When a will or intestacy law sends an inheritance to a child or to an adult who cannot manage money, the estate cannot write them a check. Probate for minor and incapacitated beneficiaries works through a protective vehicle — a custodial account, a special needs trust, an ABLE account, or a court-appointed guardian or conservator — chosen based on the beneficiary’s age, disability status, inheritance size, and whether they rely on government benefits. The estate cannot close until one of these structures is in place.
Why the Estate Cannot Pay the Beneficiary Directly
Anyone under 18, and any adult whose cognitive impairment, developmental disability, or similar condition prevents them from managing finances, cannot give the estate a valid receipt for inherited property. That is the practical reason for the delay: a person who cannot evaluate a contract or an investment cannot be handed assets and expected to protect them. The probate court requires a fiduciary to receive, hold, and manage the inheritance on the beneficiary’s behalf.
If the deceased person’s will or trust already named a custodian or trustee, probate follows that plan. If nothing was set up in advance, the court will hold the distribution open while a protective arrangement is created. For small amounts, some courts allow the funds to be placed in a restricted bank account that no one can touch without a court order, which avoids a full guardianship proceeding. For larger inheritances, the court requires a formal structure before releasing anything.
Options for a Minor Beneficiary
Custodial Account Under the Uniform Transfers to Minors Act
For most minor beneficiaries, the simplest structure is a custodial account under the Uniform Transfers to Minors Act, which nearly every state has adopted. A named custodian manages the inheritance without a formal trust or ongoing court supervision. The will or probate order must name a specific person as custodian and state that the gift is made under the Act for the minor’s benefit.1Legal Information Institute. Uniform Transfers to Minors Act
The custodian holds legal title to the assets, which can include cash, securities, and real estate. They can spend funds for the minor’s benefit but must keep records of every transaction. When the minor reaches the termination age set by state law, the custodianship ends and the beneficiary takes full control. In most states that age is 21; some set it at 18, and a handful allow extension to 25.1Legal Information Institute. Uniform Transfers to Minors Act
The tradeoff is simplicity against control. A custodial account is cheap to set up and avoids ongoing attorney fees and court oversight. But once the beneficiary hits the termination age, the money is theirs outright. For a large inheritance where spending restrictions should last past 21, a formal trust is the better fit.
Conservatorship for a Minor
When no custodial arrangement was created and the inheritance is too large for a restricted account, the court appoints a conservator to manage the money until the minor turns 18. A conservator handles property; a guardian handles the person’s physical welfare and daily decisions. One individual can hold both roles, but the court evaluates each separately. The appointment ends automatically when the beneficiary turns 18, and the conservator must deliver all remaining property directly to the now-adult former ward.
Options for an Incapacitated Adult Beneficiary
An incapacitated adult who receives Supplemental Security Income or Medicaid faces a problem that other beneficiaries do not. The SSI resource limit for an individual is $2,000, and countable assets above that threshold trigger a loss of benefits.2Social Security Administration. SSI Spotlight on Resources Even a modest inheritance can push someone over the line. The right vehicle holds the inheritance in a way that preserves eligibility.
Third-Party Special Needs Trust
When the deceased person’s assets fund the trust before the beneficiary ever takes legal ownership, it is a third-party special needs trust. This is the preferred structure. Whatever remains when the beneficiary dies passes to other family members or named beneficiaries, and the government cannot claim reimbursement for Medicaid costs paid during the beneficiary’s lifetime. There is no age restriction on establishing one.
First-Party Special Needs Trust
If the beneficiary has already legally inherited the assets, the funds belong to them and must go into a first-party trust. Federal law exempts these trusts from being counted as resources, but only if the beneficiary is under 65, is disabled, and the trust includes a Medicaid payback provision requiring any remaining funds at death to reimburse the state for Medicaid expenses.3Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets That payback requirement is the critical difference from a third-party trust, and the reason estate planners strongly prefer setting up a third-party trust before the beneficiary takes legal ownership.
Pooled Trust
A pooled trust is managed by a nonprofit organization that keeps a separate account for each beneficiary while investing the combined funds together. A parent, grandparent, legal guardian, the individual, or a court can establish one. Pooled trusts require a Medicaid payback provision for amounts not retained by the trust after the beneficiary’s death, but they have no age restriction for enrollment, making them an option for disabled individuals over 65 who cannot use a standard first-party trust.3Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
Whatever the trust type, the document must give the trustee discretionary control over distributions and limit spending to supplemental needs not covered by public benefits. Specialized medical equipment, education expenses, and personal transportation are common expenditures. Paying for food or housing directly can reduce SSI benefits, so trustees structure those outlays carefully.
ABLE Account
For smaller inheritances, an ABLE account offers a simpler alternative. These tax-advantaged savings accounts let eligible individuals with disabilities hold up to $100,000 without affecting SSI eligibility.4Social Security Administration. Spotlight on Achieving A Better Life Experience (ABLE) Accounts Starting in 2026, eligibility expanded to include anyone whose disability began before age 46.5Office of the Law Revision Counsel. 26 USC 529A – Qualified ABLE Programs
The annual contribution limit is $19,000 for 2026, so a larger inheritance would need to be deposited over multiple years or split between an ABLE account and a trust. If the account balance exceeds $100,000 and pushes total countable resources above $2,000, SSI payments are suspended until the balance drops.4Social Security Administration. Spotlight on Achieving A Better Life Experience (ABLE) Accounts ABLE accounts work well for inheritances under $100,000 where the administrative cost of a formal trust would consume a disproportionate share of the funds.
