Gifting to Avoid Nursing Home Costs- Too Many Planning Intentional Impoverishment

Health care costs continue to be a top retirement concern, yet few Americans know about their options or the potential dangers of improper planning. More importantly, the most common "simple" plans compromise, unnecessarily, important goals and objectives due to misconceptions. 

Gifting Assets May Risk Home Health Care 

For example, according to a recent survey of financial advisers by Nationwide Financial, 42% of financial advisers say their clients are currently considering giving away their assets to their children so they can qualify for Medicaid to avoid paying for a nursing home.  There are obviously some circumstances making such gifting appropriate.  But, many Americans do not understand the adverse consequences of relying on Medicaid to pay for their long-term care costs.  

Perhaps the most important of these is that the senior abandons control over their long term care and short term health care planning.  Such a result flies in the face of one of the most important objectives most senior's claim to have, and that is to maintain control of their care.  In fact, according to the  Nationwide Financial survey, maintaining control is the most important aspect of retirement health care planning to most seniors.

Many seniors also underestimate the risks of gifting.  Knowing their children to be responsible and loving, they assume the assets will remain as a safety net for their later needs.  But, what if a child is unfortunate, and suffers economic catastrophe through no fault of their own?  Gifting subjects assets to numerous other risks, such as the claims of creditors of children, loss through divorce or disability, and additional long-term care risks.  Moreover, most seniors have no idea what happens if their children predecease them.  Simply, gifting means, for all intents and purposes, that the senior may never see those assets again, regardless of need. 

Asset Protection Planning- "Keep it Secret; Keep it Safe."

A stark warning to those engaged in asset protection planning comes from Jay Adkisson,  a Partner in the Newport Beach, California, law firm of Riser Adkisson LLP, who practices in the areas of creditor-debtor law, in an excellent article for Forbes Magazine, entitled, "Kilker - Asset Protection Intent In Making Transfers To Protect Against Future Creditors Means Disaster When Creditor Appears." Simply, as the wizard Gandalf instructed the Hobbit Frodo, in Lord of the Rings: "Keep it secret; keep it safe."  Identifying asset protection planning as a purpose of your estate plan is, perhaps, the first step to losing the protection.  

Attorney Adkisson writes:  

"Taking this opinion at face value, the lesson here is simple and commonsensical but is one that is often ignored by planners: Asset protection planning should rarely be undertaken in its own name or for that stated purpose.

If the Engineer here had not admitted that he put this structure in place for asset protection purposes, and to defeat the rights of future claimants who might sue him over soil studies gone bad, then the result might have been very different on this point.

There is rarely a need to announce to the world that something was done for asset protection purposes, to call something an “asset protection trust”, to send an “asset protection” engagement letter, or any of the like. Yet, bad planners and do-it-yourselfers do it every day.

To the contrary, asset protection planning should almost exclusively be undertaken for some other purpose than creditor planning.  Do it for estate or succession planning reasons, do it for general business or financial planning reasons, do it for health reasons, do it because you’re trying to look out for an heir, but don’t state that you’re doing it for creditor reasons. (emphasis added).

There is great risk in boldly and publicly identifying an estate, business or financial plan as an asset protection plan.  Yet the market is replete with estate plans employing documents entitled "Asset Protection Trusts," or which have other, often imposing, titles such as fortress Trusts," or "The Castle Plan."  Perhaps my personal favorite is the "Complete Asset Protection Plan," which I reviewed for a client that had transferred only the personal home and a single bank account to the dubious plan, thereby rendering the supposed benefits of the plan far less than "complete." 

Proper asset protection is not easily accomplished, and it is easily lost.  If you want to incorporate asset protection planning in your estate, business, or financial plan, you are best advised to seek, and maintain a relationship with an attorney.  From conception to development, and through implementation of the plan, care must taken to ensure that the plan is as carefully protected as are the assets.  Finally, proper use of the plan as a shield requires counsel regarding presentation of the plan.

"Keep it secret; keep it safe."  It sounds simple, but it isn't.  If your assets are important enough for you to want a plan to protect them from risk of loss, they are important enough to ensure that the plan is properly drafted and implemented. 

Most Men Unaware that Early Retirement Adversely Impacts Their Spouse's Social Security Benefits

According to a recent study released by the Center for Retirement Research at Boston College (http://crr.bc.edu), most men begin drawing on their Social Security retirement benefits at age 62 or 63, rather than waiting until their full retirement age or even age 70.  The early receipt of benefits means that both the husbands and their wives will receive less each month than they would if they waited.

