Leaving Money to Minor Children: Trusts, UTMA Accounts and Who Holds the Money

Children cannot legally control large sums until adulthood, and leaving money outright can cause problems. Several tools exist to hold and manage assets for them, each with trade-offs in cost, control and flexibility.

Why not leave money directly

• Minors cannot sign contracts or manage property, so a court may appoint a conservator.
• Court supervision can be slow, public and costly.
• The child may receive everything at the age of majority, often 18, which may be too young.
• A guardian is not automatically the person you want managing money.

Main options

• UTMA or UGMA custodial accounts: simple, low-cost accounts managed by a custodian until the age set by state law, often 18 to 21, then owned outright by the child.
• A trust: a legal arrangement where a trustee manages assets under your instructions, including ages and purposes for distributions.
• A testamentary trust in a will, created at death, or a living trust created now.
• A 529 plan for education savings.

Choosing a trustee

• Choose someone trustworthy, organized and financially capable.
• Consider naming successor trustees.
• A professional trustee offers expertise but charges fees.
• You can split roles, with a family member as co-trustee and a professional for investments.

Setting trust terms

You can direct that money be used for health, education, maintenance and support, and distributed in stages, such as portions at 25, 30 and 35. You can include protections for a child with special needs or creditor and divorce protections. See our guide to special needs trusts.

Life insurance and retirement accounts

Name a trust or custodian as beneficiary rather than the child. Retirement accounts have special tax rules for inherited accounts, including required distribution timelines, so coordinate with a tax professional.

Costs and complexity

Trusts cost more to create than a simple custodial account but offer much more control. A living trust can also avoid probate. Compare fees, taxes and your family's needs.

Working with a lawyer

An estate planning lawyer can help set trust terms, coordinate beneficiary forms and ensure assets are titled correctly. Review as your children grow and your family's needs change.

Real-life scenarios

1. A parent names a trust as life insurance beneficiary with distributions at set ages.
2. A grandparent opens a UTMA account for a grandchild.
3. A family chooses a bank as co-trustee for investment expertise.

Common mistakes to avoid

• Naming a minor as direct beneficiary.
• Setting an age of distribution too young.
• Choosing an unsuitable trustee.
• Forgetting contingent beneficiaries.
• Not coordinating insurance and retirement accounts.
• Never updating terms.

Questions to ask a professional

• Is a trust or UTMA account better for us?
• At what ages should the child receive money?
• Who should be trustee and successor?
• How do taxes affect the choice?
• How should beneficiary forms be worded?

A practical action plan

1. Decide how much and when children should receive money.
2. Choose a vehicle and trustee.
3. Draft the documents.
4. Update beneficiary designations.
5. Review as circumstances change.

Terms you may hear

• UTMA: Uniform Transfers to Minors Act.
• Custodian: the person managing a UTMA account.
• Trustee: a person managing trust assets.
• Testamentary trust: a trust created by a will.
• Conservatorship: court-supervised management of a minor's property.

Frequently asked questions