{Read in 5 Minutes} As a Trusts and Estates attorney, I routinely represent the Executors of Estates. Part of being an Executor means that you need to communicate frequently with the beneficiaries of an Estate. It’s important to keep them updated (when the Surrogate’s Court admits the Will to probate, and how long the administration of the Estate is taking, and of course, as every beneficiary wants to know, when are they going to get paid?). These communications may come from the Executor themselves, or they may come from their attorney.
Sometimes, an Executor must request a beneficiary’s Social Security number. Given the increasing cases of identity theft in recent years, this request is, of course, something that may cause the beneficiary to raise an eyebrow. Why is the Executor asking for this information? Will the Executor keep it secure? Is it even necessary at all, if all the Executor needs to do is write me a check?
These are all legitimate questions for the beneficiaries to ask. However, there are some times that an Executor will legitimately need this information because they are required to provide it for tax reporting purposes. Here are some examples of when this might occur:
1. If the Estate must file an estate tax return.
If the beneficiary is required to file an estate tax return, the Internal Revenue Service requires that the Executor list the Social Security number (SSN) or Taxpayer Identification Number (TIN) of any beneficiary receiving more than a certain amount. (As of the date of this article, $5,000.) For beneficiaries who are curious, here is the return (as of the date of this article, the request for beneficiary Social Security numbers is on the second page).
2. If the beneficiary will receive a distribution of income from the Estate.
While in general, an inheritance is not subject to US income taxes under most circumstances, there are some exceptions to this rule, particularly if the Executor is collecting income (such as rental payments, a retirement account payable to the Estate, the Estate collects income related to intellectual property such as royalties, or if the estate assets are earning income prior to the Executor distributing them.) The Executor will need to file a fiduciary income tax return, on which the Executor must disclose to the IRS all of the income that the Estate has received. And if they have distributed that income to the beneficiaries, the Executor has to disclose the beneficiary’s Social Security number to the IRS.
The beneficiary will then receive a form known as a K-1, which the beneficiary would then give to their tax preparer to report these income distributions on their personal returns.
3. If the beneficiary is receiving a distribution of real property.
Many jurisdictions require that the Executor lists the beneficiary’s Social Security number on the transfer paperwork as the new owner. For example, in New York, both the City and State require disclosure of the new owner’s Social Security number. While these documents are not searchable at the county clerk’s office (as most deeds and real property records are) the City and the State are required to collect this information. So, for example, if a beneficiary is to receive a parcel of land, the Executor will need to collect the beneficiary’s Social Security number to complete the real property transfer tax paperwork.
The way that the Executor normally requests the Social Security number is for the beneficiary to fill out an IRS form called a W-9. The beneficiary completes the W9 form listing their Social Security number and delivers it to the Executor. No party reports or files the form with the IRS. It’s just a certification that the information the beneficiary has given the Executor is correct.
I hope that this has provided some information to beneficiaries who, understandably, may be skittish about such requests.
For more information on this topic, please contact me. Beneficiaries might also want to ask their tax preparers about this, as such requests routinely come up as part of their practice, as well.