According to the study, written by Steven A. Sass, Wei Sun and Anthony Webb, this early election has no effect on average on the men.  On average, though men will receive a smaller benefit check each month, this will be offset by the checks they receive between the ages of 62 and normal retirement age.  Because this is based, on average, there are obviously exceptions.  For example, men who are in ill health would do better to take early retirement and men who expect to live a long time should postpone their receipt of benefits for as long as possible.

The same statements also hold true for single women, meaning on average they do about as well in terms of lifetime Social Security benefits no matter whether they start earlier and get more smaller checks or start later and receive fewer larger checks.

But for today's seniors, most wives' benefits are based on their husband's work record.  If husbands choose to take benefits before the full retirement age, their wives are penalized twice -- first while their husband's are alive when they get a reduced benefit, usually half of the husband's benefit, and second when the husband dies (which often happens due to women's greater life expectancy) when they receive their husband's benefit rather than their own.

If these decisions were based upon informed appreciation of the adverse impact upon the spouse's benefits, perhaps we could dismiss them as simple life choices. The researchers conclude, however, that they are not, that instead most retiring men simply don't understand the implications of claiming benefits early.  More education may change their behavior, although the researchers note that "financial education has not been especially effective in changing behavior." As an alternative, they suggest a number of potential policy changes, such as requiring spouses to sign off on the decision to claim Social Security before the beneficiary's full retirement age.

Interestingly, while the Social Security Administration's Web site (www.ssa.gov) has a number of excellent calculators to assist beneficiaries in deciding when to retire, none appear to calculate spousal benefits.  Based on the Boston College report, adding such calculators would be a good first step.

To read the report, go to:  http://bit.ly/10PhPBr.

Avoiding the Nursing Home - New Technologies Help Keep Seniors Safe and Healthy at Home

eNeighbor® Remote Monitoring System by  Healthsence®

A recent New York Times article explains how new technology is being used to help ensure the safety and health of elderly individuals who live at home. One such technology, called  “eNeighbor,” a system of sensors that are placed all over the home, is used to monitor the movements of elderly citizens and alert emergency responders if any non-typical movements occur, or if usual movements do not occur. The article relates the story of Bertha Branch to illustrate how eNeighbor works. Bertha is 78 and lives alone in her home. One morning, a wireless sensor under her bed detected that she had gotten out of bed, but other sensors in the house registered that she had not been to any of the other rooms in the house, including the bathroom attached to her bedroom. After it became clear that either Bertha was standing in the same spot when she normally would have already visited her bathroom or had fallen, eNeighbor system made phone calls to neighbors, family, and finally to 911. When firefighters arrived, Bertha had been on the floor, where she had fallen and found herself unable to get up, for less than an hour.

Other systems are used to remind and assist people in checking their vitals each day. The same machine can assess and record your weight, blood pressure, temperature, and send all of the information to a monitoring program. If your vitals show evidence of a risk to your health, a nurse from the monitoring program will call you and ask that you see your doctor right away. These, and other technologies also remind you to take medications, and ask questions that prompt new instructions. Machines may, for example ask questions like: “Are you experiencing more difficulty breathing today?” or “Are your ankles more swollen than usual?”

Of course, technologies like eNeighbor are new and unproven. They are also often expensive and are not yet covered by government benefits or private insurance plans. Doctors are also not yet trained to treat patients using remote data, and currently have no mechanism to be paid for doing so. And like all technologies, the devices — including motion sensors, pill compliance detectors and wireless devices that transmit data on blood pressure, weight, oxygen and glucose levels — may have unintended consequences, substituting electronic measurements for face-to-face contact with doctors, nurses and family members. 

But as similar technologies become more mainstreamed and dependable, they could be used to help ensure a higher quality of life for elderly citizens who live at home, and could allow them to stay at home much longer than they would have been able to before such technology existed.

Real the full New York Times article.

Reverse Mortgages Are Causing Some Homeowners to Lose Their Homes

A reverse mortgage can be a great tool in the right circumstances, but if you aren't careful you could end up losing your home. A recent front-page article in the New York Times lays out some of the problems homeowners are encountering with these mortgages.

