How Minor Children Receive Inheritance in North Carolina: Guardians, Custodians, and Trusts

When you’re already grieving the loss of a parent, grandparent, or other loved one, the thought of managing inheritance for minor children can feel overwhelming. You’re responsible not just for settling the estate but for protecting a child’s financial future. The legal questions pile up: Do I need a court-appointed guardian? What’s a custodian? Can I just put the money in a bank account in my name? Should there be a trust? At what age does the child get the money?

The good news is that North Carolina offers several clear legal frameworks for managing inheritance for minors, each with different protections and flexibility. Understanding your options, and choosing the right one, matters enormously for the child’s financial wellbeing.

Afterpath’s Pathfinder guide can analyze your specific situation, the child’s age, the inheritance amount, your state of residence, and your family structure, to recommend the best approach. Our compliance engine ensures you follow NC law precisely, preventing costly mistakes like distributing funds incorrectly. For complex situations involving substantial inheritances or family conflict, Afterpath’s marketplace connects you with NC family law and estate attorneys specializing in minor’s trusts.

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Understanding Your Options

When a minor inherits property in North Carolina, the law requires that someone hold and manage that property on their behalf until they reach the age of majority (18 in NC). You cannot simply give $50,000 to a 12-year-old and expect them to manage it responsibly. NC law recognizes this and offers you distinct legal vehicles:

Option 1: UTMA Custodial Account – The simplest approach for straightforward inheritances. A custodian holds funds in a dedicated account and manages them for the child. At age 21, the child takes control.

Option 2: Guardianship of the Estate – A court-supervised arrangement where a guardian is appointed to manage the minor’s property. Requires annual accounting to the court.

Option 3: Testamentary Trust – Created in the deceased person’s will. The trustee manages funds according to detailed instructions and distributes at ages the will specifies (age 25, 30, etc.).

Option 4: Living Trust or Revocable Trust – Created before death. Can include specific instructions for minor beneficiaries and avoids probate.

Each has different costs, flexibility, and legal protections. Choosing the right one depends on the inheritance amount, the child’s age, and your family’s complexity.

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Option 1: UTMA Custodial Accounts

The Uniform Transfers to Minors Act (UTMA) is NC’s vehicle for transferring property to minors in a simplified way. It’s the easiest and least expensive option for most situations.

How a UTMA account works:

A custodian (you, or whoever is named in the will or estate documents) opens a custodial account in the child’s name at a bank, brokerage, or investment firm. The custodian controls the account and signs all transactions. The child’s Social Security number is used (not the custodian’s).

Example: Sarah’s mother dies and leaves her $30,000. Sarah’s father (the executor) opens a UTMA account at a NC bank titled “John Smith, Custodian for Sarah Smith under the NC Uniform Transfers to Minors Act.” John can invest the funds, write checks for Sarah’s education, medical, or living expenses, and manage the account until Sarah turns 21.

Key features:

• Simple to set up – Most banks offer UTMA accounts; no court approval required
• Inexpensive – No attorney fees, no court costs, no ongoing administration
• Tax efficient – Each year, the child has a personal exemption; earnings above that are taxed to the child (often at lower rates than the custodian’s rate)
• Custodian has flexibility – Can spend funds on the child’s benefit without court approval
• Automatic termination – At age 21 (or 18 if the account was opened under the Gifts to Minors Act), the child automatically receives all funds

When UTMA is best:

• Inheritance is modest ($50,000 or less)
• The child has only one or two sources of inheritance
• No complex family situation or conflict
• You want simplicity over control

Limitations of UTMA:

• All funds go to the child at age 21 – You have no control over this. The child receives the inheritance at 21 even if you think they’re not responsible enough.
• Custodian can be personally liable – If funds are mismanaged or misused, the custodian can be held responsible
• Limited flexibility – The custodian cannot make gifts from the account or delay distribution
• Not ideal for large inheritances – For $500,000+, you typically want a trust with more control and flexibility

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Opening a UTMA Account

Steps to open a UTMA account:

1. Choose a custodian – This is typically the executor, parent, or other trusted family member. You can also name a successor custodian in case the first custodian dies or becomes unable to serve.

