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If the client is married and spouse is willing to split the gifts, the total of their exclusions would more than cover the amount each cousin would receive. Either way though, unless the client has already used up her unified credit, the gift would be reported but no gift tax would be due because the available credit would take care of that. No negotiating should be necessary to avoid gift tax. Client may, however, want to negotiate and give the 1/3 based on the net after considering the personal income tax that she will incur on the full $64K.

I only update when I open the program and there is an update. Or I update from within the programs. I barely read emails and if they contain links, I really think about that email before I click on the link. My rule is: If I will sleep well after refusing to click on a link, I don't click it.

I believe in that situation, the income would be taxable to the client under the assignment of income doctrine. The client cannot change the fact the income belongs to her by issuing a 1099 to a third party. The disclaimer may not resolve the issue either. The heir can disclaim the inheritance but can not dictate who it will go to, that is determined by the will or by law. Also, it appears the funds were accepted by her since they have already been transferred to an account under her name, so the window for disclaimer might already be closed. As others have posted, the client can voluntarily gift a portion to her cousins in order to comply with her aunts request if she wishes. It would be her choice to make the gift after taxes, whether she takes it as a lump sum or by RMD over time. She is under no obligation to disclose how much the taxes are or what tax bracket she is in.

Answers to two more of BHoffman's questions. The unused basis in the IRA passes to the trust, so the full amount will not be taxable. Exceptions to the early distribution penalty include death (Code 4 on the 1099R).

Backup withholding can be passed through to the recipient of the income. Regular withholding cannot--it is credited to the trust. Since the amount withheld was 10%, and this is the amount IRAs withhold by default unless the payee tells them otherwise, I don't think you are dealing with backup withholding, which is mandated at 28%. Sounds like this is regular withholding and the trust gets credit for the amount withheld (and the refund).

I go with cash basis taxpayer. You don't have income until received. I would put it in the year it hit the checking account. Cause if the audit is for 2015, and the cash is in 2015, but the income is in 2014 and 2014 is a closed year, the auditor is likely to take the position I just did. Tom Newark, CA

Yep, the trust will report the distribution from the IRA, and that is added in to the other income the trust might have to determine what income is ultimately distributed to the son. There are many pitfalls to naming a trust as bene of an IRA.