Are you considering giving money to a child under age 18 (i.e., a minor) to help with their future – such as to help pay tuition, help buy a home or help start a business?

If so, then you probably don’t want to give the minor the money directly (either now or at your death). Instead you want the money held, and perhaps spent, for the minor and have what remains distributed when the child reaches a certain age.

What are your options? We will explore three: Trusts, custodial accounts and educational savings accounts.

Trusts are agreements between a settlor (you) and a trustee (you or someone else) to invest, manage and use trust assets for the benefit of the trust beneficiary, according to the terms of the trust document.

Typically, a trust is used when a significant inheritance is involved and also when a child with special needs receives “needs based” government assistance.

Trusts are desirable for many reasons. Trusts allow great control over the management of the assets and their distribution or use (such as an “incentive trust” that enables or rewards a beneficiary to reach certain goals).

A trust may exist for up to 90 years (so you can protect the assets) and may have multiple beneficiaries (such as a “children’s trust”). The cost of establishing and administering it – legal fees, trustee fees and other administration expenses – is a consideration.

If the money and other property to be gifted do not exceed $5,000, the gift can be given in trust to a custodial parent under a written assurance that the property will be held until the child reaches majority and that an accounting will be performed. This is a very simple type of trust with limited application.

When trusts are not used a custodial account under the California Uniform Transfer to Minors Act (‘CUTMA’) is often the next best solution. Money can be managed under custodial accounts for the benefit of one minor per account; assets must be converted to cash and split if there are two or more minors with each one having a separate account.

A custodial account is established by simply transferring an asset to a custodian to be held under a CUTMA document for the benefit of said minor. The custodian has great discretion. He may either distribute money directly to the minor or spend it for the minor’s well-being (i.e., to pay expenses), however the custodian sees fit, until the minor reaches majority, 18 years of age.

You can extend 18 to age 21 years (in the case of your lifetime gifts) and even to age 25 years (in the case of your testamentary gifts). Upon termination, all of what remains goes outright to the beneficiary.

Custodial accounts are desirable when small amounts of money are involved, and the costs of a trust are not justified. Furthermore, a custodial account allows you to avoid establishing a court supervised guardianship to control the money, which can be quite expensive and is less flexible as regards to the use of the funds.

That said, however, Trusts are more desirable when you wish to hold assets beyond the age of majority; when you wish to benefit more than one minor and do not wish to divide the trust assets in order to establish individual custodial cash accounts; and when you have specific wishes you want carried out.

Educational plans should also be considered. California has the Golden State Scholar Share Savings Trust – a so-called “Section 529 College Savings Account Program.” It can also be used for vocational schools and other post-secondary institutions that qualify for federal aid.

You can contribute cash (only) from after tax dollars into this plan. As donor you remain the owner of the funds and retain control over the account so that you can change the beneficiaries. The funds can pay for qualified educational expenses. Discuss this with your financial advisor.

Editor’s note: Dennis A. Fordham is an attorney licensed to practice law in California and New York. He earned his bachelor's degree at Columbia University, his juris doctor at the State University of New York at Buffalo, and his master's of law degree in taxation at New York University. Fordham concentrates his practice in the areas of estate planning and aspects of elder law. His office is at 55 First St., Lakeport. E-mail him at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235.