2. Choose a financial institution – Banks, credit unions, investment firms (Fidelity, Schwab, Vanguard) all offer UTMA accounts. Choose based on:

   • Where you want funds invested (conservative savings account vs. growth investments)
   • Fees (look for institutions with minimal custodial fees)
   • Accessibility (local bank or online)

3. Gather required documents:

   • The minor’s Social Security number
   • The custodian’s Social Security number
   • Government ID for the custodian
   • Death certificate (to prove the source of funds is an inheritance)
   • Will or other documentation showing the child should inherit

4. Complete the application – The financial institution provides the UTMA account form. Complete it with:

   • Minor’s name and SSN
   • Custodian’s name and SSN
   • Account type (UTMA under NC law)
   • Successor custodian (optional, but recommended, names who takes over if you die)

5. Fund the account – Deposit inherited funds directly into the UTMA account. If funds are in the estate checking account, write a check from the estate to the “UTMA account name.”

6. Maintain records – Keep the account statement, the UTMA agreement, and records of all transactions. You’re required to account for the funds.

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Managing UTMA Funds as Custodian

Once the account is open, you have fiduciary duties, legal obligations to manage the funds properly.

Your responsibilities as custodian:

1. Invest prudently – Invest in a reasonable mix of safe and growth investments. Conservative (savings account, CDs, bonds) for young children; slightly more growth-oriented for teenagers.

2. Use funds only for the minor’s benefit – You can spend UTMA funds on:

   • Education (tuition, books, room and board at college)
   • Medical and healthcare expenses
   • Living expenses (food, housing, clothing)
   • Reasonable activities and enrichment (sports, music lessons)

   You cannot spend funds on:

   • Your own personal expenses
   • Things you would pay for anyway (as a parent)
   • Gifts to other family members
   • Loans to yourself

3. Keep detailed records – Document every transaction, including:

   • Deposits and withdrawals
   • Investment purchases and sales
   • Income earned (interest, dividends)
   • Any expenses paid from the account

4. File tax returns if needed – If the UTMA account earns income, you may need to file a Form 1040 for the minor with the account’s earnings reported. Consult a tax professional.

5. Account to the child when they reach 21 – At age 21, the child takes control and is entitled to a full accounting of all transactions. Be prepared to show records.

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Option 2: Guardianship of the Estate

If the inheritance is substantial or complex, or if you want court oversight, you can petition to be appointed as guardian of the minor’s estate.

How court-supervised guardianship works:

A petition is filed with the District or Superior Court. After a hearing, a judge appoints you as “guardian of the estate” (distinct from guardian of the person, which relates to custody and upbringing). The guardian then manages the minor’s property under court supervision.

When guardianship is recommended:

• Inheritance exceeds $100,000
• Property is complex (real estate, business interest, investment portfolio)
• The minor has multiple sources of wealth
• Family conflict exists and court oversight is protective
• The executor and the person managing the inheritance are different people

Advantages of guardianship:

• Court oversight – The judge and court provide oversight, reducing risk of mismanagement
• Annual accounting required – You file an annual report with the court showing all income, expenses, and investments. This creates accountability.
• Legal protection – Court approval of major decisions (like selling inherited real estate) protects you from liability
• Flexibility – You can petition the court for permission to do things UTMA custodians cannot (make gifts, delay distributions)

Disadvantages of guardianship:

• Expensive – Attorney fees to petition the court, court costs, annual accounting fees
• Time-consuming – You must file annual reports; the court may require a guardian ad litem (attorney for the child); any major decisions require court approval
• Public record – Unlike UTMA accounts, court proceedings are public
• Ongoing obligations – You remain accountable until the child turns 18 (or 21 in some cases)

Annual accounting to the court:

Each year, you file a “Guardian’s Account” with the court showing:

• Beginning balance
• All income received (interest, dividends, rental income)
• All expenditures (expenses for the minor’s benefit)
• Ending balance
• Where funds are invested

The child’s attorney (guardian ad litem) may review this. In some cases, the court approves without objection; in others, there may be a hearing.

