You can send money to a minor three main ways: through a custodial account under your state’s UGMA or UTMA law, through a 529 education savings plan, or through a trust you set up for the child’s benefit. Each carries different tax treatment and a different answer to the question of who controls the money and when. For 2026, you can give any one person up to $19,000 without filing a gift tax return, and a married couple who split gifts can give $38,000 to the same recipient.1Internal Revenue Service. What’s New — Estate and Gift Tax The right choice depends on how much control you want to keep, whether the money is meant for education, and how large the transfer is.
Custodial Accounts Under UGMA and UTMA
The simplest route is a custodial account opened under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act. No attorney, no formal trust document. You name a custodian, often yourself or another trusted adult, who manages the account until the child reaches the age of majority set by state law.
The two acts differ in what they accept. UGMA accounts hold financial assets: cash, bank deposits, and securities. UTMA accounts hold those same assets plus real estate, fine art, patents, and other property. Most states have adopted the UTMA, which largely replaced the older UGMA framework.
Two features surprise many donors. The transfer is irrevocable. Once the money is in, it belongs to the child, and you cannot take it back. And the child gains full, unrestricted control at the age of majority, typically between 18 and 21 depending on the state.2Social Security Administration. POMS SI 01120.205 – Uniform Transfers to Minors Act At that point, the young adult can spend the balance however they choose, regardless of what you had in mind.
529 Education Savings Plans
A 529 plan is a tax-advantaged account built for education costs. Contributions grow free of federal income tax, and withdrawals are tax-free when used for qualified education expenses like tuition, fees, room and board, books, and required supplies.3Office of the Law Revision Counsel. 26 USC 529 – Qualified Tuition Programs The account owner, usually a parent or grandparent, keeps control. The child never gains automatic ownership.
529 funds cover more than college tuition. Since 2018, you can use up to $10,000 per year for tuition at elementary and secondary schools, including private and religious schools.4Internal Revenue Service. 529 Plans – Questions and Answers Apprenticeship program costs qualify. So does student loan repayment, up to a $10,000 lifetime cap per borrower.
Starting in 2024, unused 529 funds can be rolled into a Roth IRA for the beneficiary. The rollover comes with strings:
- The 529 account must have been open more than 15 years.
- Each year’s rollover cannot exceed the Roth IRA annual contribution limit.
- Total rollovers over the beneficiary’s lifetime cannot exceed $35,000.
- Contributions made within the last five years, and their earnings, are not eligible.
If you pull money out for something other than a qualified education expense, the earnings portion of the withdrawal is subject to regular income tax plus a 10 percent additional tax.3Office of the Law Revision Counsel. 26 USC 529 – Qualified Tuition Programs Your original contributions come back without penalty, since you made them with after-tax dollars.
Superfunding a 529 Plan
529 plans allow a special gift tax election: you can front-load up to five years of annual exclusion contributions in a single year. For 2026, that means one person can contribute up to $95,000 to a single beneficiary’s plan without triggering gift tax, and a married couple can contribute up to $190,000.6Internal Revenue Service. Frequently Asked Questions on Gift Taxes You report the election on IRS Form 709, and the contribution is treated for gift tax purposes as if spread evenly over five years. Any other gifts you make to that same beneficiary during the five-year window may push you over the annual exclusion.
Setting Up a Trust for a Minor
A trust gives you the most control over how and when a minor receives money. As grantor, you name a trustee and write terms that dictate the conditions for distribution: reaching a specific age, graduating from college, hitting other milestones. Unlike a custodial account, a trust does not automatically hand everything over at 18 or 21. The document governs.
That flexibility costs money. Drafting a custom trust typically requires an attorney, and professional fees generally range from $1,000 to $10,000 or more depending on complexity. You also have to fund the trust by formally transferring assets into it, which may involve retitling property or changing account ownership.
If you want your contributions to the trust to qualify for the annual gift tax exclusion, the trust may need to include withdrawal rights, sometimes called Crummey powers, giving the beneficiary a limited window (typically 30 days) to withdraw each new contribution. Without those provisions, gifts to the trust may be treated as future-interest gifts that do not qualify for the annual exclusion.
