Can I Give Part Of My Inheritance To My Sister? Navigating Inheritance Distribution & Tax Implications

Receiving an inheritance, particularly when it involves the distribution of assets such as an IRA, can raise complex questions about fairness and financial implications.

In this scenario, imagine being named the sole beneficiary of your brother’s IRA, despite a living trust indicating a split between you and your sister.

In this article, we will explore the intricacies of dividing the inheritance equitably and delve into the potential tax consequences.

can i give part of my inheritance to my sister
Transfer your inheritance to a sibling or submit a timely disclaimer. Inheritance laws apply to full and half-siblings, but sharing may involve a gift tax return for amounts exceeding $16,000 annually: Photo source (

Reviewing Beneficiary Designations

It is crucial to start by scrutinizing beneficiary designations to ensure they align with your intended distribution of assets.

One beneficiary may honor trust terms, while another, as the primary beneficiary, may not be obligated to do so.

Splitting an IRA Inheritance

In the case of an IRA, equal distribution can be achieved by gifting a portion of the inherited funds to your sister.

However, this involves liquidating a portion of the IRA and addressing tax implications, especially if it is a traditional IRA.

Also read: Can an inherited IRA be split between siblings

Considerations for Asset Distribution

Exploring alternative approaches, such as allocating a greater share of other estate assets to your sister, could allow you to maintain the IRA intact and defer immediate tax payments.

1. Preserving the IRA: A Strategic Approach

Instead of liquidating portions of the IRA to facilitate equal distribution, one could strategically opt to preserve the integrity of the IRA by diverting a larger portion of non-IRA assets to the sibling.

This approach allows for the retention of the IRA’s value and defers immediate tax payments that may arise from liquidation.

2. Deferring Tax Liabilities

By directing a greater share of non-IRA assets to your sister, the need for immediate liquidation of the IRA diminishes, thereby deferring potential tax liabilities.

This can be a prudent financial move, particularly if the IRA constitutes a significant portion of the overall estate.

3. Balancing Asset Value and Tax Consequences

Balance estate assets’ value with IRA tax consequences for prudent decision-making.

This ensures an equitable distribution aligned with the living trust’s intentions and the beneficiaries’ financial well-being.

4. Professional Guidance in Asset Allocation

For complex asset-value and tax balancing, seek advice from financial planners or estate experts.

Their insights can provide a nuanced understanding of the tax landscape, ensuring that the chosen distribution strategy aligns with both your sister’s needs and the broader financial goals of the inheritance.

Gift Tax Implications

When contemplating sharing your inheritance with your sibling, it’s crucial to understand potential gift tax implications.

Any amount gifted above the $16,000 annual exclusion may necessitate filing a federal gift tax return.

Unified Tax Credit

The unified tax credit plays a pivotal role in mitigating gift and estate taxes.

Individuals can make lifetime gifts up to a specified dollar amount before facing estate or gift tax consequences.

In 2021, federal estate tax applies beyond $11.7 million, with a unified tax credit limit of $12.06 million.

Estate Tax Rates and Basis Considerations

The government establishes the federal estate tax rate at 40% of the inheritance amount, with the unified tax credit serving as a safeguard.

Even with the step-up in basis received, the value of the gifted share to your sister would determine its cost basis at the time of the gift.


Navigating the distribution of an inheritance, especially involving IRAs and potential tax obligations, requires careful consideration.

By understanding beneficiary designations, exploring distribution options, and being aware of gift tax implications, individuals can make informed decisions that align with their intentions and financial goals.

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