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Option 3: Testamentary Trust

If the will specifies a trust for minor beneficiaries, a testamentary trust is created as part of probate.

How a testamentary trust works:

The will names a trustee and provides detailed instructions about how funds should be managed, when distributions should occur, and how to handle the funds if the child dies before reaching the designated age.

Example: “I leave $100,000 in trust for my daughter Sarah. The trustee shall provide for her education, health, and maintenance until age 25, when she receives one-third of the balance. At age 30, she receives the remaining balance. If Sarah dies before receiving her inheritance, the balance goes to her siblings.”

Advantages of a testamentary trust:

• Detailed control – The will specifies exactly how funds are managed and when distributions occur
• Professional trustee – Often a bank or professional trust company manages the funds
• Flexibility – You can set distribution ages (not just 18 or 21)
• Tax benefits – Trusts can minimize taxes through careful income distribution

Disadvantages of a testamentary trust:

• Probate required – The trust is created through probate, so the will must be filed and the estate must be open (6-18 months)
• Ongoing costs – Trustee fees, tax returns (Form 1041 annually), potential court supervision
• Less privacy – Trust administration is part of the probate file, which is public
• Inflexibility – Once the will is probated, it’s difficult to change the trust terms even if circumstances change

If there’s a testamentary trust, who is the trustee?

The will names a trustee, often a family member (parent, sibling), but can also be:

• A bank’s trust department
• A professional trust company
• A friend or family member with financial expertise
• A co-trustee arrangement (family member + bank)

The trustee has the same fiduciary duties as a UTMA custodian: invest prudently, use funds only for the child’s benefit, maintain records, file annual tax returns.

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Option 4: Living Trust or Revocable Trust

If the deceased created a living trust before death and named minor beneficiaries, the trust terms control how the child’s inheritance is managed.

How this works:

A revocable (living) trust is created during the grantor’s lifetime. It specifies what happens to the grantor’s property after death, including distributions to minor beneficiaries. The trustee named in the trust manages the property.

Advantages:

• Probate avoidance – The trust property passes directly to the trustee without probate, so the child’s inheritance is available quickly
• Privacy – The trust is not filed with the court, so terms remain private
• Flexibility – The grantor can specify exactly what ages and conditions apply to distributions
• Continuity – The same trustee can manage multiple properties and sources of wealth

Example: Sarah’s grandmother created a living trust that leaves $50,000 in trust for Sarah. The trust specifies that at age 21, Sarah receives half the balance; at age 25, she receives the remainder. The trust names grandmother’s attorney as trustee. After grandmother’s death, the attorney immediately takes over management, avoiding probate and providing professional oversight.

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At What Age Does the Child Receive the Money?

This depends on which option you choose:

UTMA accounts: All funds automatically go to the child at age 21 (or 18 if opened under the older Gifts to Minors Act). No exceptions, the child has the legal right to demand the account at that age.

Guardianship of the estate: The guardianship terminates at age 18 (when the child reaches majority), and all remaining funds are distributed to the minor, now an adult.

Testamentary or living trust: The will or trust specifies distribution ages. Common arrangements:

• 25% at age 21, 50% at age 25, remainder at age 30
• All funds at age 25
• Age 21 for education, age 30 for remainder
• Funds held until age 35 if substantial wealth (high-net-worth families)

Important: You cannot unilaterally delay distributions beyond what NC law specifies. If a UTMA account is established, you must release funds at age 21. If a trust specifies age 25, you must honor that, you cannot hold funds until age 30 without court permission.

