Let’s say that you are the beneficiary of your brother’s IRA.
All of his assets were supposed to be split between you and your sister according to a living trust. However, the IRA administrator says the IRA only has one beneficiary… you. How can you spilt this equally? Can you give part of your inheritance to your sibling without consequence? Can you sell half and give your other sibling her money? What is the effect on taxes and the cost basis?
nj.com’s recent article entitled “Can I give my brother half of my inheritance?” says that it’s important to review beneficiary designations to make sure they reflect your wishes. While one beneficiary may be willing to split the inheritance as intended, another may not and is not required to if named as beneficiary.
In this case of the IRA, you would essentially be making a gift to your sister from the IRA account that you inherited.
To do this, you would have to liquidate some of the account and pay the taxes on the liquidated amount, if it is a traditional IRA.
Another thought is that if there are other assets in the estate, perhaps your sister could have a greater share of those, so you could keep the IRA intact to avoid paying taxes at this time.
The same question and answer applies to other financial assets in which one person was a named beneficiary, like life insurance proceeds and bank accounts. You can give part of your inheritance to your sibling but subject to potential gift tax issues.
To give part of your inheritance to your sibling may require filing a federal gift tax return for the amount gifted above the $16,000 annual exclusion amount. However, no gift tax should be due if you have less than $12.06 million in your estate and/or lifetime gifts made above the annual exclusion amounts.
The unified tax credit provides a set dollar amount that a person can gift during their lifetime before any estate or gift taxes apply. This tax credit unifies both the gift and estate taxes into one tax system that decreases the tax bill of the individual or estate, dollar to dollar.
As of 2021, the federal estate tax is 40% of the inheritance amount. However, the unified tax credit has a set amount that a person can gift during his or her lifetime before any estate or gift taxes are due. The 2021 federal tax law applies the estate tax to any amount above $11.7 million. This year’s amount is $12.06 million.
While you would receive a step-up in basis, the cost basis of your brother’s gifted share would be the value at the time the gift is made.
Reference: nj.com (Feb. 23, 2022) “Can I give my brother half of my inheritance?”
“I have known Kayce for years and would trust her completely with any legal situation you may have.”
“Very professional, courteous and well prepared staff!”
“Kayce and the entire team … are great to work with. Professional, responsive, and prompt.”
“…very professional and thorough in every aspect of the process!”
Planning your estate is essential no matter how old you are or your situation in life. If you have yet to estate plan, let our firm help you with all aspects of the process.Book a FREE Call Now!