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Trust Law/Level III · Family trusts/3.2 Trusts made by will/Lesson 2

Trusts for children until a set age

Keeping your child’s inheritance safe until they are ready

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. For smaller sums, a UTMA custodianship costs nothing to draft and a will or trust can direct property to it (e.g. Maine Title 33 §1656). Catch: the child takes everything at the state’s ending age, usually 18 or 21, in some states up to 25.
  2. California’s free statutory will lets you pick a custodian age from 18 to 25, with no bond required (Probate Code §6240). Catch: later ages or staggered payouts need a drafted trust.
  3. During life, pay tuition or medical bills directly: these payments are unlimited and outside the 2026 annual gift exclusion of $19,000 (IRC §2503(e)). Catch: payment must go straight to the school or provider, not to the child.
  4. A trust with HEMS payments and staggered ages avoids a court-supervised guardianship of the property. Catch: it must file Form 1041 in any year with $600 or more of gross income, and a trustee may claim reasonable pay (UTC §708) unless the terms say otherwise.

MaterialsA copy of a draft will or trust instrumentThe Uniform Transfers to Minors Act statute for your specific stateA list of potential trustees and their contact information

Wonder

  1. What happens if my child is 18 but still in college?
  2. Can I change the distribution ages after signing the will?
  3. Who manages the money while my child is a minor?

Explore

  1. Leaving money outright to a young adult worries many parents. In most US states adulthood begins at 18, and from then a young person can usually control any property left to them, whether or not they are ready. A trust, created either by a will or as a living trust, can instead keep the money with a trustee until a later age the parent chooses, such as 25 or 30. Until then, the trustee manages the money and pays for the child’s needs under the trust’s terms.
  2. A common design is staggered distribution. Instead of one payment, the trust might hand over part of the principal at several ages, for example one third at 25, one third at 30 and the rest at 35. Before those ages, many trusts let the trustee pay for the child’s health, education, maintenance and support, often shortened to HEMS. Depending on the wording, such payments can come from income, principal or both. Other trusts leave payments to the trustee’s discretion, which later lessons cover.
  3. A different tool is a custodianship under a state’s Uniform Transfers to Minors Act (UTMA). A custodian holds property for a child and must hand over what remains when the custodianship ends, at an age set by state law, usually 18 or 21; some states allow up to 25. UTMA transfers can be lifetime gifts, and states that follow the uniform act also let a will or trust direct property to a custodian (for example, Maine Title 33 §1656). A trust can set later ages, several payment dates and different rules for each child.
  4. Naming a guardian to care for your child is done in the will and is separate from naming the trustee who manages the money. The guardian makes day-to-day decisions about the child’s home, schooling and health; the trustee handles investments, records and payments under the trust’s terms. One person can hold both roles. Some families split them, so that the person spending money on the child is not also the person keeping the accounts. Courts generally give weight to a parent’s choice of guardian, but rules vary by state.
  5. Without a trust or a custodianship, an inheritance left to a minor in the US may need a court-appointed guardian or conservator of the child’s property. The court supervises that person, often requiring a bond and regular accounts, until the child reaches adulthood, and the child then receives what remains outright. A trust avoids that court process for the property it holds and lets the parent choose the ages, but only if the document is properly made and the property actually passes into the trust.
  6. A trust for children also has costs and duties. The trustee keeps records, invests prudently, may need to file yearly trust income tax returns, and must keep beneficiaries informed as state law requires. Under Uniform Trust Code §708, if the trust is silent, a trustee is entitled to reasonable compensation. Fees vary widely by state, trustee and trust size. Over a trust that runs for 15 or 20 years these costs add up, which is one reason some families weigh a simpler tool, such as a custodianship, for smaller amounts.

Key facts

  • In most US states adulthood begins at 18, and an adult can generally control property left to them outright.
  • A trust for children can be created by a will (a testamentary trust) or by a living trust.
  • Many children’s trusts let the trustee pay for health, education, maintenance and support (HEMS) before the set distribution ages.
  • UTMA custodianships end at an age set by state law, usually 18 or 21 (some states allow up to 25); a trust can set later ages.
  • Without a trust or custodianship, a minor’s inheritance in the US may need a court-supervised guardian or conservator of property.
  • The guardian named in a will manages personal care, which is distinct from the trustee who manages financial assets.

Exercise nine, six, three, one

9CollectList up to 9 worries or needs you have about a child receiving money at 18 (most families have fewer), such as college costs, debt, impulse spending, health care or a first home.
6ClusterSort these 9 worries into 6 categories based on whether they relate to health, education, lifestyle, protection from creditors, investment growth, or family dynamics.
3DistillReduce the 6 categories to 3 groups: needs before adulthood, needs in early adulthood, and long-term security.
1CrystallizeWrite 1 sentence describing the stage of life at which you think your child could manage money alone, and why.

Fact check

Dates, figures and claims checked against the published sources listed below.

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