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A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.
While many wealthy parents are breathing a sigh of relief over estate tax changes in last year’s tax bill, some are questioning whether they gave too much to their children — and how to get some of it back.
Before the passage of the One Big Beautiful Bill Act last summer, the estate tax exemption was set to be cut in half to about $7 million a person at the end of 2025. Many families accelerated gifts to their kids and friends before the deadline in order to take advantage of the higher exemption, which was set during the first Trump administration. Under Trump’s second term, however, the new tax law not only raised the exemption to $15 million but also made it permanent.
Lawyers and advisors told Inside Wealth that some parents are now second-guessing their gifts and considering their legal options for potentially clawing some of it back.
It’s a somewhat unexpected element of the “great wealth transfer,” with more than $100 trillion expected to flow to heirs through 2048, as estimated by Cerulli Associates.
Mark Parthemer of Glenmede said divorce is a common reason for clients to regret transferring vast sums to their kids. Wealthy couples frequently set up spousal lifetime access trusts, or SLATs, to get assets out of their estate but keep indirect access to them through their spouse. After a divorce, the spouse who funded the trust loses the benefit of that cash flow.
“We’re now finding the rubber is hitting the road,” said Parthemer, Glenmede’s chief wealth strategist. “There’s a lot of individuals that are just statistically going to find themselves in that scenario.”
Parents have a few routes to claw back assets that were already transferred to their children. One option is to take a loan from the trust set up for their children’s benefit, though it can strain family ties.
And any route could invite scrutiny by the Internal Revenue Service.
“I’m always advising parents not to overcommit because you don’t want to ever have to be beholden to your kids,” said Robert Strauss, partner at Weinstock Manion.
Strauss said he is currently advising a husband and wife who feel financially stretched after gifting two California homes to their children. The couple wants to sell the Malibu home for at least $17 million and collect the cash, but the home is in a trust for the benefit of their children. Strauss’ plan is to divide the trust, use one offshoot to sell the Malibu property and have it lend money to parents.
“I think their fears are irrational. They could slow down their spending, and they would have plenty left, but they evidently can’t,” he said. “They feel as if they’ve transferred too much, as if they didn’t retain enough, and that they lack economic security.”
While it’s legal for the parents to take a market-rate loan from the trust, the parents risk losing their tax savings, according to Strauss. The IRS could deem that the parents are the true beneficiaries of the trust and count its assets toward their taxable estate, he said. The risk is higher if the parents do not have the assets to repay the loan, he added.
“You can’t get around the fact that they need the money, and so you’re looking to break the fewest number of eggs,” Strauss said.
Some parents feel squeezed when gifted assets significantly appreciate, according to Robert Westley of Northern Trust. Clients often use grantor trusts to transfer assets to their kids, meaning they are on the hook for the trust’s income taxes, he said. For instance, if the trust receives dividends or sells stocks, the income or capital gains tax burden falls on the grantor, the person who funds the trust. Over time, “that tax burden becomes overbearing,” said Westley, senior vice president and regional wealth advisor at Northern Trust.
An alternative to taking a loan is swapping the parents’ nonliquid assets with income-producing ones from the trust, which is permissible if they are of equal value, he said.
Todd Kesterson of Kaufman Rossin said his remorseful clients aren’t necessarily strapped for cash, but are frequently displeased when their children’s fortunes exceed theirs.
“The only regret I’ve seen is where they’ve given away a lot of money in trust, and those trusts have done incredibly well for their kids, and now suddenly their kids’ net worth is more than theirs,” said Kesterson, principal of the firm’s family office practice. “It’s happened a number of times, and they say, ‘Well, this isn’t fair. How can we reverse this?”’
While estate planners frequently use irrevocable trusts for wealth transfers, they can be modified or terminated (despite their name), depending on the trust’s terms and jurisdiction. For instance, if the trustee has the authority to do so, an irrevocable trust can be “decanted,” which “pours” the assets from an old trust into a new one with more favorable terms. Depending on the state where the trust is held, it can be terminated altogether if the beneficiaries consent, returning the assets to the parents.
All of these routes risk undesirable tax consequences or, perhaps worse, ire from heirs. When children refuse to cooperate, sometimes their parents take them to court.
Scott Rahn, founding partner of RMO LLP, gets called in when ultra-high-net-worth families can’t see eye to eye. He said inheritance disputes are getting more common as families get richer and people live longer and fall ill with conditions like Alzheimer’s disease or Parkinson’s.
“These disputes are as much about emotion as they are about money,” Rahn said.
“Often the parent wasn’t there for them. Perhaps the parent was creating the wealth, out there plowing the fields and captaining industry and these kinds of things,” he added. “The child feels connected to them financially but perhaps not as emotionally. And they’re going to have a difficult time being asked to give back the thing that meant love to them.”
Rahn said he occasionally brings in psychologists or family therapists to assist during the discussions. Courts tend to be more sympathetic if the trust creator has experienced an unforeseeable life circumstance like illness, he said. Most of Rahn’s cases eventually end in a settlement, he added.
Ultimately, Rahn said he anticipates more conflicts of this nature down the line and advises parents to build flexibility into their estate plans, such as designating a trust protector who can modify the terms of the trust if the grantor falls ill.
“This trend of giving while living isn’t going away. If you’re looking at millennials, Gen Zs, the [Generation] Alphas that are coming up, the cost to get a start in life, whether it’s a business or a home, is only continuing to increase,” he said. “I think the families who are best situated to help avoid disputes like the ones we see and avoid needing these modifications, are going to be the ones who combine that smart planning with clear communication with their heirs and beneficiaries, so that everybody’s on the same page.”
