Yes, a minor can inherit money in every U.S. state, but a child cannot legally manage what they receive. An adult custodian, trustee, or court-appointed guardian has to hold and manage the assets until the child reaches an age set by the type of account and the state’s law, which is usually 18 or 21 and sometimes later.
Children can be named in a will, listed as beneficiaries on a life insurance policy or retirement account, or take a share under state intestacy laws when someone dies without a will. Ownership is not the issue. A five-year-old can legally own a $500,000 inheritance. She just cannot open a bank account, sign an investment agreement, or authorize a real estate sale. That gap is why the money has to sit inside a legal structure until she grows up.
Small inheritances often skip the formalities. Many states set a threshold, frequently somewhere between a few thousand and $15,000, below which the money can be paid directly to a parent or placed in a simplified custodial arrangement without full court involvement. Anything above that threshold triggers one of the structures below.
Custodial Accounts Under UTMA
The most common vehicle for a child’s inheritance is a custodial account established under the Uniform Transfers to Minors Act. Nearly every state has adopted some version of this law. A designated custodian holds legal title and manages the money, investments, real estate, or other property on the child’s behalf, with no trust document and no court oversight required.
The custodian has to follow a prudent person standard, meaning the assets must be handled with the same diligence a reasonable person would use with someone else’s property. That is a real fiduciary duty with legal consequences if it is violated. Within that duty, the custodian has broad discretion to spend for the child’s health, education, or general welfare without asking a judge for permission, which is what makes UTMA accounts so much more flexible than guardianships.
One rule catches parents off guard. UTMA money cannot replace a parent’s legal duty of support. If you are both the parent and the custodian, you cannot use the account to pay for basic food and shelter you would already owe the child. The money supplements parental support; it does not substitute for it.
Trusts for Minors
Trusts offer more control than a custodial account, and two forms come up most often for inherited assets.
A Section 2503(c) minor’s trust is built to satisfy an IRS regulation that lets contributions qualify for the annual gift tax exclusion. The tradeoff is that the beneficiary must be allowed to take full control at age 21, and if the beneficiary dies before then the assets must be payable to their estate or subject to a general power of appointment. Useful for tax planning, restrictive on timing.1eCFR. 26 CFR 25.2503-4 – Transfer for the Benefit of a Minor
A testamentary trust, written into a will, gives the person doing the estate planning far more latitude. The will can dictate how the trustee invests, what expenses qualify for distributions, and when the beneficiary gets the balance. That release can be set well past 21 — some trusts hold until 30 or 35, or pay out in stages.
Tax Filing for the Trust
Any trust that earns more than $600 in gross income during a tax year has to file its own return on Form 1041 and get a separate Employer Identification Number from the IRS.2Internal Revenue Service. Instructions for Form 1041 A simple pass-through trust that distributes all income passes the tax to the beneficiary. A trust that accumulates income pays tax itself, at compressed rates that hit the top bracket much faster than individual rates do. Talk to a tax professional before choosing a structure.
A revocable trust set up during someone’s lifetime can sometimes use the grantor’s Social Security number while the grantor is alive, but once the grantor dies the trust becomes irrevocable and needs its own EIN.3Internal Revenue Service. Assigning Employer Identification Numbers A testamentary trust that springs into existence at death always needs its own EIN from the start. If a minor is the one applying, a parent’s or legal guardian’s Social Security number is required on the application.
Court-Appointed Guardianship of the Estate
When no trust or custodial account is in place, the probate court steps in. A judge appoints a guardian of the estate (called a conservator in some states) to manage the child’s inherited assets. This is a separate role from guardian of the person, who handles physical care. The same individual can do both jobs, but the duties differ.
Court-supervised guardianship is the most expensive and burdensome path, which is why estate planners work so hard to avoid it. The guardian usually has to post a surety bond, essentially an insurance policy that repays the estate if the guardian mishandles the money. Bond premiums typically run 1% to 3% of the bond amount per year, so a $200,000 inheritance can cost $2,000 to $6,000 annually in premiums alone.
Courts also require annual accountings that list every dollar received and spent. Preparing them almost always requires an attorney, adding several hundred to over a thousand dollars in legal fees each year. Inherited funds are held in a blocked account, and no withdrawal happens without a court order. Tuition, medical care, anything: the guardian has to file a petition and wait for the judge, which can take weeks.
Inherited Retirement Accounts
When a minor inherits an IRA or 401(k) from a parent, the child qualifies as an “eligible designated beneficiary” under the SECURE Act, which gives more favorable distribution rules than most non-spouse beneficiaries get.4Internal Revenue Service. Retirement Topics – Beneficiary
While the child is still a minor, required minimum distributions are calculated on the child’s life expectancy, keeping annual taxable amounts small. Once the child turns 21 — the age the IRS uses nationwide for inherited retirement accounts, regardless of what the state considers the age of majority — that favorable treatment ends. A 10-year clock starts, and the entire remaining balance has to be withdrawn by the end of the tenth year.4Internal Revenue Service. Retirement Topics – Beneficiary
A minor cannot manage the inherited IRA directly. A custodian or guardian opens the inherited IRA in the child’s name and handles the required distributions until the child is old enough to take over. Missing a required distribution triggers a steep penalty, so whoever manages the account needs to understand the annual withdrawal rules.