You must be 62 years or older to qualify for a reverse mortgage, which allows you to use the equity in your home to take out a loan. The loan does not have to be paid back until you sell the house or die, and the loan funds can be used for anything, including providing money for retirement or to paying for nursing home expenses.

It all sounds like a no-lose proposition, but there are downsides. For example, these loans carry large insurance and origination costs, they may affect eligibility for government benefits like Medicaid, and they are not ideal for parents whose major objective is to safeguard an inheritance for their children. There also have been complaints about aggressive marketing techniques.

In addition to these drawbacks, the Times points out two more important potential pitfalls:

• Pay attention to whose name is on the mortgage. When purchasing a reverse mortgage, be sure to put both spouses' names on the mortgage. If only one spouse's name is on the mortgage and that spouse dies, the surviving spouse will be required to either pay for the house outright or move out. This might happen if only one spouse is over 62 when the mortgage is signed. According to the Times, some lenders have actually encouraged couples to put only the older spouse on the mortgage because the couple could borrow more money that way.

• Watch out for a lump-sum loan. Usually reverse mortgages come in a line of credit with a variable interest rate. This allows homeowners to take money only when they need it. According to the Times,some brokers have been pushing lump-sum loans because the brokers earn higher fees. The problem is these loans have a fixed interest rate. The interest charges are added each month, so that over time the total amount owed can surpass the amount of the original loan.

The Consumer Financial Protection Bureau, which was created in the wake of the mortgage crisis in part to scrutinize consumer mortgages, is working on new rules to better regulate reverse mortgage lenders and provide disclosures to seniors.

To read the New York Times article about reverse mortgages, click here

Single? You Still Need an Estate Plan

Many people believe that if they are single, they don't need a will and other estate planning documents. However, estate planning is just as important for single people as it is for couples and families.

Estate planning allows you to ensure that your property will go to the people you want, in the way you want, and when you want. If you do not have an estate plan, the state will decide who gets your property and who will make decisions for you should you become incapacitated. An estate plan can also help you save on estate taxes and on court costs for your loved ones.

The most basic estate planning document is a will. If you do not have a will directing who will inherit your assets, your estate will be distributed according to state law. If you are single, most states provide that your estate will go to your children or to other living relatives if you don't have children. If you have absolutely no living relatives, then your estate will go to the state. You may not want to leave your entire estate to relatives -- you may have close friends or charities that you feel should get something. Without a will, you have no way of directing where your property goes.

Many single people have significant others, perhaps with whom they live.  Unfortunately, without a will, it is unlikely that any of your estate will benefit your significant other, even if you live together.  Moreover, your significant other may lose important real or personal property, creating great hardship.  At a minimum a simple will can resolve some of these issues.

If you are single and have a child, you may be initially comforted by the fact that your estate benefits your child upon your passing.  What may concern you, however,  is that without an estate plan, you can't be sure who manages the estate you leave to your children.  Often, the determination of who manages your estate makes a difference in whether the assets are best managed for the benefit of your child.   

The next most important document is a durable power of attorney. A power of attorney allows a person you appoint -- your "attorney-in-fact" or "agent" -- to act in your place for financial purposes when and if you ever become incapacitated. In that case, the person you choose will be able to step in and take care of your financial affairs. Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer.

In addition, you should have a health care proxy. Similar to a power of attorney, a health care proxy allows an individual to appoint someone else to act as their agent, but for medical, as opposed to financial, decisions. Unlike married individuals, unmarried partners or friends usually can't make decisions for each other without signed authorization.

If you are planning to give away a lot of your money, there are ways to do that efficiently through the annual gift tax exclusion and charitable remainder trusts. Other estate planning documents to consider are a revocable living trust and a living will.

Don't think that because you are single, you don't need an estate plan. Contact your elder law attorney to find out what estate planning documents you need.

Live Up to Your Commitment to the Nursing Home, or Beware

A recent Connecticut case highlights the risk to family members of nursing home residents who don't live up to their financial commitments to such facilities.

When her mother was admitted to the Cook Willow Health Center, Judy Andrien signed an admission agreement on behalf of her mother as "responsible relative," agreeing to take steps to ensure that the nursing home would be paid from her mother's assets or by Medicaid.

The facility sued Ms. Andrien, claiming that she did not live up to this commitment. Ms. Andrien asked the court to dismiss the case, arguing that she cannot be held liable because she did not agree to use her own funds to pay for her mother's care.  

