By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.
A minor child cannot take control of an inheritance, so parents of young children need a trust that holds the money until the kids are old enough. A testamentary trust is a trust written into your will; it only comes into existence after you die and your will goes through probate. Most California parents instead put the same instructions in a revocable living trust, which creates a separate “sub-trust” for the children at death without probate. Naming a minor directly on a life insurance policy or 401(k) usually sends the money into a court process instead.
This page is general education. Your documents should be drafted by an estate planning attorney licensed in California or Washington.
Why a young child needs a trust, not a direct inheritance
Insurers and plan administrators will not hand $1 million to a seven-year-old. Without a trust or custodian, a court supervises the money until the child is an adult. That matters more for a household earning $750,000 or more than for most families. Between group life insurance at work, a private term policy, two 401(k)s, a brokerage account with vested RSUs and home equity, a couple in their late thirties can easily leave $3 million to $6 million. Without a plan, that money reaches an 18-year-old in one lump sum after years of court oversight.
Three ways to hold money for a minor child
| Structure | When it starts | Probate? | When the child gets control | Best fit |
|---|---|---|---|---|
| Testamentary trust (in your will) | At death, after the will is admitted to probate | Yes, for assets that pass under the will | Whatever ages the will sets | Parents with few probate assets, or where probate is simpler (often Washington) |
| Children’s sub-trust inside a revocable living trust | At death, under the trust document | No, for assets titled in or payable to the trust | Whatever ages the trust sets | Most California homeowners with young children |
| UTMA custodianship | At transfer | No, if named by beneficiary form or trust | CA: 18 by default, up to 25 if a will or trust says so (21 for lifetime gifts); WA: 21, up to 25 if written in | Smaller amounts, a few gifts or a single account |
Testamentary trust: a trust created by your will
A testamentary trust is a set of instructions inside your will: “anything passing to my children goes to my trustee, to hold until they reach the ages below.” Nothing happens while you are alive. At death, the executor takes the will through probate, and the assets that pass under the will fund the trust.
Life insurance and retirement accounts can still reach a testamentary trust without going through probate themselves. In California, a beneficiary form may name “the trustee named in my will” (Cal. Probate Code §6321), and those proceeds are paid to the trustee without becoming part of probate administration once the will is admitted (§6323). The catch is timing: the trustee cannot receive anything until a court admits the will.
Living-trust sub-trusts: the usual California choice
A revocable living trust holds your assets while you are alive, with you as trustee. When both parents have died, the same document directs the successor trustee to hold the children’s share in a separate trust under the terms you wrote. Because the assets are already in the trust, there is no probate on them.
California probate on a Bay Area house can be slow and public, and the personal representative’s fee is set by statute on the value of the estate without subtracting the mortgage (§10810). That is why most California estate attorneys draft a living trust for parents who own a home. The trust only avoids probate for assets actually retitled into it (the house, brokerage accounts) or payable to it. An unfunded trust with a nice binder does little. Our guide to estate planning for parents in California and Washington covers the full document set.
Washington parents often find a will with a testamentary trust workable, because Washington probate can usually run with limited court involvement. That is a question for a Washington estate attorney, not a default.
UTMA custodianship: simpler, for smaller amounts
A custodian under the Uniform Transfers to Minors Act manages property for a child with no trust document at all. In California, a will, trust or beneficiary form can name “[name] as custodian for [child] under the California Uniform Transfers to Minors Act” (§3903). Control passes at 18 by default, and a will or trust transfer can delay it to no later than 25 if the delay is written in (§3920.5). In Washington, transfers by gift or under a will or trust end at 21, and the transferor can extend to 25 when first naming the custodian (RCW 11.114.200).
UTMA works well for a grandparent’s gift or a single modest account. For a $3 million estate it is a blunt tool: one age, no staging, and no way to say how the money should be used. See what happens to a UTMA when the child turns 21.
What happens if you name a minor directly
Parents often list their children as contingent beneficiaries on life insurance and 401(k) forms because the form asks for names. If both parents die, that choice sends the money into a court process.
- California. If a minor has no guardian of the estate, a parent may receive the child’s property only when the child’s total estate is $5,000 or less (§3401). Above that, a court can appoint a guardian of the estate, order the money into a blocked account that can only be withdrawn with court authorization, or order it transferred to a UTMA custodian (§3413). A guardian of the estate files accountings with the court for years, and whatever is left goes to the child at 18.
- Washington. A payer may transfer up to $15,000 in a 12-month period for a minor without a court-appointed conservator (RCW 11.130.575). For more than that, a court appoints a conservator to manage the minor’s property after a petition and hearing (RCW 11.130.360).
