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The Moneyist: ‘I’m already feeling guilty’: My uncle is leaving me a large inheritance, but excluding my siblings. Should I gift them money every year, or set up a trust?

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Dear Quentin,

I am soon to inherit a sizable sum of money from an uncle with whom no one in my family still speaks; I’m the only one who has stayed in contact with him. While it seems a bit grotesque to think about money while someone is on their deathbed, this is a large enough sum that I need to plan for how I will save/invest it.

I have two siblings who are not included in the inheritance. However, once my uncle passes and I have inherited the money, I would like to “share the love” with my siblings, with whom I am very close. I feel that this money is unearned and I’m already feeling guilty that I am receiving this money and they are not, especially because one sister struggles financially. 

If I were to gift them some of the inheritance, what would be the best way to do that? I would like to avoid paying taxes again, as I will be paying estate taxes on the inheritance. I could give them yearly amounts, but don’t want it to feel like I’m lording this money over their heads; would a trust be more appropriate? Especially since my struggling sister does not manage money well.

Thanks for your help.

Sharing the Love

Dear Sharing,

You’re a good sister. I appreciate your thoughtfulness, and that you are planning ahead. In the meantime, don’t make any promises to your siblings, or yourself.

You feel guilty enough about inheriting this money while your two sisters are left out in the cold; don’t feel guilty about giving it away too. If either sibling protested the manner in which they received the money and felt like you were “lording” it over them or in some way making them feel “less than” they could always refuse it. You can’t control how other people react or feel, so don’t try to do so. You can only control how you feel. Guilt should not even be on the table.

Trusts are generally a good option when you want to save on estate taxes. For instance, an inflation adjustment has lifted the federal estate taxes to $12.06 million per individual, or $24.12 million per couple for 2022, but some states are less generous while others (take a bow, Florida) have no estate tax at all. In your case, your siblings would have to pay taxes on income they receive from any trust that you would set up for them during your lifetime.

“Start low and go slow.”

Trusts are mainly used for income-tax planning, asset protection for the trustee or beneficiaries, long-term-care planning, and/or protection of children or grandchildren with special needs, among other uses. Trusts can also be complex and expensive to set up and maintain. Given what you say about your sister’s circumstances, she would likely pay a lower rate on any distributions from the trust. The same would obviously apply to children in a similar situation. 

Start low and go slow. In 2022, the annual gift-tax exemption rose to $16,000 per donor/recipient, up from $15,000 in 2021. Annual gifts are not deductible on your income taxes, nor are they regarded as income for the recipients. Gifts made directly to a healthcare provider for a friend or relative and directly to an educational institution are exempt from gift tax. Explain that a steady income from your uncle’s estate (rather than you) is preferable for tax reasons.

I think what you are doing is noble, and a welcome change of pace for this column. Some members of the Moneyist Facebook Group had less magnanimous opinions on your predicament. One wrote: “Your uncle excluded your siblings from his will because he has no relationship with them. You should respect his desire not to give them his money.” Another said, “Don’t give them a dime.” Another asked, “​​Do you need another brother?”

For what it’s worth, once your uncle has gone and the money is in your account, it’s your loot, and you are free to distribute it any way you see fit. 

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

The Moneyist regrets he cannot reply to questions individually.

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