Legacy · 5 min read · Updated November 10, 2026

Leaving money to minors: UTMA accounts and trusts

Illustrative examples, education not advice.

In plain words

In most states, a child under 18 cannot legally control significant money or property. If you leave life insurance, a retirement account or an inheritance directly to a minor, the company holding it often cannot just hand it over. A court may need to appoint someone to manage it. That takes time, costs money and can mean a judge supervising every withdrawal.

There are two common ways to plan ahead:

A custodial account (UTMA or UGMA). An adult custodian manages money that legally belongs to the child. When the child reaches the state’s age of termination, usually 18 or 21 and in a few states later, the child gets full control.
A trust. A trustee manages the money under your written rules. You choose the ages and conditions for payouts. It can last well beyond 21.

How it helps real people

Avoids court-supervised guardianship of money, which can be slow and public.
Puts a trusted adult in charge of investing and spending for the child.
Lets you set timing. With a trust, money can be paid in stages, such as a third at 25, 30 and 35.
Protects the money from a young adult’s poor choices, a future divorce or creditors, if the trust is drafted for it.

How they compare

	UTMA/UGMA account	Trust for the child
Setup cost	Low; opened at a bank or brokerage	Higher; drafted by an attorney
Who controls it	Custodian until state age (often 18–21)	Trustee, for as long as you set
Child’s access at adulthood	Full and automatic	Only as your rules allow
Can hold insurance proceeds	Yes, with limits in some states	Yes
Flexibility	Must be used for the child	Can include goals, incentives, several children
Effect on college aid	Counted as the student’s asset	Depends on terms

Both can work with life insurance. For larger sums, many families name a trust as the beneficiary of their policy so the payout is managed for the children.

Taxes in brief

Investment income in a child’s name can be subject to the kiddie tax. For 2026, the first $1,350 of a child’s unearned income is generally tax-free, the next $1,350 is taxed at the child’s rate, and amounts above $2,700 are generally taxed at the parents’ rate. The rules apply to most children under 19, and to full-time students under 24.

Trusts that keep their income pay tax at compressed rates. For 2026, a trust reaches the top 37% rate on income above $16,000. Many trusts pay income out to beneficiaries to manage this.

Gifts into either option count toward your gift tax annual exclusion, which is $19,000 per recipient for 2026.

A worked example

Illustrative. Ben and Hana, both 39, are fictional. They have two children, 4 and 7. Each parent has a $750,000 term life policy.

Before: The policies named “my children” as contingent beneficiaries after each other. If both parents died, the insurer might need a court-appointed conservator, and each child could receive their share outright at 18.

After: They create a revocable living trust with a children’s sub-trust. They name it as contingent beneficiary on both policies. The trustee, Hana’s sister, can pay for housing, school and health. Each child receives a third of their share at 25, a third at 30 and the rest at 35.

Grandparents who want to help separately put $5,000 a year into a custodial account for each child. That is fine for smaller gifts, knowing the child controls it at the state age.

These figures are illustrative only.

Who it’s for

Parents of children under 18.
Grandparents or relatives leaving money to young family members.
Anyone naming a minor as a beneficiary of life insurance or a retirement account.

Who it’s not for

If the amount is small, a custodial account or a simple 529 plan may be enough, and a trust may cost more than it saves.
If the child has a disability and may need public benefits, a regular UTMA or trust can cause problems. A special-needs trust is usually the better tool.

Risks and trade-offs

UTMA control ends automatically. You cannot delay it once the child reaches the state’s age.
UTMA gifts are irrevocable. The money belongs to the child.
Trusts cost more to set up and run, and they need a capable trustee.
College aid. Assets in the child’s name can reduce need-based aid more than parent-owned assets.
Tax at trust rates can be high if income is kept in the trust.

Common mistakes

Naming a minor directly on a life insurance or retirement account form.
Assuming the guardian automatically controls the money. Raising a child and managing their inheritance are separate legal roles.
Using a UTMA for a large inheritance when you would not want an 18- or 21-year-old to have it all at once.
Forgetting to name a successor custodian or trustee.
Putting assets for a disabled child in a regular account, which may affect benefits.

FAQs

At what age does a UTMA end?

It depends on your state and sometimes how the account was set up. It is often 18 or 21, and some states allow up to 25.

Can a trust be named as a life insurance beneficiary?

Yes. This is one of the most common ways to manage a payout for young children.

Is a 529 plan better than a UTMA?

For education savings, a 529 often has better tax treatment and the owner keeps control. A UTMA can be used for any purpose that benefits the child.

Who should be trustee?

Someone responsible, organized and trusted, and often not the same person as the guardian, so there are checks and balances. A professional trustee is another option for larger sums.

Your next step

Ask VeraLife (/#ask) how to set up beneficiaries so money for your children is managed the way you want.

Education, not advice. Examples are illustrative. VeraLife.ai is not a registered investment adviser, broker-dealer or insurance agency.