The Superior Court of Connecticut has ruled in the facility's favor, stating that the claim is not that Ms. Andrien personally guaranteed payment, but that she is in breach of contract for not using her mother's funds to pay the nursing home or taking steps to get her mother Medicaid coverage. The court's ruling means that the case will continue to trial on the nursing home's claim, which it still must prove.

Nursing Homes Overcharge Medicare More than One Billion Dollars Annually

Hundreds of nursing homes overcharge Medicare every year for so-called skilled services, adding $1.5 billion in annual costs to the program, according to a federal report.  About one-fourth of Medicare bills from facilities examined in the report were incorrect. The majority of these claims involved  "upcoding," where a nursing home or other provider inflates the cost of its bill to Medicare by claiming more intensive services were done than actually performed.

 In other cases, nursing homes provided treatments that were inappropriate for the patient.  Documents show that facilities billed for high-intensity work, such as speech therapy and occupational therapy, that went to patients who couldn't benefit from it. One patient under hospice care refused physical therapy but was given the therapy anyway, and Medicare was billed, officials said.

The report was prepared by the The Office of Investigations (OI), which  conducts criminal, civil, and administrative investigations of fraud and misconduct related to Health and Human Service programs, operations, and beneficiaries.  OI utilizes its resources by actively coordinating with the Department of Justice and other Federal, State, and local law enforcement authorities.  The investigative efforts of OI often lead to criminal convictions, administrative sanctions, and/or civil monetary penalties.

In recent years, the Office of Inspector General had identified a number of problems with billing by skilled nursing facilities (SNF), including the submission of inaccurate, medically unnecessary, and fraudulent claims.  Further, the Medicare Payment Advisory Commission has raised concerns about SNFs’ improperly billing for therapy to obtain additional Medicare payments.  In fiscal year (FY) 2012, Medicare paid $32.2 billion for SNF services.

The Report made a number of recommendations.  Recognizing that the Centers for Medicare & Medicaid Services (CMS) had recently made several significant changes to SNF payments, the Report stated that    "more needs to be done to reduce inappropriate payments to SNFs."  Accordingly,   it was suggested that   CMS:  (1) increase and expand reviews of SNF claims, (2) use its Fraud Prevention System to identify SNFs that  are billing for higher paying services, (3) monitor compliance with new therapy assessments, (4) change the current method for determining how much therapy is needed to ensure appropriate payments, (5) improve the accuracy of Minimum Data Set items, and (6) follow up on the SNFs that billed in error.  CMS concurred with all six recommendations.

A Minnesota probate court rules that language in the state's constitution that prohibits all people under guardianship from voting violates the United States Constitution and is therefore invalid.  In re Guardianship of Erickson(4^th Jud. Dist. Ct., Minn., No. 27-GC-PR-09-57, Oct. 4, 2012).

Brian Erickson was placed under guardianship in 2009 because he suffers from schizophrenia and dysthymia with psychotic tendencies that make it difficult for him to perform many activities of daily living.  In July 2012, Mr. Erickson's guardian filed a petition with the Hennepin County Probate Court seeking a declaratory judgment clarifying that people under guardianship retain the right to vote unless a court order removes that right. 

The petition was filed because there is a conflict between Minnesota Statute 524.313, which states that "unless otherwise ordered by the court, the ward retains the right to vote," and Article VII of the state constitution, which explicitly states that all people under guardianship are not allowed to vote.  Mr. Erickson attempted to reconcile these two provisions by claiming that since the state constitution did not define guardianship, the legislature could "effectuate the constitutional mandates" by passing statutes that limited the state's ability to disenfranchise people under guardianship.

Actor Sherman Hemsley Remains Not Laid to Rest as Legal Dispute Continues

Sherman Hemsley died at his home in El Paso, Texas on July 24. But three months on, the star of the CBS series “The Jeffersons” has yet to be laid to rest as the beneficiaries of his will, and even his cause of death, have been called into question.

A worker at the Eastside location of the San Jose Funeral Home in El Paso, Texas confirmed that Hemsley was still at the home, and that they were waiting for a court order telling them what to do with his body.

