Typically, there will be a primary beneficiary, who is set to receive the asset, as well as a contingent beneficiary which exists to serve as a backup in the event the primary beneficiary has already passed away.
These beneficiaries, or bene’s, don’t have to be sole recipients, as multiple bene’s can be named for either primary or contingent designation. A good example of this would be an individual naming their spouse as the primary beneficiary and their three children as equal contingent beneficiaries. Like most estate planning documents, it’s important for individuals to frequently review their primary and contingent beneficiary designation forms to ensure they are still valid and applicable.
In the event an individual failed to assign a primary or contingent beneficiary, or if all named beneficiaries have pre-deceased the individual, then the assets will fall back under the supervision of a probate court and require an estate EIN by means of probate and intestate law. Likewise, if an individual were to broadly name “my estate” as a beneficiary, then the asset would resultantly pass back into the broader estate and potentially become subject to the probatable assets.
How were each of the assets titled?
From a legal standpoint, ownership can be a lot more nuanced than one would originally think. Contrary to the concept of someone either owning outright, or sharing ownership, there are actually many different ways that an individual can own an asset which resultantly impacts the chain of ownership upon their death.
Some forms of ownership allow for an immediate transfer of ownership after death without the need for probate, and would also not need an estate EIN for administering the asset during the estate settlement process. While state laws vary and sometimes change, a few of the commonly-known ownership forms which can circumvent the probate process are:
- Jointly with rights of survivorship (abbrev: JTWROS) — generally when the first owner dies, then the title of property passes automatically to the surviving owner (hence the name). Keep it mind that it must be clear from the document of title that ownership rights will pass fully to the surviving owner, as opposed to being divided equally.
- Tenancy by the entireties (abbrev: TBE) — this is a term that is used across some states referring to an ownership class reserved for married couples. Under property law, owning assets titled as tenancy by the entities is effectively the same as ‘jointly with rights of survivorship’ and simply means that the surviving owner will become considered the sole owner of the entire asset.
- Community Property — this is another form of joint ownership reserved for married couples, and is only applicable if you live in a handful of states such as Alaska, Arizona, California, Idaho, Nevada, Texas and Wisconsin.
When reviewing ownership of an assets, you’ll need to take a look at the underlying title, deed, or account paperwork to ensure these documents reflect the suggested titling. While community property or even tenancy by the entireties can happen automatically as a process of a law, joint with the right of survivorship is a specific form of joint ownership and must clearly be written on any original asset holder documents. Simply connecting the names of multiple owners with words like “and,” or “or” does not legally establish a right of survivorship.
An example of this might look like: “Abby and Jesse, as joint tenants with the right of survivorship,” or perhaps “Abby and Jesse, as JTWROS”
So what about revocable and irrevocable trusts?
The use of trusts has increased in recent years with the proliferation of financial literacy and affordable access to estate planning guidance. And with good reason as trusts have been used for hundreds of years as a means for directing, or protecting, the transfer of assets in a particular manner after death. While the nuances, caveats, and types of trusts are many in number, it is true that trust assets generally are not subject to probate process and would therefore not fall under the need for creating an estate EIN.
One thing to keep in mind is that simply drafting a trust is not sufficient for achieving this protection. In fact, more times than not individuals draft a trust but forget to fund it with current assets by retitling their ownership, or forget to continually use the trust naming for titling of assets acquired later in life.
In instances where a trust is established, but assets exist in individual name, the assets can still pass into the trust after one’s death through the use of an effective last will & testament, in this case also called a pour-over will, keep it mind that these assets will technically need to pass through probate first before ultimately being funded into the trust. In these situations, an estate EIN would be needed to help facilitate transfer of assets into the trust.
Separately, trusts themselves operate very separate than individual ownership, and therefore require their own tax ID as well. Much like an estate EIN, a TIN stands for a Tax Identification Number as is very similar to an individual social security number in that it exists to track financial activity related to assets held and administered within the trust (and yep, Trust Identification Number would be too sensible).
Finally, much like any asset, trust assets must have named beneficiaries or classes of beneficiaries who will receive the assets upon distribution of the trust. In the event an individual passes away with a funded trust, but of which the beneficiaries are legally considered minors or mentally incapacitated, it is likely that a probate court may get involved to ensure any named trustees or executors are qualified to serve in fiduciary capacity over the assets of the trust.
Realistically speaking, some tolerance for personal belongings
For all other situations, it is very likely that an individual passed away with some level of personal belongings and tangible assets. These items could be as routine as household items, clothing and furnishings, or carry significant value as valuable jewelry, collections or family heirlooms. Technically speaking, probate exists to make sure all assets are fairly distributed, which would also include these personal belongings.
With that being said, most states and territories provide for some means of simplified probate wherein there is exclusion for a nominal amount of personal belongings. While some locations might allow upwards of $30,000 or $50,000, others can be as small as $10,000.
Either way, qualifying for these simplified processes requires demonstrating qualification, which typically involves providing a comprehensive inventory of assets of the estate. Regardless, forms of simplified probate are still considered probate, and will usually also require filing for an estate EIN as documentation unless there are local probate clerks and judges who are willing to work with family members in easing the process when an estate is only comprised of nominal personal belongings and all larger assets are governed to pass by way of other means like title & ownership or jurisdiction outside the domicile of the primary estate.
When in doubt, file for an estate EIN
As you can see, an estate EIN is generally a required step of the probate process and exists to make sure the estate settlement process moves forwards equitably and fairly. That said, there can be particular situations, and perhaps even some locations, where local officials, advisors or situational factors create reason for acting without the filing of an estate EIN.
If you are the executor or personal representative of an estate and question the need for an estate EIN, it is recommended to seek individualized legal advice or to consult with the local probate clerk in the county, state or country overseeing your loved one’s estate to learn more about the specific rules, laws, guidelines and general best-practices that apply to your unique circumstance.
And when in doubt, it’s far better to follow the rulebook by filing for an EIN than to delay the process by not claiming, or worse, ending up in a compromised situation when an estate EIN should have been applied for, but wasn’t.
