If the sibling was not the beneficiary of the plan (or the sibling of the beneficiary), the distribution is taxable and subject to the 10% non qualified distribution penalty.
If the sibling is the beneficiary, just don't enter the 1099-Q. When the box 1 amount on form 1099-Q is fully covered by expenses (loan payments up to $10K qualify), TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records.
On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
