[WSBAPT] EIN for CST

[Philip N. Jones]

I'm not sure what you mean when you say that the surviving spouse is the TR.
A credit shelter trust is usually not a grantor trust, and thus it needs its own EIN and it needs to file its own income tax returns (fiduciary income tax Form 1041).  But if it has no income, and no bank accounts, then no returns are needed and no EIN is needed.  But if it sells the house, the title company will require an EIN in order to report the sale proceeds to the trust and to the IRS.
Here is a longer version on this answer:
The Ninth Circuit, sitting en banc, has held that a credit shelter trust is not a grantor trust.  In United States v. DeBonchamps, 278 F.2d 127 (9th Cir. 1960), the Ninth Circuit held that a surviving spouse who had the right to withdraw income, but whose right to withdraw principal was limited by a standard, would be taxable on the income, but not on the capital gains, even though the standard was a rather loose one.  In DeBonchamps, the rights were created by a deed that granted to the surviving spouse an income interest, along with the right to withdraw principal under a standard, with the remainder passing to a remainderman.  Although a trust was not expressly created, the court held that the situation would be taxed as if it were a trust, the grantor trust statutes would not apply, and the capital gains would be taxed to the trust, not to the surviving spouse.  See also, Blattmachr, Gans, and Lo, A Beneficiary as Trust Owner: Decoding Section 678, ACTEC Journal, Vol. 35, No. 2, Fall 2009, which reached the conclusion that the right to withdraw income, combined with the right to withdraw principal under an ascertainable standard, did not trigger grantor trust status under §678(a)(1).
Thus the safest answer seems to be that a typical credit shelter trust is not a grantor trust, and it should obtain its own EIN (employer identification number) and file a separate income tax return, in which case the surviving spouse will be taxed on the ordinary income through the issuance of a K-1, and the trust will be taxed on the capital gains.  This also means that a personal residence held in a credit shelter trust is not eligible for the capital gains exclusion on personal residences provided by §121.  PLR 200104005; PLR 199912026; Reg. §1.121-1(c)(3).
Phil Jones
Portland, OR

Philip N. Jones
Duffy Kekel LLP
900 S.W. Fifth Ave. Suite 2500
Portland, OR 97204
pjones at duffykekel.com<mailto:pjones at duffykekel.com>
(503) 226-1371 - office
(503) 853-1482 - cell
(503) 226-3574 - fax

From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Ken Luce
Sent: Friday, March 12, 2021 1:00 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] EIN for CST

Q:  If a disclaimer credit shelter trust only contains a residence and the surviving spouse is the TR, does the disclaimer trust need a separate ein number? Have situation where one was not obtained and 700k has disappeared.

Ken Luce
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