Q. I am the beneficiary of my brother’s IRA. All of his assets were supposed to be divided between me and my other brother in a living trust. Schwab says the IRA only has one beneficiary – me. How can I reverse this as well? Can I sell half and give him the money? What about taxes and cost base?
– Brother
A. It’s tricky.
It’s also an important reminder of why we should all check our beneficiary designations to make sure they reflect our wishes.
You would essentially gift your brother from the IRA account you inherited, said Shirley Whitenack, an estate planning attorney at Schenck, Price, Smith & King in Florham Park.
In order to give your brother half of the IRA assets, you will need to liquidate part of the account and pay taxes on the amount liquidated if it’s a traditional IRA, she said.
“The reader should also file a federal statement of gift for the amount it offers above the $16,000 annual disqualification amount,” she said. “However, no gift tax should be payable assuming the reader has less than $12.06 million in their estate and lifetime gifts made above the annual exclusion amounts.”
While you would get a grow in power, the cost basis of the share donated by your brother would be the value at the time the gift is made, she said.
Another consideration: If there are other assets in the estate, maybe your brother could get a bigger cut and you could keep the IRA intact to avoid paying taxes at the time. Consumer talking with a qualified tax preparer before making a decision.
Send your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboos column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. To find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.comit’s weekly e-newsletter.
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