It was revealed in August that Hemsley’s body had not been buried amid a legal dispute between his former manager and self-proclaimed business partner and live-in best friend Flora Enchinton – who was named as the sole beneficiary in his will – and a Philadelphia man, Richard Thornton, who claims to be the actor’s brother. Thornton filed a civil lawsuit disputing the validity of the will, signed by Hemsley one month prior to his death.

Read more: http://www.foxnews.com/entertainment/2012/10/29/sherman-hemsley-still-not-buried-3-months-after-death-bizarre-legal-dispute/?intcmp=features#ixzz2Ai8pneZS

Things to Consider Before Retiring Abroad

Retiring to another country can be a very attractive option. Lower cost of living and health care expenses along with exotic locales and temperate climates persuade many seniors to retire outside of the United States. If you want to ensure a smooth transition, however, there are many issues to consider and steps to take before packing up and moving.

Local Laws 

You should familiarize yourself with the local laws, and should seek professional legal advice before settling abroad.  Determine whether your trust, will and powers of attorney are legally enforceable in your country of destination.  If not, you will want to draft and implement legally enforceable planning documents.  Some documents, such as health care powers, even if enforceable, may be more practically accepted locally if in the form and format common among the local population. Specific legal advice is necessary and advisable.

In addition to your lawyer in the United States, the U.S. embassy or consulate can provide you with a list of local English-speaking lawyers willing to assist U.S. citizens.  Especially in local real estate matters, it is important to understand any contracts you are asked to sign. Review the local traffic laws and licensing requirements if you intend to drive.  Some countries have a changeable political environment with different legal systems than you are accustomed to.  Be sure to find out what civil liberties and political rights you will have as a foreign resident.

Bank Accounts 

One of your first considerations should be where to keep your money. When you move abroad, you will most likely need to open a bank account in the new country in order to pay local bills. Opening a bank account in a foreign country can be difficult because of the Foreign Account Tax Compliance Act (FATCA), passed in 2010. The law requires banks to disclose data on American clients to the IRS, and many banks are refusing to accept clients from the United States because they don't want to deal with the requirements. Your best bet may be to look for a big bank that has routine dealings with the United States.

Once you have a bank, you will need to consider how much money you want to put into the local account as well as the best way to transfer money into the local currency.  If your money remains in a U.S. bank and the exchange rate changes suddenly, the value of your money can change drastically. Another option is a foreign exchange specialty firm that may be able to provide you a fixed rate for transferring money. Before moving, you should consult with a financial planner to determine the best way to protect your money.

Currency Exchange 

Navigating currency markets is an often unexpected and complicated consequence of retiring abroad.  Hidden foreign-exchange fees are, according to some, the No. 1 culprit in dwindling your hard-earned retirement savings in another country. Exposure to the volatile currency markets on a daily basis can add up quickly in the form of unwanted fees.

The first such fee is what's known as a transfer fee, which can cost $15 to $100 per transfer of money to the foreign location of your choice. If there are regular transfers on a monthly basis, those fees will rapidly add up.  But the biggest expense factor can be the exchange rate itself.  Currency specialists, such as USForex offer tools and calculators to structure and protect nest eggs against currency exposure.  But you will want to shop local services and solutions, because these may prove more or less expensive.  Be careful, though, because unexpected and undisclosed costs are, sadly, common in the currency exchange industry.

Reporting

The United States wants to prevent citizens from hiding money in overseas bank accounts, so there are special reporting requirements. If you have $10,000 or more in a foreign bank account you will have to fill out an annual Report of Foreign Bank and Financial Accounts (FBAR) with the Department of Treasury. FATCA (see above) also has its own reporting requirements. If you are married and have a foreign account with more than $400,000 at the end of the year (or more than $600,000 at any time during the year), you will need to file a special form with your income taxes. If you don't comply with the requirements, you could face stiff penalties.

Taxes

Moving to another country doesn't mean you don't have to pay taxes in the United States anymore. All U.S. citizens have to pay taxes, regardless of where they live, and if you still have a residence in a U.S. state, you may also have to pay state taxes. In addition, you will likely have to file a tax return in the country you are living in. If you pay taxes to a foreign country on a source of income and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for the foreign taxes paid. For more information, click here.  It is important to consult with a tax professional who is familiar with taxes in the country you are moving to.  

Investments

You may want to invest some money in the local currency so that your assets keep pace with cost-of-living increases. Having investments in the currency of the country you are living in also protects the value of your investments from drops in the value of the dollar.

