When did an irrevocable Trust EIN requirement become effective?: My deceased sister has a trust which has become irrevocable. Our parents passed away approximately 22 years ago and we didn't need a EIN. Curious when that requirement became effective.
Stewart’s answer:
I believe EINs were authorized all the way back in 1954 under the Tax Code in place at that time.
The purpose of the EIN is to identify the taxpayer (in your case the irrevocable trust) and to provide a unique number for filing required tax returns (a 1041 tax return would likely be required for the irrevocable trust).
When a trust becomes irrevocable, it stands alone as its own entity, which requires a unique number (an EIN) to be assigned for tax identification and reporting requirements. That's the primary purpose. I'm curious why one was not required for your parents' trust after they passed (assuming they had a trust).
In L.A. County, on the Probate Case Coversheet (POS-010) filed with a Heggstad Petition, what do I check for "TYPE OF ACTION"?:
I am the successor trustee to my mother's living trust. My mother passed away three months ago but hadn't transferred title to a property named in the Trust's schedule of assets.
I've researched this, and I'm about to file a Heggstad Petition in Los Angeles Superior Court. Along with the Petition, I understand I need to file the Probate Case Coversheet (POS-010). On that form, I have a couple questions:
(1) Under "TYPE OF ACTION," do I check the box for "Petition -- Trust/Pursuant Prob Code Sec 17200 (Initial)" or "Other Probate matter (specify):" or something else?
(2) For Step 5, do I check the box for "Decedent" or for "Other:" where I'd fill in "Successor Trustee." Then, if I'm supposed to check the "Decedent" box, what do I fill in for my mother's contact information. It seems strange that a form would ask for contact information for someone who's deceased.
Stewart’s answer: My suggestion would be to check next to the box "Other petition" under Miscellaneous Civil Petition. Best of luck to you.
Please explain why being grantor and trustee of a trust loses protections?:
"If you have the ownership (as the grantor) and the management (as the trustee), you generally lose the protections that can be in place with trusts." --
I thought only if trustees are the beneficiaries then the protects are lost. If trustees are making decisions for the beneficiaries, then why does it matter where the "assets" came from since grantors "grant" ownership rights to the trust upon creation?
Stewart’s answer:
As I understand your question, you are wanting to know whey a Settlor (trust creator) who contributes his/her own property to a trust loses protection from lawsuits or judgment against the trust assets.
The law does not allow a person to create a trust, put their own assets in that trust, and then tell the world "you can't collect in a lawsuit against me because I have no assets--my trust owns all the assets." A trust by its nature is revocable by the trust creator. And even if the trust creator creates a self-created irrevocable trust, the court's will easily unwind the trust to pay creditors or judgment creditors.
Now, it's a different story if a trust creator creates a trust, that has a valid spendthrift clause, which also names Irresponsible Son a beneficiary. In that case Irresponsible Son's creditors and judgment creditors are generally unable to get access to Irresponsible Son's beneficial interest in the trust. Most of these types of trusts permit the trustee to suspend any and all distributions to Irresponsible Son if creditors come looking for money owed to them.
So, you can see that a person cannot create a Trust for themselves, put their own property in that Trust, and be protected from creditors. Whereas, on the other hand, a beneficiary of a Trust (who did not create the Trust) that has valid provisions protecting the beneficial interest from creditor's claims is generally permitted.