Getting a Guardian or Conservator Appointed
When no vehicle was set up in advance and the inheritance is too large for a restricted account or an ABLE account, someone has to petition for appointment as guardian, conservator, or both. Courts follow a preference order that favors close family: a spouse or domestic partner first, then adult children, then parents, then siblings. If no family member is available or suitable, the court may appoint a professional fiduciary. The court can reject any candidate whose appointment would not serve the beneficiary’s best interests.
The petition requires documentation. For a minor, a birth certificate establishes age. For an incapacitated adult, the court needs medical evidence — typically a physician’s evaluation describing functional limitations and explaining why the person cannot manage their own affairs. The proposed representative usually must pass a background check and give notice to all interested parties so that anyone with concerns can object.
Every appointed representative owes a fiduciary duty to the beneficiary, the highest standard the law imposes. Self-dealing is prohibited, and courts enforce the duty through mandatory reporting and personal liability.
Guardian ad Litem Review
A guardian ad litem is different from a long-term guardian. The court appoints one for the probate case itself, usually when a conflict of interest exists between the minor and their parents, or when an incapacitated person has no existing representative to review the executor’s work. The guardian ad litem investigates whether proposed distributions are fair, reviews the executor’s accounting, and checks that the inheritance is calculated correctly under the will or intestacy law. They file a written report recommending whether to approve or modify the distribution, and their role ends when the court enters a final order.
These fees are typically paid from the estate rather than from the beneficiary’s share, though the judge can allocate costs differently. For small inheritances, guardian ad litem fees can take a meaningful bite out of what remains.
Taxes the Vehicle Will Trigger
Kiddie Tax on Custodial Accounts
Investment income earned in a custodial account is taxed to the child. For 2026, if a child’s unearned income — interest, dividends, and capital gains — exceeds $2,700, the excess is taxed at the parent’s marginal rate rather than the child’s lower rate. This applies to children under 18, 18-year-olds with earned income below half their support, and full-time students aged 19 through 23 in the same situation. Parents can elect to report a child’s income on their own return if the total is under $13,500 and consists only of interest and dividends.6Internal Revenue Service. Topic No. 553, Tax on a Childs Investment and Other Unearned Income (Kiddie Tax)
Compressed Trust Brackets
Trusts that retain income rather than distribute it face compressed federal brackets. For 2026:
- 10% on taxable income up to $3,300
- 24% on $3,300 to $11,700
- 35% on $11,700 to $16,000
- 37% on income over $16,000
A trust hits the top 37% rate at just $16,000 in income, while an individual would not reach that rate until well over $600,000. Trusts with undistributed net investment income above the $16,000 threshold also owe an additional 3.8% net investment income tax.7Internal Revenue Service. Estimated Income Tax for Estates and Trusts (Form 1041-ES) Trustees often distribute income to beneficiaries to shift the tax to a lower individual rate. With special needs trusts, distributing income can jeopardize means-tested benefits, so the trustee weighs tax savings against benefit preservation.
Ongoing Court Duties and Costs
A guardian or conservator does not take the appointment and walk away. The first task is a detailed inventory of every inherited asset. Representatives are also frequently required to purchase a fiduciary bond, which protects the beneficiary if the representative mismanages or steals funds. Bond premiums typically run between 0.5% and 2% of total asset value annually, so a $200,000 inheritance might cost $1,000 to $4,000 per year to bond.
After the inventory, the representative must submit periodic accountings, usually annually. These reports track every dollar earned and spent and must be signed under penalty of perjury. Courts expect supporting documentation attached: bank statements, receipts, proof that assets listed as on hand actually exist, settlement statements for any real estate sold, and vouchers or canceled checks backing every disbursement in a guardianship.
Professional fiduciaries and corporate guardians charge hourly fees that typically range from $50 to $380 depending on complexity and jurisdiction. Those fees come out of the beneficiary’s assets, which is why smaller inheritances can be substantially eroded by years of professional management, and why a custodial account or ABLE account is often the better fit for modest amounts.
When the Arrangement Ends
For a minor, a conservatorship terminates automatically at 18. The conservator must deliver all remaining property to the now-adult former ward. If the minor’s disability will persist into adulthood, a petition for an adult conservatorship can be filed in the months before the 18th birthday so that a new protective arrangement is already in place at the transition.
For incapacitated adults, the guardianship or conservatorship continues until the court is satisfied the person has regained capacity, or until the beneficiary dies. Ending the appointment requires a final accounting covering the entire period of service, and the court reviews every transaction before entering an order of discharge. If the beneficiary still lacks capacity, the court will appoint a guardian ad litem to review the final accounting on the beneficiary’s behalf. The discharge order releases the former representative from further liability, but only for matters disclosed in the approved accounting.