Real Estate

Purchasing real estate is not always straightforward in another country. Before deciding to buy, it is important to understand the rules of the country you are moving to. For example, in Mexico foreigners are prohibited from owning property within 31 miles of the coast, so property is often held inside corporations or trusts, which can create tax issues for U.S. citizens. In addition, there may also be different inheritance laws that could affect property. For example, in France children have priority over a surviving spouse.

Health Care

Most countries have a national healthcare system that covers all residents, and monthly premiums are often less than $100. It’s relatively easy to become a resident of another country, which typically involve proving you’ll have at least a modest amount of income, perhaps $1,000 a month.  Traditional Medicare does not provide coverage for hospital or medical costs outside the United States, so if you are retiring in another country, you will need to purchase health insurance from another source.

Quality of health services varies, so research carefully, especially if you have medical problems. Even in countries with well-rated health care systems, the best services are centered around metropolitan areas.  Emergency care and emergency response time may be important considerations when considering the idyllic village off the beaten path.  

Regardless, Medicare may remain an important part of your health care plan, however, because If you return to the United States, you will still be covered by Medicare Part A, which covers hospital stays.  Unless you paid the premiums for Medicare Part B while you were away, however, you may have to pay a penalty to enroll in Medicare Part B. Of course, you could continue to pay the Part B premium.  For more information about Medicare while traveling or living overseas, click here.

Safety and Security

Consider carefully safety and security issues too. Use the State Department’s Retirement Abroad advisory for information for country-specific reports on crimes, infrastructure problems and even scams that target Americans abroad.

Retirement funds are an attractive target for charlatans and scammers who make false promises of romance, friendship, or financial gain.  Scammers operate primarily through the Internet, email, and phone, but personal targeting at airports, bus stations, and market places are also common.  For more information,  review the State Department's information on International Financial Scams. Information on scams common in your destination country can also be found in each country's Country Specific Information.

Accessibility and Accommodations

If you have mobility difficulties or use a wheelchair, determine access to areas such as swimming pools, public facilities, restaurants, bars, toilets, etc.  Determine if shopping and entertainment are accessible.  For more information, check out the State Department's section on Traveling with Disabilities. 

Prepare for Emergencies

Leave emergency contact information and a copy of your passport biographic data page with family and trusted friends.  Carry emergency contact information for your family in the United States with you when you travel (be sure to also pencil it in the emergency contact information section of your passport).  Know the contact information for the nearest U.S. embassy or consulate and provide that information to your family and friends.  If there is an emergency where you are staying, such as civil unrest, disrupted transportation, or a natural disaster, prevent undue worry or concern by contacting your family and friends as soon as possible.

A secure way to maintain your emergency contact information is to enroll with the Smart Traveler Enrollment Program.  Your information is stored securely and enables the Department of State, U.S. embassy, or consulate to contact you, your family, or your friends in an emergency according to your wishes.  

For more information, consider International Living's "Best Places to Retire."   AARP also writes about retiring abroad and Expatinfodesk.com publishes relocation guides.

Updated 4/1/2015

Sorting the confusion between SSNs,TINs, ITINs, and EINs

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If you are confused regarding taxpayer identification numbers, don't feel bad.  Although they are rather straight-forward and it is "technically" clear which you need in a particular situation, they are nonetheless confusing to lay persons, and even professionals that do not routinely apply for assignment of these numbers.  

Just the term Employer Identification Number (EIN) creates confusion, since it is not limited to just employers.  In fact, for this very reason, some financial companies. brokers, and insurance companies will not, on their forms, refer to an EIN, using instead the term Taxpayer Identification Number (TIN), when they clearly are requesting the former and not the latter.  Why?  The only explanation is that they know that your trust, for example, isn't an employer, and you will become confused that the request doesn't pertain to your trust.

There is another example of this type of practice regarding warning on tanks and tank trailers. "Flammable," right?  Well, except for the fact that there is, or at least was, technically no word, "flammable!" The correct word is "inflammable."  To avoid confusion, manufacturers use the "wrong" word rather than the "right," and for good reason- we wouldn't someone pounding, heating, or setting ablaze a tank that was labeled "inflammable," thinking incorrectly that it wouldn't burn or explode, right? In that same way, financial services companies use a more common reference Tax Identification Number rather than Employer Identification Number to "avoid" confusion. 

So let's see if we can clear any confusion.

