To leave money to a minor child, you need a legal structure that names an adult to manage the assets until the child is old enough to handle them. The workable options are a will that names a property guardian or creates a testamentary trust, a custodial account under UGMA or UTMA, or a standalone trust set up during your lifetime. Which one fits depends on how much money is involved, how long past 18 you want to delay full access, and whether the child has any special circumstances like a disability or a large inheritance from another source.
Why Doing Nothing Is the Worst Choice
Minors cannot legally own or manage significant assets. If a child inherits money and no arrangement exists to manage it, a court appoints a guardian of the child’s property, sometimes called a conservator. You do not get to pick that person. The guardian typically must post a surety bond, file regular accountings with the court, and get judicial approval before making major financial decisions. All of that costs money that comes out of the child’s inheritance.
The same problem hits when a minor is named directly as the beneficiary on a life insurance policy or retirement account. Insurance companies and financial institutions will not pay large sums to a child. They hold the money until a court-appointed guardian is in place, which can take months. Then, when the guardianship ends at the age of majority, the entire balance is handed over at once with no strings attached. Every option below exists to avoid that outcome.
Custodial Accounts: The Simplest Option
Custodial accounts are the easiest way to set aside assets for a minor without creating a trust or involving a court. There are two versions. The Uniform Gifts to Minors Act (UGMA) covers financial assets like cash, stocks, bonds, and mutual funds. The Uniform Transfers to Minors Act (UTMA) covers virtually any kind of property, including real estate, art, patents, and royalties. Most states have adopted the UTMA, so it is the more commonly available account.
You can open one at a bank, brokerage firm, or mutual fund company. You need the child’s Social Security number and the custodian’s information. The custodian makes investment decisions and can spend funds for the child’s benefit.
Two things about custodial accounts matter more than the paperwork. First, transfers into them are irrevocable. Once the money goes in, it belongs to the child. Second, when the child reaches the state’s termination age, usually somewhere between 18 and 21, the custodian’s authority ends and the child takes full control. You cannot extend that age or attach conditions. For modest sums this is fine. For a large inheritance, handing an 18-year-old unrestricted access is often the exact outcome people are trying to prevent, and that is where a trust starts to earn its cost.
Trusts: The Most Flexible Option
A trust lets you set the rules. You name a trustee, describe what the money can be used for, decide when distributions start, and choose an age well past 18 for full control. You can stagger payouts (a third at 25, a third at 30, the rest at 35), tie access to milestones like finishing college, or run the trust for the child’s lifetime with the trustee making distributions as needed.
Revocable Versus Irrevocable
A revocable (living) trust can be changed or dissolved while you are alive. You usually serve as your own trustee, with a successor trustee taking over when you die. Because the trust already exists and holds assets, nothing has to pass through probate. The catch is that you actually have to fund it during your lifetime: retitle property, update account registrations, change beneficiary designations. An unfunded revocable trust is just paper.
An irrevocable trust generally cannot be modified once set up. Assets you move into it leave your estate permanently, which can produce estate tax benefits for very large estates. For most families, the federal estate tax exemption of $15 million per person, set by the One, Big, Beautiful Bill Act signed in 2025, means estate taxes are not the reason to use one. Asset protection and locking in terms that nobody can undo are.
Testamentary Trusts Created by a Will
You can also direct your will to create a trust that springs into existence when you die. A testamentary trust gives you the same control over timing and conditions that a living trust does. The difference is that the will must go through probate before the trust can be funded, so probate cost and delay apply, and the terms become part of the public record.
The Role of a Will
A will lets you name the specific assets a child should receive and designate a guardian of the property to manage them. The guardian you choose replaces the one a court would otherwise appoint. Even if you use a custodial account or living trust for the bulk of your assets, a will still belongs in the plan, because it catches anything that falls outside your other arrangements.
For a will to be valid, you must sign it and, in most jurisdictions, have it witnessed. Some states accept handwritten wills without witnesses, but relying on that is risky.
