Now, imagine a couple like Avery and Bennett, who have a $17 million nest egg and who are in their 70s with a 35-year-old son, Jon. Avery and Bennett were staring down the barrel of a big tax bill if they didn't act before the law changed, so rather than risk dying while the laws were unfavorable, they decided to give Jon a $200,000 gift.
But — plot twist — the One Big Beautiful Bill Act (2) permanently expanded the tax break, allowing $15 million per person (and $30 million per couple) to pass tax free. Now, the couple wish they had kept their $200,000 because they're getting older, starting to worry about possible health issues, and want to have more money to travel now and potentially pay for long-term care later.
So, can they claw back the cash they gave to their son?
The logistics of recovering a big gift
First things first: Is it possible for Bennett and Avery to recoup the funds? The answer to that isn't as straightforward as it seems, because it all depends on how they gave the gift.
- If they transferred the money to a revocable trust (3) with Jon as beneficiary and Avery and Bennett as cotrustees, they can do what they want with the trust assets.
- If they transferred the money to an irrevocable trust, however, there are more restrictions. But, the laws have loosened up and a process called decanting (4) may allow them to pour the assets over from the irrevocable trust into one that's more flexible so they can access the funds.
- If they gave the gift directly to Jon, things are more complicated. If it's been less than nine months and he's willing, Jon might be able to disclaim the gift (5) so it wouldn't count as a completed gift. If that deadline passed, Jon could gift the money back (6), but both Jon and mom and dad would use up some of their lifetime exemption to do that.
Perhaps unsurprisingly, moving large sums of money back and forth like this does create logistical challenges — but USA Today (7) reports that financial advisors say clients are looking to do just that as they face giver's remorse since the estate tax armageddon didn't come.
Beyond the logistics — what's the price of family harmony?
Of course, even if Avery and Bennett can get the money back from their son, the big question is: Should they?
The Department of the Treasury (8) reports that many young people are falling behind financially compared with their parents, struggling to afford the basics thanks to surging housing costs and a shortage of jobs.
Many young people also expect an inheritance to help them cope with financial woes. In fact, Northwestern Mutual (9) reports 50% of all generations say an inheritance is critical to their financial stability and they won't be able to retire comfortably or achieve security without it.
Giving a gift to a child who may need it— and then asking for it back because the IRS rules changed — could lead to the kind of family conflict that it may be hard to recover from.
