Staying Flexible Around Intergenerational Wealth Transfer – A View From Chicago

Tom Burroughes

9 November 2026

In conversations about how much money HNW families should give to their offspring, the calculations have probably gotten more important after last week’s midterms, raising as they have done possible tax hikes down the line.

But even if such events don’t come to pass, this news service has noticed that there is a risk that people can become so anxious about mitigating taxes via gifting that they run short of money.

Another point to consider, according to Frank Paolini, partner at law firm Neal Gerber Eisenberg, is that there is a shortage of talent for advising wealthy families. Paolini, based in Chicago, recently talked to FWR, as this news service has been looking at recent controversies, for example structures known as Grantor Retained Annuity Trusts .

There has been a decline in the number of estate planning experts in recent years, Paolini said. “It is tremendously difficult to find people to do this work and who are younger. In Chicago, I feel like I know every exceptionally high net worth tax planner under the age of 50, which is wild,” he said.

Giving too much?
Addressing the issue of families possibly giving away “too much,” Paolini said he starts by interviewing clients to find out what their post-retirement goals are, digging into whether they have even started to think about this. This involves asking about their hobbies, interests, continued commitments, etc. For example, when it comes to cash, he will want to know what a client’s “burn rate” is. Once this analysis is complete, and a buffer for emergencies is considered, assets can then be assessed and their net present value calculated, in order to estimate what can be sensibly given to others, or not.

“We try to build escape values, when I cannot, because I am horrible at predicting the future,” he said.

How can such flexibility be retained?
“I rely heavily on spousal trusts,” Paolini said. “That allows you, when both spouses are alive, to unwind this if need be. The assets are not locked away.”

“In the worst-case scenario, if the spouses later need access to the funds in the trust, a distribution to the beneficiary spouse is always an option. This leaves open the opportunity to 'unwind’ the gift to the trust at a later date, should the need ever arise,” he continued.

Paolini said he does know of cases where clients have given away too much money and regretted it.

Looking at the need to add more wiggle room when thinking of intergenerational wealth transfer comes as the amount of money in motion amounts to tens of trillions of dollars. The transfer has been a constant narrative in the minds of the North American wealth sector for more than a decade. Some of the discussion changed with last year’s One Big Beautiful Bill Act, which retained previous estate and gift tax thresholds. This publication has carried a number of commentaries about tax and estate planning approaches, see examples here, here and here.

Other methods
Paolini also mentioned his general reliance on using “intentionally defective grantor trusts” in his clients’ planning.

According to one definition, these trusts allow a person to isolate certain trust assets to segregate income tax from estate tax treatment. It is effectively a grantor trust with a purposeful “flaw” to ensure that the individual continues to pay income taxes. They are most often used when trust beneficiaries are children or grandchildren, and where the grantor has paid income tax on the growth of assets they will inherit.

“Trusts can be used to pay a mortgage for the residences of family members. If the clients have built up substantial wealth inside of a defective trust, the creator of that trust may take loans from those trusts without tax implications,” Paolini said. “The interest paid back to the trust on any such loan does not result in income tax to the trust or its creator. Moreover, the settlor’s payment of interest back to the trust is not a taxable gift.

“Therefore, instead of taking a mortgage loan and paying interest to a third-party institutional lender, the settlor could instead take a mortgage from their own defective trust, and any interest they pay back to the trust is a tax-free wealth transfer from the settlor to the beneficiaries of the trust. This can be a very valuable arrow in the tax planning quiver,” he continued.

Education
Another option, Paolini said, is to make payments for grandchildrens' education, for example, and using that exemption, up to a limit, for gift tax.

“As a general premise, the payment of educational expenses should be a taxable gift by the paying donor. For instance, if a grandparent reimburses their grandchild for their tuition or pays their student loans, those payments would be taxable gifts from the grandparent to the grandchild, and it would go to either reduce that grandparent's gift/estate tax exemption, or, if they’ve exhausted their exemption, result in a taxable gift to the grandparent,” he said. “However, there is an exception to the US Gift tax implications if instead the grandparent pays the tuition directly to the educational institution, as opposed to reimbursing the grandchild.”

“If a grandparent would like to cover educational costs for their grandchildren, they should tell their grandchild to give them their tuition bills, and the grandparent should pay the tuition directly to the institution. If they do so, then these payments do not result in any taxable gifts to the grandparent, nor do they go to reduce the grandparents’ gift/estate tax exemption. The same is true for medical expenses that are directly paid to the healthcare provider on behalf of the patient; all such direct payments for medical expenses are generally gift tax free. This is a little-known exception to the US gift tax code,” he said.

The GRATs controversy
Asked about the recent litigation concerning GRATs, he added that concerns are probably “overblown.” “I don’t think they are going to go anywhere.”

“Nevertheless, I advise my clients that the IRS has taken this aggressive position against GRAT freezing techniques so that they can make an educated and informed decision about any risk taken in these planning transactions,” he added.