Reconsidering Wealth Transfers: Insights for Parents

Last year’s changes to inheritance tax laws left many wealthy parents relieved, but they also raised questions for some about whether they may have given away too much to their children. Now, there’s a growing concern about how to potentially reclaim some of those funds.

Prior to the passage of the One Big Beautiful Bill Act last summer, the estate tax exemption was poised to be halved, bringing it down to around $7 million per person by the close of 2025. Many individuals hurried to gift money and assets to their children and friends, hoping to capitalize on the higher exemption rates from the previous Trump administration. However, during Trump’s second term, the tax law not only increased the exemption to $15 million but also made it a permanent fixture.

Now, legal advisors are noticing a trend among parents who are rethinking their past gift decisions. Some are exploring legal avenues to regain certain assets.

This reconsideration comes amid forecasts suggesting that over $100 trillion will be transferred to heirs by 2048, according to Cerulli Associates.

Mark Persemer from Glenmede pointed out that divorce often leads clients to regret their sizable gifts to children. Wealthy couples frequently establish Spousal Lifetime Access Trusts (SLATs) to remove assets from their estates while still maintaining indirect access through their spouses. However, post-divorce, the original funder of the trust typically loses access to those funds.

“We’re seeing this scenario arise frequently,” Persemer observed. “Statistically, many find themselves in this situation.”

Parents have various approaches to reclaiming assets given to children. One possibility is taking a loan from a trust set up for their children—though this can create tension in family relationships.

Additionally, any such moves may draw the attention of the IRS. “I always tell parents to be cautious with their promises to avoid overwhelming their kids,” said Robert Strauss, a partner at Weinstock Mannion.

Strauss is currently gifting two homes in California to his children while also advising financially strained couples. His plan involves selling a Malibu property—held in trust for his children—for at least $17 million to regain some capital, with a strategy to split the trust and use the proceeds to facilitate the sale.

He expressed concern, saying many parents feel they are constantly missing out on security despite having ample funds if they could just cut their spending a bit. “They’re moving too much toward giving, rather than feeling financially secure,” he added.

While it’s legal for parents to take loans from trusts at market rates, Strauss cautioned that they could lose out on tax advantages. The IRS might view them as true beneficiaries of the trust, leading to problematic tax implications, especially if they lack the means to repay the loan.

Robert Westley from Northern Trust noted that as gifted assets appreciate significantly, some parents feel an increasing burden. Clients often utilize gift trusts, incurring income tax on the trust’s earnings. “Eventually, that tax load can become overwhelming,” Westley remarked.

Instead of opting for a loan, he suggested that parents could exchange non-liquid assets for income-generating ones, as long as they’re of equivalent value.

Todd Kesterson from Kaufman Rossin described a scenario where clients aren’t financially strained but feel discomfort when their children’s wealth surpasses their own. “They’ve often contributed to a trust that has significantly benefited their children, and it leaves them feeling, well, envious,” he shared.

Though estate planners typically use irrevocable trusts for wealth transfer, there are ways they can be modified or even terminated, depending on specific terms and jurisdictions. For instance, if a trustee has the power, they can “decant” an irrevocable trust, transferring assets into a new one under improved terms.

However, each route carries potential tax repercussions or might strain family relationships further. If a dispute arises, it could lead parents to seek legal recourse against resistant children.

Scott Rahn, an attorney at RMO LLP, has noticed an uptick in inheritance disputes among wealthy families. Factors such as longer lifespans and conditions like Alzheimer’s can exacerbate tensions. “These conflicts are often more about emotions than just money,” he explained.

Rahn added, “Often, parents may have been preoccupied with accumulating wealth, which can leave emotional gaps.” As a result, children might feel financially tied yet emotionally disconnected from their parents, making it challenging to reverse financial transactions that meant a lot to them.

In some cases, he has brought in therapists to facilitate better communication. Courts often lean favorably towards parents facing unforeseen life hurdles like illness. In many situations he handles, cases conclude with settlements.

Looking ahead, Rahn anticipates an increase in these disputes and suggests that parents ensure flexibility in estate plans. Naming a trust guardian who can adjust trust terms in the event of illness is a practical step.

“The trend of gifting during one’s lifetime is likely to persist. As millennials and Gen Z navigate escalating living costs, those families positioned with clear communication and planning will be better equipped to handle potential conflicts,” he concluded.