Trust and Estate Counsel

Tennessee Estate Planning Law

Insight and commentary on estate planning issues impacting affluent residents of Tennessee

Tennessee Now Recognizes Grantor Trusts

Prior to this year, all Tennessee trusts were required to file annual Tennessee income tax returns. This includes garden variety revocable trusts as well as irrevocable grantor trusts that use the grantor's social security number as their EIN.

Fortunately, the Tennessee legislature decided to solve this problem. Public Chapter 480 now allows grantor trusts to avoid filing a Tennessee income tax return. Instead of filing a return, the trustee must report the trust income to the grantor so that the grantor may include it on the grantor's personal Tennessee income tax return. In order to take advantage of this simplified filing procedure, you must use the grantor's social security number as the EIN for the trust. The Internal Revenue Service regulations allow revocable and irrevocable grantor trusts to use the grantor's social security number as their EIN if certain procedures are followed. We routinely recommend this approach, because it avoids the need to file a federal income tax return for the trust. Now, it will also avoid the need to file a Tennessee income tax return.

Even though the IRS regulations have allowed irrevocable grantor trusts to use the grantor's social security number as their EIN for approximately 15 years, there are numerous financial institutions that will attempt to make you obtain a separate EIN for any irrevocable trust, whether or not it is a grantor trust. I occasionally have to show the IRS regulations to these financial institutions, and I have to overcome some very strong misinformation that has been in the marketplace. If you encounter a financial institution that refuses to open an account without a separate EIN for the trust, let them know that several of their competitors permit what is allowed by the IRS regulations.