For those who are unfamiliar with estate and probate administration, the need for a separate tax identification number can be confusing. Most people are familiar with the idea that when you file your individual tax returns each year, you need to include your social security number (SSN). Your SSN functions as your “Tax Identification Number” for the Internal Revenue Service (IRS). When an individual passes away however, their SSN can no longer be used to report income earned after their date of death. Therefore, one of the first tasks of a Personal Representative (or Executor) should be obtaining the federal tax identification number for the estate.
There are many scenarios where the estate continues to earn income after the decedent’s death. It often takes many months to complete the administration of the estate. During that time, the Personal Representative will need to open a bank account to collect the estate’s assets and pay ongoing administration expenses. The Personal Representative will need the tax identification number for the estate in order to open the bank account. The Personal Representative will also need to request that any investment accounts registered under the decedent’s social security number be re-registered in the name of the estate and the estate’s tax identification number. The estate will be earning income, such as interest accruing on the estate’s bank accounts, dividends paid on stocks or other investments, or rental income from tenants, until the assets are fully liquidated or transferred to the beneficiaries.
Under current federal law, if an estate generates more than $600.00 in income, the Personal Representative must file a separate tax return known as a Form 1041. This is a separate return from the decedent’s final individual tax returns, which also must be filed (under the decedent’s individual SSN) to report the income earned in the calendar year prior to the decedent’s date of death. The estate’s income tax return will report only the income earned after date of death.
Applying for a federal tax identification number, also known as an Employer Identification Number (EIN), is a free service offered by the IRS. If you are working with an attorney to settle the estate, you can provide the attorney with an authorization to obtain the number on your behalf. If you obtain the number without the assistance of an attorney, beware of websites on the Internet that charge for this free service. If you are uncertain about obtaining the tax identification number, use caution and seek the advice of a probate attorney.