22 Feb Can I give my brother half of my inheritance?

Q. I am the beneficiary of my brother’s IRA. All of his assets were supposed to be split between me and my other brother according to a living trust. Schwab says the IRA only has one beneficiary — me. How can I spilt this equally? Can I sell half and give him the money? What would happen with taxes and the cost basis?
— Brother

A. This is tricky.

It’s also an important reminder why we should all check our beneficiary designations to make sure they reflect our wishes.

You would essentially be making a gift to your brother from the IRA account that you inherited, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

In order to give your brother half of the assets in the IRA, you will have to liquidate a portion of the account and pay the taxes on the liquidated amount if it’s a traditional IRA, she said.

“The reader should also file a federal gift tax return for amount he is gifting above the $16,000 annual exclusion amount,” she said. “However, no gift tax should be due presuming the reader has less than $12.06 million in his estate and lifetime gifts made above the annual exclusion amounts.”

While you would get 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, she said.

One other consideration: If there are other assets in the estate, perhaps your brother could get a larger share of those and you could keep the IRA intact to avoid paying taxes at this time. Consider speaking with a qualified tax preparer before you make a decision.

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This story was originally published on Feb. 22, 2022.

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