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A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for wealthy investors and consumers. Register to receive future editions, straight to your inbox.
As many wealthy parents breathe a sigh of relief over changes to the estate tax in last year’s tax bill, some are wondering if they gave their children too much — 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 expected to be cut in half to about $7 million per person by the end of 2025. Many families accelerated gifts to their children and friends before the deadline in order to take advantage of the higher exemption, which was set under the first Trump administration. However, under Trump’s second term, the new tax law not only increased the exemption to $15 million, but also made it permanent.
Lawyers and advisors told Inside Wealth that some parents are now questioning their gifts and considering their legal options to potentially get some of them back.
This is a somewhat unexpected part of the “great wealth transfer,” with more than $100 trillion expected to flow to heirs through 2048, according to estimates from Cerulli Associates.
Mark Parthemer of Glenmede said divorce is a common reason why clients regret transferring large sums to their children. Wealthy couples frequently create spousal lifetime access trusts, or SLATs, to remove assets from their estate while retaining indirect access to them through their spouse. After a divorce, the spouse who funded the trust loses the benefit of those cash flows.
“We’re seeing now that the rubber is hitting the road,” said Parthemer, chief wealth management strategist at Glenmede. “There are many individuals who, statistically, will find themselves in this scenario.”
Parents have several ways to recover assets already transferred to their children. One option is to take out a loan from the trust created for the benefit of their children, although this may strain family ties.
And either path could face scrutiny from the Internal Revenue Service.
“I always advise parents not to overcommit because you never want to have to be beholden to your children,” said Robert Strauss, a partner at Weinstock Manion.
Strauss said he is currently counseling a husband and wife who feel financially strapped after gifting two California homes to their children. The couple wants to sell the Malibu home for at least $17 million and get the money back, but the house is in trust for the benefit of their children. Strauss’ plan is to split the trust, use a branch to sell the Malibu property and have him loan money to the parents.
“I think their fears are irrational. They could slow down their spending and they would have plenty left over, but obviously they can’t,” he said. “They feel like they transferred too much, didn’t retain enough and lacked economic security.”
Although it is legal for parents to take out a market-rate loan from the trust, they risk losing their tax savings, according to Strauss. The IRS could consider the parents to be the true beneficiaries of the trust and count its assets against their taxable estate, he said. The risk is higher if parents don’t 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 as few eggs as possible,” Strauss said.
Some parents feel squeezed when gifted assets appreciate significantly, according to Robert Westley of Northern Trust. Clients often use grantor trusts to transfer assets to their children, which means they have to pay taxes on the trust’s income, he said. For example, if the trust receives dividends or sells shares, the income or capital gains tax liability falls on the grantor, the person funding the trust. Over time, “this tax burden becomes overwhelming,” said Westley, senior vice president and regional wealth advisor at Northern Trust.
An alternative to the loan is to exchange the parents’ illiquid assets for income-producing assets from the trust, which is permitted if they are of equal value, he explained.
Todd Kesterson of Kaufman Rossin said his remorseful clients aren’t necessarily cash-strapped, but are often unhappy when their children’s fortunes exceed their own.
“The only regret I’ve seen is that they gave a lot of money into trusts, and those trusts did incredibly well for their children, and now all of a sudden their children’s net worth is greater than theirs,” said Kesterson, director of the firm’s family office practice. “This has happened several times, and they say, ‘Well, that’s not fair. How can we turn this around?'”
Although estate planners frequently use irrevocable trusts for wealth transfers, they can be modified or terminated (despite their name), depending on the terms and jurisdiction of the trust. For example, if the trustee has the authority to do so, an irrevocable trust can be “decanted,” which “transfers” the assets of an old trust into a new one on more favorable terms. Depending on the state in which the trust is held, it can be terminated completely if the beneficiaries consent, returning the assets to the parents.
All of these avenues risk unwanted tax consequences or, perhaps worse, wrath from heirs. When children refuse to cooperate, their parents sometimes sue them.
Scott Rahn, founding partner of RMO LLP, is called in when high-net-worth families disagree. He said inheritance disputes are becoming more common as families become wealthier and people live longer and fall ill with diseases like Alzheimer’s or Parkinson’s.
“These disputes are as much about emotion as they are about money,” Rahn said.
“A lot of times the parents weren’t there for them. Maybe the parents were creating wealth, plowing the fields and running the industry and that sort of thing,” he added. “The child feels connected to him financially, but perhaps not as much emotionally. And he will have difficulty asking him to return what to him represents love.”
Rahn said he occasionally brings in psychologists or family therapists to help him with discussions. Courts tend to be more understanding if the trust creator has faced an unpredictable life circumstance like illness, he said. Most of Rahn’s cases ultimately reach a settlement, he added.
Ultimately, Rahn said he expects more conflicts of this nature in the future and advises parents to build flexibility into their estate plans, such as designating a trust protector who can change the terms of the trust if the grantor becomes ill.
“This trend of giving while living is not going to go away. If you look at millennials, generation Z, [Generation] “As alphas come along, the cost of getting started in life, whether it’s a business or a home, is only going up,” he said. “I think the families best positioned to avoid conflicts like we’re seeing, and avoid needing these changes, will be those who combine that smart planning with clear communication with their heirs and beneficiaries, so that everyone is on the same page.”