Gift Tax Rules for 2026
Any transfer to a minor counts as a gift for federal tax purposes. For 2026, you can give up to $19,000 per recipient without filing a gift tax return.1Internal Revenue Service. What’s New — Estate and Gift Tax A married couple can give up to $38,000 per recipient by splitting gifts, but both spouses must file IRS Form 709 to make the election, even if no tax is due.6Internal Revenue Service. Frequently Asked Questions on Gift Taxes
Go over the annual exclusion for any one recipient and you file Form 709 to report the overage. Filing does not mean you owe tax. The excess reduces your lifetime gift and estate tax exemption, which for 2026 is $15,000,000 per person.7Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill No federal gift tax is actually due until your cumulative lifetime gifts above the annual exclusion cross that threshold.
The annual exclusion applies per donor, per recipient. Three grandchildren means $19,000 to each of them, $57,000 total, with no return required. If both spouses split gifts, the couple together can transfer $114,000 to those three grandchildren in a single year with no gift tax consequences beyond the Form 709 filing for the split election.
Generation-Skipping Transfers
Grandparents who give money directly to grandchildren, skipping their own children, may also run into the generation-skipping transfer (GST) tax. GST applies at a flat 40 percent rate on transfers that skip a generation, but it carries its own $15,000,000 exemption for 2026, matching the lifetime gift and estate tax exemption. Gifts within the annual exclusion are generally not subject to GST. For most families the combined exemptions are large enough that GST tax never applies, but grandparents making very large transfers should factor it in.
The Kiddie Tax on Investment Income
Money in a custodial account earns dividends, interest, and capital gains that belong to the child for tax purposes. A child with more than $2,700 in unearned income may face the “kiddie tax,” which taxes the excess at the parent’s marginal rate instead of the child’s lower rate.8Internal Revenue Service. Topic No. 553 – Tax on a Child’s Investment and Other Unearned Income
The kiddie tax applies when all of the following are true:
- The child is under 18 at year-end, or is 18 (or a full-time student aged 19 through 23) whose earned income does not cover more than half of their own support.
- The child has more than $2,700 in unearned income.
- The child is required to file a return and does not file a joint return.
- At least one parent is alive at year-end.
The first $1,350 of the child’s unearned income is covered by the standard deduction and is not taxed. The next $1,350 is taxed at the child’s own rate. Only unearned income above $2,700 gets taxed at the parent’s rate. This matters most for custodial accounts with significant balances throwing off investment income. Money inside a 529 plan grows tax-free and does not trigger the kiddie tax, as long as withdrawals go to qualified education expenses.
Effect on College Financial Aid
The account type also influences a child’s eligibility for college financial aid. On the FAFSA, a 529 plan owned by a parent is reported as a parent asset, which gets more favorable treatment in the aid formula. A custodial account is also reported as a parent asset while the parent serves as custodian, but once the child reaches the age of majority and takes control, those assets move to the student’s column, where they are assessed at a significantly higher rate.
If protecting financial aid is a priority, a 529 plan generally offers the most favorable treatment. It stays a parent asset regardless of the child’s age, and qualified distributions from a parent-owned 529 are not counted as student income. Custodial accounts create a more complicated picture as the child nears college age, especially once the minor gains outright ownership.
What Happens When the Minor Becomes an Adult
The biggest practical difference among the three methods shows up when the child grows up.
With a UGMA or UTMA account, the child gets full, unrestricted control of the assets on reaching the age of majority. No exceptions, no conditions, no way for you to take the money back.2Social Security Administration. POMS SI 01120.205 – Uniform Transfers to Minors Act That age varies by state, typically 18 to 21. A newly minted adult can drain the account without consulting anyone.
A 529 plan works differently. The account owner, not the beneficiary, keeps control indefinitely. You can change the beneficiary to another family member, take a non-qualified withdrawal (with tax consequences on the earnings), or leave the account open. The child never gains automatic access.
A trust gives you the most tailored outcome. The terms in the trust document control when and how distributions happen. You might require the beneficiary to reach age 25, finish a degree, or meet other conditions before receiving funds. For a large sum where you want to keep a young adult from spending it all at once, a trust is typically the most effective tool, though it comes with upfront legal costs and ongoing administration that custodial accounts and 529 plans do not.