When someone dies, their assets become the property of their estate. Then, the estate goes through a legal process called probate. Probate pays off creditors and distributes the estate’s remaining assets to heirs as dictated by the deceased person’s will or by state law.
To complete this process, you may need a tax ID number to open a bank account for the estate of the deceased person. This is called an employer identification number (EIN).
To help you out, this guide explains the process. It outlines when you need an EIN for an estate and how to obtain one. Here’s what you need to know if you’re handling an estate.
1. Decide if the estate needs to go through probate.
Most estates go through probate, but there are exceptions. The estates of people with very modest assets or with only joint assets often don’t need to go through probate. For instance, if someone owns property jointly with their spouse and has a single vehicle under a certain value, their estate may not need to go through probate.
In other cases, people use trusts to shield their assets from the probate process. When this happens, the trust owns the deceased person’s assets after their death. By extension, their assets never pass to their estate, and thus, probate is not necessary.
2. Start the probate process.
Before you can apply for an EIN for the estate of a deceased person, you need to start the probate process. The process varies slightly from area to area, but generally, you just need to file a probate petition with the courts in the county where the deceased person resided.
You will also need to provide the courts with the person’s death certificate and a copy of their will. The will often names someone to be the executor of the estate. In the absence of a named executor, the courts will appoint an administrator. Generally, this person applies for the EIN and handles the other issues related to the estate.
3. Decide if the estate needs a bank account.
If you’re the estate executor, you will be responsible for handling the finances of the estate. In most cases, this requires a bank account. You will use the bank account to accept payments to the estate and to make payments from the estate.
For example, if the deceased person owned rental properties, the renters’ payments may go into the account. Similarly, if you need to pay off credit cards or other debts on behalf of the deceased person, you can also use the account for that.
The account will be in the name of the estate. Generally, this includes the deceased person’s name. For instance, if their name is John Smith, the account holder’s name will be “the estate of John Smith.”
However, the bank will also need a tax ID number for the account. You cannot use the Social Security Number of the deceased. You must obtain a unique number for the estate. This is where the EIN comes into play.
4. Determine if the estate needs to file a tax return.
You should also determine if the estate needs to file a tax return. Generally, if the estate earns more than $600, it needs to file a tax return. In this case, you also need an EIN for the estate, whether or not it needs to open a bank account.
5. Apply for the EIN for the estate.
Before you open the bank account or file a tax return, you will need to apply for an EIN for the estate of the deceased person. Luckily, this is a fairly straightforward process, and in most cases, you can apply for an EIN for an estate of a deceased person easily online.
To apply for an EIN, you need the following details:
● Your name, Social Security or tax ID number, address, and phone number.
● The type of entity — There are many options, but you should mark “estate”.
● The Social Security Number of the deceased person.
The online EIN application is designed to be used by many different types of entities including businesses, trusts, and non-profits. As a result, it may ask some questions that are not relevant to getting an EIN for an estate. If you see questions about the number of employees or estimated employment tax, don’t worry about those questions. In the very rare situation that the estate will be employing someone, provide answers to those questions.
6. Give notice.
Once you have the EIN for the estate, you can start to wrap up the probate process. You need to give notice to creditors that the estate is in probate. Often, this requires you to publish something in the paper. Every county has slightly different guidelines. Ask the courts for the requirements in your area.
7. Wrap up the estate.
After creditors have a chance to come forward and claim their funds, you can wrap up the rest of the estate. Basically, you just need to pay any remaining bills. Then, you can distribute the assets from the estate.
Once again, the estate’s assets should be distributed based on the wishes of the deceased person as outlined in their will. However, if the deceased person didn’t have a will, their assets will be distributed based on the intestacy laws in their state. These laws simply outline the order in which relatives receive assets from an estate.
If required, you will also gather the information to file a tax return for the estate. Then, you will close the estate. At this point, you no longer need the EIN for the estate. Once you close the bank account and file the tax return, the probate process is complete.
Taking care of an estate can be an emotional process, especially if you were close to the deceased person. You may want to get help from someone who understands this process and can answer your questions. Alternatively, there are many online resources that can help you navigate probate, tax IDs for estates, and other elements of handling an estate.