Life Insurance and Retirement Account Beneficiaries
Beneficiary designations override whatever your will says. That makes them powerful and easy to misuse when minors are involved.
For life insurance, naming a minor directly triggers the same court-appointed guardianship problem described above. The cleanest fix is to name a trust as the beneficiary. The trustee receives the proceeds immediately and manages them under the terms you wrote. Some insurers will pay smaller amounts into a UTMA custodial account, though state-specific dollar limits may apply.
For retirement accounts, the SECURE Act treats a minor child of the account owner as an “eligible designated beneficiary,” which is better than most other beneficiaries get. The account must be moved into an inherited IRA by December 31 of the year after the account owner’s death. The child then takes annual required minimum distributions until age 21. At 21, a 10-year clock starts, and the entire remaining balance must be withdrawn within those 10 years. The IRS uses age 21 as the cutoff regardless of the state’s legal age of majority. Those distributions are taxable income, which brings the kiddie tax into play.
If the Child Has a Disability
If your child receives Supplemental Security Income (SSI) or Medicaid, leaving money through an ordinary inheritance, custodial account, or standard trust can disqualify them. SSI has a resource limit of $2,000 for an individual, and exceeding that even for a single month ends eligibility for that month.
A special needs trust (also called a supplemental needs trust) solves this. Assets held in a properly structured special needs trust do not count toward the SSI resource limit. A third-party special needs trust, funded with your assets rather than the child’s, has no requirement to reimburse the state for Medicaid benefits after the child’s death. The trust should be drafted to cover expenses beyond basic food and shelter, because payments for those needs can still reduce SSI. If your child has any disability, treat this as the first planning decision, not an add-on.
Taxes and Financial Aid
The Kiddie Tax
Investment income earned inside a custodial account, trust, or inherited retirement account belonging to a minor is subject to the kiddie tax. For 2026, the first $1,350 of a child’s unearned income is tax-free. The next $1,350 is taxed at the child’s own rate. Anything above $2,700 is taxed at the parent’s marginal rate. The rule applies to children under 18, and to 18-year-olds and full-time students up to age 24 whose earned income does not cover more than half their own support.
The practical effect: parking large sums in a custodial account to shift income to a child in a lower bracket does not save the tax people expect. A child with $50,000 in dividend-producing investments can easily generate enough unearned income to be taxed at the parent’s top rate.
Estate and Gift Taxes
The federal estate tax exemption for 2026 is $15 million per individual, or $30 million for a married couple, indexed for inflation. Unless your estate exceeds that, federal estate tax is not a concern. The annual gift tax exclusion lets you give up to $19,000 per recipient in 2026 without using any of your lifetime exemption or filing a gift tax return.
College Financial Aid
The account type affects financial aid. On the FAFSA, assets in a UGMA or UTMA custodial account are counted as the student’s assets and assessed at 20% of value. A 529 education savings plan owned by a parent is assessed at up to 5.64%. So $10,000 in a custodial account could reduce aid eligibility by $2,000, while the same amount in a parent-owned 529 reduces it by about $564. If college funding matters, this difference should drive the choice between account types.
When the Child Actually Gets the Money
Timing is where the options separate most sharply.
- Court-appointed guardianship, meaning no plan: the child gets everything at the age of majority, usually 18, with no conditions.
- UGMA or UTMA custodial account: full unrestricted control at the state’s termination age, usually 18 to 21. The custodian cannot delay this.
- Testamentary or living trust: you set the rules. Delay access to 25, 30, or later. Stagger distributions across ages. Restrict use to education, health care, or housing. Keep the trust running for the child’s lifetime.
- Inherited IRA: annual required minimum distributions begin immediately, with the full balance out within 10 years after the child turns 21.
For modest amounts, a custodial account is simple and effective. For larger sums, or when handing an 18-year-old unrestricted control feels unwise, a trust is worth the added cost and complexity. Many families do both: a custodial account for a manageable amount the child receives at 18 or 21, and a trust for the bulk of the inheritance with distributions spread over time.