What are Tax Identification Numbers? 

For the IRS to conduct its business, it must have an easy way to identify each individual, trust, and business or non-business entity. To do this, the IRS requires each individual and entity to have a Tax Identification Number. While most individuals use their Social Security Number (SSN) for filing taxes, most businesses and non-business entities, like trusts, must have a special tax identification number instead.

Please note that  we are referring generally to tax identification numbers.  There is a specific Taxpayer Identification Number (TIN) which the Service usually designates as (ITIN) for "Individual" Taxpayer Identification Number.   

SSN, ITIN or EIN: What’s the Difference?

There are three main categories of tax ID numbers: Social Security Numbers (SSN), Employer Identification Numbers (EIN) and Individual Taxpayer Identification Numbers (ITIN).  SSNs and ITINs are used for individuals. Generally, the ITIN is for those not eligible for an SSN, such as non-resident aliens or resident aliens not yet eligible for a social security number. 

For businesses and non-business entities, like trusts, the EIN is the most important tax identification number. Despite the name including "employer," it suits all businesses, or non-business entities such as a trust, even those with no employees. 

So one of the biggest clues what you need is "to what are you referring as the owner or beneficiary of the asset, account, or benefit?"  If you are referring to a trust, use the EIN for the trust.  

The trust usually uses your social security number if you are the Settlor/Grantor of a revocable trust.  When the trust qualifies as a "Grantor Trust,"  it is a disregarded entity which uses the Grantor's social security number.   

If the Trust is irrevocable, the trust may have a separate EIN, so you will need to either: 1) refer to the Certificate of Trust which will identify the EIN; or, 2) ask your attorney or accountant that obtained the EIN. Most attorneys make clear on the Certificate Trust is the irrevocable trust is treated by the IRS as a separate entity requiring an EIN, and typically will obtain one for the trust. 

Tax ID Numbers for Businesses

Most businesses require a special tax identification number for their filings with the IRS. Many other legal documents for businesses, including loan applications, bank account applications and permit applications, also require a tax identification number. Therefore, one of the first actions to take after setting up your business is to apply for an EIN.

Are There Exceptions?

There are cases in which business owners can use their own social security number rather than an EIN for filing taxes for their business. The two exceptions are sole proprietorships and certain LLCs, as long as the LLC does not have any employees. In these cases, the business owner can use his or her SSN in place of the EIN. However, even sole proprietors might need a EIN under certain circumstances, such as for excise tax returns or pension filings.

You have your choice of business structure, which might impact what type of Tax Identification Number you need. Start your tax ID application to receive your EIN number by filling out the form here. Alternatively, complete a sole proprietorship application and use your social security number instead. Our support team is available 24/7 to assist you with any questions you might have about filing these applications.

Do I Need an ITIN or Social Security Number to Get an EIN?

There are ways to get an EIN for your company without having either a Social Security number or an ITIN, but in most cases, you do use those other tax identifiers in your application. That’s because the IRS does require the person who takes responsibility for the registration to have one of these. If you do not have either identifier, you have two options.

• File for either a SSN or ITIN before applying for an EIN so that you can be listed as the point of contact for the company.
• Engage an accountant or lawyer willing to act as that contact for the company and submit their information so they can receive paper records regarding your EIN.

What Are the Differences Between a SSN and an ITIN?

The main difference is that the Social Security number is for those who are eligible for Social Security benefits, either at retirement or in the event of a disability. For residents of the U.S. and non-residents who own businesses in the country, the ITIN provides and individual tax identification option outside of Social Security. This is an important avenue for those who do not qualify for a Social Security number.

Can I Use a Tax ID Number for More Than One Business?

Generally, no. If your business needs its own EIN for any reason, you need to use a unique one that is just for that entity. Entrepreneurs with multiple companies they own as the sole owner, either through sole proprietorship or a single-member LLC, might have the option of lumping all their business taxes under one tax return by using their Social Security numbers and filing with Schedule C. Even then, if any of those businesses hire employees or seek bank loans, they will need their own EIN, and they will not be able to share.

Still Confused?

Your attorney or accountant will usually help you quickly identify and locate the correct number.  Rather than create additional work later, we suggest that clients fax or email the forms they are completing with an indication what they are trying to accomplish.   We usually will simply insert the correct "number" and send it back for completion.  Regardless, if you are confused, ask for help!

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