Life Insurance Proceeds
Insurance companies will not pay a death benefit directly to a minor. If a child is named as the beneficiary, the insurer holds the money until an adult with legal authority comes forward. For smaller payouts, often $10,000 or less, some insurers release funds to a surviving parent who agrees in writing to use them for the child. Larger amounts typically require a court-appointed guardian or an existing custodial account before the insurer will release anything.5U.S. Office of Personnel Management. If My Child Is Not Yet of Legal Age, Do I Have to Appoint a Legal Guardian if My Child Is My Beneficiary
If no one claims the funds and state law requires a guardian, the insurer may open an interest-bearing account and hold the proceeds until the child reaches the age of majority. The money is safe, but it is locked away entirely, with nothing available in the meantime for education or medical costs. Naming a trust or a UTMA custodian as the beneficiary, rather than the child directly, avoids this problem.
Tax Consequences of the Income
An inheritance itself is not taxable income. Once the money starts generating interest, dividends, or capital gains, though, the IRS pays attention. Under the kiddie tax, if a child’s unearned income exceeds $2,700, the excess is taxed at the parent’s marginal rate rather than the child’s. The child files a return with Form 8615 attached.6Internal Revenue Service. Topic No. 553, Tax on a Childs Investment and Other Unearned Income (Kiddie Tax)
If the child’s total investment income stays below $13,500, a parent can elect to report it on their own return using Form 8814 instead of filing separately for the child. The paperwork is simpler; the tax bill is sometimes higher. Run the numbers both ways.6Internal Revenue Service. Topic No. 553, Tax on a Childs Investment and Other Unearned Income (Kiddie Tax)
The kiddie tax applies to children under 18, to 18-year-olds whose earned income doesn’t cover more than half their support, and to full-time students under 24 who meet the same earned-income test. A sizable inheritance in a diversified portfolio can easily generate enough income to trip these rules.
Protecting Government Benefits
This is where families make the most expensive mistakes. If a child receives Supplemental Security Income or Medicaid, inheriting money can disqualify them immediately. The SSI countable resource limit is just $2,000 for an individual, a figure that has not changed in decades, and even a modest inheritance can push a child over that threshold and cut off both monthly payments and health coverage.7Social Security Administration. SSI Spotlight on Resources8Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
Two tools protect eligibility. A special needs trust (also called a supplemental needs trust) holds inherited assets outside the child’s countable resources. The trustee can pay for supplemental needs that government benefits don’t cover, such as specialized therapy, adapted equipment, or recreational activities, without jeopardizing SSI or Medicaid. A probate court can order inherited funds placed directly into a special needs trust, and this should be raised with the judge before any distribution occurs.
An ABLE account is a simpler option for children who became disabled before age 26. Up to $100,000 in an ABLE account is excluded from the SSI resource limit, and Medicaid imposes no cap on exempted ABLE funds. Courts can order inherited money deposited into an ABLE account, which is practical when the inheritance is small or when the family wants to avoid the cost of setting up a formal trust.
Effect on College Financial Aid
How the inheritance is held changes how heavily it counts against financial aid. A UTMA account is legally owned by the child and gets reported as a student asset on the FAFSA. Student assets are assessed at 20% in the Student Aid Index, compared with 7% to 12% for parent assets. A $50,000 UTMA account can reduce aid eligibility by as much as $10,000 in a single year.9Federal Student Aid. 2026-27 Student Aid Index and Pell Grant Eligibility Guide
Trusts get more nuanced treatment. A trust with voluntary restrictions, meaning the grantor chose to limit access, is reported as if those restrictions didn’t exist. A trust with court-imposed restrictions, such as a blocked account created through a guardianship, may not count as a reportable asset. Families with significant inherited assets should talk to a financial aid advisor before the child’s freshman year.
When the Child Gets Full Control
The age at which a child gains unrestricted access depends on the account type and the state. UTMA accounts terminate at 21 in most states, though some allow the person setting up the account to pick a termination age from 18 to 25. A few states permit later ages; Wyoming allows termination as late as 30.
For inherited retirement accounts, the IRS uses 21 nationwide regardless of state law. At that age the child loses eligible designated beneficiary status and the 10-year distribution clock starts.4Internal Revenue Service. Retirement Topics – Beneficiary
Court-supervised guardianships end at the state’s age of majority, typically 18. The guardian files a final accounting of every transaction over the life of the guardianship and petitions the court for discharge. Once the judge signs off, the court orders the bank to unblock the account and transfer control to the now-adult beneficiary. If the accounting reveals money that cannot be explained, the guardian is personally liable, and the surety bond covers the shortfall up to the bond amount.
Handing a potentially large sum to an 18- or 21-year-old is the biggest drawback of custodial accounts and guardianships. Trusts avoid the cliff by staggering distributions or tying releases to milestones. When the inheritance is large enough to justify the cost of setting up and administering a trust, the added control over timing is usually worth it.