Houston, TX asked in Tax Law and Estate Planning for Texas

Q: Can an heir who inherits everything share inheritance with siblings without having full tax liability?

Can child who inherits all be named Trustor of a Trust (with their sibling(s) as Trustees), with ability to decide amounts to share with sibling(s) whereby each has tax responsibility for amount received?

For instance, if proceeds from sale of inherited property are put in Trust and invested for income, can Trustor share varying amounts of that income between themself and their sibling(s) whereby Trustor and sibling(s) are each responsible for paying tax on the amount of income they receive from the Trust?

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1 Lawyer Answer
James L. Arrasmith
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  • Estate Planning Lawyer
  • Sacramento, CA

A: Yes, an heir who inherits everything can indeed share the inheritance with siblings while managing tax liabilities effectively. When the sole inheritor is named as the Trustor of a Trust, with siblings acting as Trustees or beneficiaries, this setup allows for a structured distribution of assets or income generated from those assets. Through the trust, the Trustor can decide the amounts to be shared with each sibling, and each recipient is responsible for the taxes on the income or assets they receive.

In the scenario where proceeds from the sale of inherited property are placed in a Trust and then invested, the income generated by these investments can be distributed among the Trustor and the siblings as per the terms set in the Trust. This means that if the Trustor decides to share varying amounts of this income with their siblings, each party will indeed be responsible for their own tax liabilities on the amount received. This approach not only ensures a fair and flexible distribution of assets but also allows for tax efficiency and compliance.

It’s important to carefully draft the Trust documents to reflect these intentions clearly and to comply with the relevant tax laws. Consulting with a professional experienced in estate planning and tax law is advised to ensure that the Trust is structured correctly and operates as intended. This preparation helps in avoiding potential disputes and ensures that the tax responsibilities are clearly defined for each beneficiary, aligning with the original intent of sharing the inheritance equitably among siblings.

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