Grandparents, aunts, uncles, and close family friends often want to leave meaningful gifts to the next generation. Whether you hope to help fund a grandchild’s education, provide a financial foundation for a niece or nephew, or simply share what you’ve built with those who come after you, your intentions are generous. However, leaving money or property directly to a minor can create unintended complications—and in some cases, the very gift you hoped would help may instead create burdens for the recipient’s family.
Understanding how California law treats gifts to minors can help you structure your generosity in a way that truly benefits the people you care about.
What Happens When You Leave Assets Directly to a Minor
Under California law, minors generally cannot hold significant assets in their own names. If you name a grandchild or other young beneficiary directly in your will or as the beneficiary of a life insurance policy or retirement account, and that person is still under 18 when they inherit, the funds cannot simply be handed over to them.
Instead, the court may need to appoint a conservator to manage the inherited money until the minor reaches adulthood. This conservator—who may or may not be one of the parents—must follow strict legal requirements: reporting to the court regularly, seeking judicial approval for many expenditures, and accounting for how every dollar is spent.
Once the recipient turns 18 (or 21, depending on the circumstances), whatever remains of the inheritance is typically distributed in a single lump sum—regardless of whether they are financially mature enough to manage it responsibly.
This outcome often surprises families. A grandparent who imagined their gift helping with college tuition or a first home may not have anticipated that an 18-year-old would receive the entire sum outright, with no guidance or conditions attached.
Why Court Oversight Creates Challenges
When a minor’s inheritance comes under court supervision, several practical difficulties can arise:
- Costs add up. Filing fees, conservator compensation, attorney involvement, and accounting requirements all reduce the amount ultimately available for the beneficiary. What started as a generous gift may be substantially diminished by administrative expenses.
- Flexibility is limited. The court must apply legal standards consistently, which means it cannot easily accommodate a particular minor’s unique circumstances. If the beneficiary would benefit from music lessons, a special camp, or educational travel, the conservator may need to petition for approval—a process that takes time and money.
- Family dynamics can become strained. Parents may find it frustrating to seek judicial permission to use inherited money for their own son or daughter. The process can feel intrusive, particularly when they are responsible for all other aspects of raising and caring for the child.
- Privacy is compromised. Court proceedings become part of the public record, meaning details about the inheritance and how it’s being managed are accessible to anyone who cares to look.
Custodial Accounts: A Common but Limited Option
Many grandparents and relatives are familiar with custodial accounts established under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). These accounts allow an adult custodian to manage money for a minor without court involvement, which addresses some of the concerns described above.
However, custodial accounts have a significant limitation: the beneficiary gains full control at a set age—typically 18 or 21 in California, depending on how the account was established. At that point, the money belongs to them outright, with no restrictions on how it can be used.
For modest gifts, this may be perfectly acceptable. For larger amounts, or when you have specific hopes for how the inheritance might be used, a custodial account may not provide the protection or guidance you envision.
A More Flexible Approach: Using a Trust
For many families, a trust offers the most effective way to leave assets to minors. A trust allows you to specify not only who will manage the inheritance but also when and how the beneficiary will receive it.
You have two primary options:
- Create your own trust for the beneficiary. You can establish a trust—either during your lifetime or through your estate plan—that holds assets specifically for your grandchild, niece, nephew, or other recipient. You name a trustee to manage the inheritance, and you set the terms: perhaps distributions for education and health needs during childhood, with the remainder distributed at age 25, 30, or in stages over time.
- Contribute to a trust the parents have already established. If the parents have created a revocable living trust that includes provisions for their children, you may be able to direct your gift to that existing structure. This approach consolidates management, avoids duplication, and ensures your gift is governed by the same guidelines the parents have thoughtfully established.
Either approach avoids court involvement, provides flexibility to address changing needs over time, and allows you to specify conditions that reflect your values and intentions.
Choosing the Right Trustee
If you create your own trust, selecting the right trustee is essential. This person or institution will be responsible for managing the assets, making distribution decisions, and balancing current needs against long-term goals.
Many people name a trusted relative—perhaps one of the parents, an older sibling, or another family member with financial acumen. Others prefer the objectivity of a professional trustee, such as a bank or trust company, particularly for larger amounts or when family dynamics are complicated.
Some families use a combination: a relative who understands the beneficiary’s needs working alongside a corporate co-trustee that handles investment management and administrative tasks. This arrangement can provide both personal knowledge and professional expertise.
When evaluating candidates, consider their financial judgment, availability, relationship with the beneficiary, and willingness to make difficult decisions if requests arise for purposes that may not align with your intentions.
Structuring Distributions: Common Approaches
One of the primary advantages of using a trust is the ability to determine when and under what circumstances the beneficiary receives their inheritance. Rather than a single distribution at age 18, you can design a structure that balances access with protection.
Age-based distributions release portions at specified ages. For example, a grandchild might receive one-third at 25, one-third at 30, and the remainder at 35. This graduated structure allows young adults to learn from managing smaller amounts before receiving the full inheritance
Milestone-based distributions tie access to specific achievements—completing a college degree, purchasing a first home, or starting a business. This method can encourage goals you value while still providing meaningful support.
Discretionary distributions authorize the trustee to distribute funds for health, education, maintenance, and support as needs arise. This flexible arrangement allows the trustee to respond to circumstances you cannot anticipate while following your general guidance.
Many trusts combine these options—allowing discretionary distributions during the beneficiary’s younger years, followed by scheduled distributions at certain ages. Your estate planning attorney can help design a structure that reflects your goals and the recipient’s circumstances.
Coordinating with the Child’s Parents
Open communication with the parents can make your gift more effective. They may already have an estate plan that addresses how assets should be managed for their children. If so, directing your gift to their existing trust—rather than creating a separate structure—can simplify administration and ensure consistency.
Even if you prefer to create your own trust, discussing your intentions with the parents can be valuable. They can share insights about the beneficiary’s needs, temperament, and circumstances that might inform how you structure distributions. They may also have thoughts about trustee selection or concerns you hadn’t considered.
This conversation doesn’t mean giving up control over your gift. You can still establish your own terms and conditions. But coordinating with the parents helps ensure your generosity achieves what you intend—and doesn’t inadvertently create complications for the people you’re trying to help.
Book Your Introductory Meeting Today
Meet with our team for 30 minutes to discuss how to structure gifts to grandchildren and young beneficiaries in a way that reflects your intentions and protects their interests. We’ll help you understand if we’re the right fit for your situation.
Ready to get started? Call us at (650) 405-0711 or complete our online contact form to schedule your meeting.