Either way, the court, not you, decides who manages the money, and the child typically receives everything outright at adulthood. The usual fix is to name the trust as contingent beneficiary instead.
Guardian and trustee are two different jobs
The guardian raises the children. The trustee manages the money. You can name the same person for both, but many families split them on purpose.
Your will is where you nominate a guardian. California lets a parent nominate a guardian of the person, the estate, or both (§1500). In Washington, the court appoints the guardian a parent nominated in a probated will or sworn record unless that appointment is against the child’s best interest (RCW 11.130.215). Name at least one backup for each role.
Splitting the roles gives the children a check. Your sister may be the right person to raise a four-year-old and the wrong person to invest $3 million or to judge whether a bigger house “for the kids” is fair.
Choosing the trustee
| Option | Strengths | Watch for |
|---|---|---|
| Family member or close friend | Knows the children and your values; often serves without a fee | Investment skill, record-keeping, family conflict, and whether they will still be willing in 20 years |
| Professional or corporate trustee | Continuity, reporting, investment process, neutrality | Annual fees, less personal judgment, minimum account sizes |
| Co-trustees (family member plus professional) | Family judgment on distributions, professional handling of investments and taxes | Two signatures on every decision; say how disagreements are resolved |
Write compensation into the trust. In California, if the trust says nothing, the trustee is entitled to “reasonable compensation under the circumstances” (§15681), which leaves room for argument. Many parents give a family trustee a modest fee plus expenses and permission to hire help.
When the children get the money: ages, stages and the HEMS standard
Most parents do not want a 25-year-old to receive $2 million in one check. A common design has two phases.
Before the first distribution age, the trustee may pay for each child’s health, education, maintenance and support. Estate lawyers call this “HEMS.” Federal regulations treat a power limited to health, education, support or maintenance as an ascertainable standard, not a general power of appointment (Treas. Reg. §20.2041-1(c)(2)). That matters when a trustee is also a beneficiary, for example a grown child who later becomes co-trustee of their own share: a HEMS limit is one reason the trust is not counted in that trustee’s estate. HEMS also gives the trustee a clear test when the guardian asks for money.
After that, principal is released in stages, so a mistake at 25 is not the end of the inheritance. The table below uses the younger child’s share from the worked example that follows.
| Age | Distribution rule | Illustrative amount |
|---|---|---|
| Birth to 25 | HEMS only: support, school, college, health | Paid as needed from the trust |
| 25 | One-third of the share | About $700,000 |
| 30 | One-half of what remains | About $850,000 |
| 35 | The rest; trust ends for this child | About $1,030,000 |
Assumes a $2.09 million share at 25 and 4% annual growth after taxes and fees. Amounts are rounded.
“One-half of what remains” at 30 keeps the three payments roughly even as the balance grows. Some parents add incentive terms, such as matching earned income. Keep them simple, or the trustee ends up guessing what you would have thought.
Worked example: $3 million left to two children aged 4 and 7
Assumptions (illustrative, not a forecast): A San Jose couple, both in biotech, household income $950,000. Both parents die in the same year. The children are 4 and 7. The trust receives $3 million: $2.4 million of term life insurance and $600,000 from two 401(k)s. The trust pays the guardian $36,000 a year per child for support until 18, then $85,000 a year per child for four years of college. Assets grow 4% a year after taxes and fees. To keep the math readable we ignore income tax on the 401(k) withdrawals, which would lower the numbers.
The key drafting choice is separate shares (each child gets half on day one) versus a common pot (one fund pays for both children until the younger one finishes college at 22, then splits equally).
| Scenario | Structure | Paid out for older child (support and college) | Paid out for younger child | Older child’s share at 25 | Younger child’s share at 25 |
|---|---|---|---|---|---|
| Equal needs | Separate shares, $1.5M each | $736,000 | $844,000 | About $1.95M | About $2.09M |
| Equal needs | Common pot until younger turns 22 | $736,000 | $844,000 | About $1.91M | About $2.15M |
| Younger child needs $25,000 a year extra (ages 4 to 17) | Separate shares, $1.5M each | $736,000 | $1,194,000 | About $1.95M | About $1.47M |
| Younger child needs $25,000 a year extra (ages 4 to 17) | Common pot until younger turns 22 | $736,000 | $1,194,000 | About $1.63M | About $1.83M |
What the numbers show:
- With equal needs, the choice barely matters.
- With unequal needs, it matters a lot. If the younger child needs learning support or therapy, separate shares leave that child about $480,000 behind the older sibling at 25. A common pot treats the children the way most parents do while alive: you pay for what each child needs, then divide what is left.
- A $3 million estate is enough to cover childhood and college and still leave each child well over $1 million at 25 under these assumptions. So when it is released, and what they understand about it, matters.
Two tax points for this family. Life insurance proceeds paid because of the insured’s death are generally not taxable income (IRS). Income a trust keeps rather than distributes is taxed at compressed rates: for 2026 a trust reaches the 37% federal bracket at just $16,000 of taxable income (Rev. Proc. 2025-32), so trustees and their tax preparers watch how much income stays inside the trust. If this family lived in Washington, the $2.4 million of insurance they owned on their own lives would be included in their Washington taxable estates. Each parent’s estate is measured against a Washington exclusion of $3,076,000 for deaths from January 1 to June 30, 2026 and $3,000,000 for deaths from July 1 to December 31, 2026 (WA DOR), well below the $15,000,000 federal basic exclusion for 2026 (IRS).
Beneficiary designations that point to the trust
For most young families, the largest assets at death are life insurance and retirement accounts, and neither follows your will or trust unless the beneficiary form says so.
- Primary beneficiary: usually your spouse.
- Contingent beneficiary: the trust, by exact name and date, for example “Trustee of the Chen Family Trust dated March 3, 2026.” Not “my children.”
- Check every account: group life at work, private term policies, 401(k), 403(b), IRAs, deferred compensation plans, HSAs and any transfer-on-death brokerage account.
- Retirement accounts need drafting care. A trust is not itself a designated beneficiary, but its beneficiaries can be treated as designated beneficiaries if the trust meets IRS requirements. A minor child of the account owner can take distributions over life expectancy until reaching the age of majority, then the 10-year rule applies (IRS Publication 590-B). Ask your attorney whether the trust should pass retirement distributions straight through to the child or hold them.
Recheck the forms after a new child or a job change. For inherited workplace accounts, see 403(b) inheritance rules for parents.
The letter of wishes: what the trustee should know about how you think
A trust document tells the trustee what they may do. It cannot tell them how you would have decided. A letter of wishes is a short, non-binding letter to the trustee and guardian that fills that gap, and it can be updated at any time without re-signing the trust.
Useful prompts:
- What should the trust pay for without question, and what should the kids earn themselves?
- How do you think about private school, a car at 16, study abroad, or a gap year?
- What did work mean to you, and what do you hope work means to them?
- How do you give, and would you like the children involved in giving from the trust?
As Kevin Luu puts it: “Your kids will inherit your money. Will they inherit your judgment?” This letter is the first entry many families make in a FamilyKnowledge® Library, the written record of how the parents made money decisions, so that a 25-year-old receiving a distribution can read why, not just how much.
Common mistakes we see in trusts for young children
- Naming the children directly as contingent beneficiaries on life insurance or a 401(k).
- Signing a living trust but never retitling the house or brokerage accounts into it.
- Naming the guardian as sole trustee by default, with no one to check the spending.
- One distribution age (often 18 or 21) with no stages.
- No letter of wishes, so the trustee has rules but no reasons.
For the questions to bring to the attorney meeting, see questions to ask an attorney about inheritance. For how families write down values for the next generation, see our family governance work, and the broader estate planning hub.
Questions parents ask
Is a testamentary trust or a living trust better for young children?
Both can hold money for children on the same terms. The difference is how assets get there. A testamentary trust is funded through probate, so it suits parents whose big assets pass by beneficiary form. A living trust avoids probate on retitled assets, which is why California homeowners usually choose it. Your attorney will weigh cost, your state’s probate rules and privacy.
At what age should children get money from a trust?
There is no legal answer; it is a values choice. Many parents allow spending for health, education and support at any age, then release principal in stages, such as one-third at 25, half of the rest at 30 and the remainder at 35. Staging means a poor decision at 25 still leaves most of the inheritance intact.
Can the guardian also be the trustee?
Yes, and it is simpler. The trade-off is that no one reviews spending decisions that also benefit the guardian’s household. Many parents name a separate trustee or a co-trustee so the person raising the children and the person approving large payments are not the same.
Your next step
Pull the beneficiary forms for every life insurance policy and retirement account you have and check the contingent line. If it names your children, that is usually the first thing to raise with your estate attorney. If you would like help seeing how your trust, beneficiary forms, equity compensation and tax picture fit together, the Age Five Family Office™ starts with a Tax & Wealth Assessment.
This is general education, not legal or tax advice, and the right structure depends on your family’s full picture and your state’s law.