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Special Situations

Situation 1: The Child Has Multiple Sources of Inheritance

If a child inherits from their parent, grandparent, and an aunt, you might have multiple UTMA accounts or trusts. Coordinate these:

• Keep accounts at the same financial institution if possible (easier to manage)
• Use the same custodian/trustee to create consistency
• Keep detailed separate records for each source
• Plan distributions to coordinate timing and tax impact

Situation 2: A Surviving Spouse Remarries

If the surviving parent remarries, it doesn’t automatically affect the child’s inheritance. However, if the surviving parent is the custodian, consider naming a successor custodian in case the parent remarries and circumstances change.

Situation 3: The Child Receives Both Inheritance and Needs Special Care

If the child has special needs and may need government benefits (SSI, Medicaid), be careful about setting up an inheritance account. Inheriting too much money can disqualify them from benefits. In this situation, a special needs trust is essential. Hire an attorney to set one up properly.

Situation 4: The Minor Is Very Young (Infant or Toddler)

For a young child receiving a substantial inheritance, consider:

• A trust (testamentary or living) with professional trustee management rather than UTMA
• Trustee has discretion to use funds for the child’s needs without requiring distributions at age 21
• More control over when the child accesses funds (could be age 25, 30, or even later)

Situation 5: The Child Is a Teenager Close to Age 18

If the child is 16 and inherits, and you establish a UTMA account, they’ll control it at age 21. Consider:

• A trust instead of UTMA if you want to delay distribution
• Having conversations with the teenager about financial management
• Involving them in investment decisions (age-appropriate)

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Tax Implications for Minor’s Accounts

Minor beneficiaries are treated as separate taxpayers for federal income tax purposes. This can be advantageous.

How minor’s taxation works:

• Personal exemption – For 2024, a dependent minor can exclude the first ~$1,430 in earned income and the first ~$14,600 in unearned income (interest, dividends) from taxation
• Kiddie tax – Unearned income above the threshold is taxed to the minor at their own rate (often lower than the parent’s rate)
• Reporting – If the UTMA account earns more than $1,430/year in unearned income, you file a Form 1040 for the minor with a Schedule B showing interest/dividend income

Strategy for tax efficiency:

• Keep inherited funds in conservative, low-income investments for young children (savings accounts, CDs)
• As the child approaches age 18, gradually shift to growth investments
• Coordinate distributions so the child’s taxable income stays below thresholds
• Use the child’s personal exemption fully before parents’ tax returns are affected

Consult a tax professional if the UTMA account will earn significant income.

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Choosing the Right Option: A Decision Framework

Situation	Best Option	Why
Inheritance under $50,000; simple situation	UTMA	Simple, inexpensive, no court involvement
Inheritance $50,000-$250,000; some complexity	UTMA or Testamentary Trust	UTMA for simplicity; Trust for more control
Inheritance over $250,000; complex assets	Testamentary or Living Trust	Professional management, detailed control, tax efficiency
Child has special needs	Special Needs Trust	Protects benefits; provides ongoing management
Significant family conflict	Guardianship or Trust with court oversight	Court oversight reduces liability; professional trustee
Multiple minor beneficiaries	Living Trust with separate accounts for each	Streamlined management; clear accounting
Child is teenager (age 15+)	Trust with delayed distributions	Protects from poor decision-making at age 21

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FAQ

Q: Can I just keep the inheritance money in my own bank account and manage it informally?

A: Legally, no. NC law requires that money inherited by a minor be held in the minor’s name through UTMA, guardianship, or trust. Keeping it in your account creates a liability if you die (it becomes part of your estate), complicates the child’s access later, and can be seen as misappropriation. Always use a legal vehicle.

Q: What happens if the custodian or trustee dies before the child reaches majority?

A: This is why you name a successor. In a UTMA account, you can name a successor custodian when opening the account. In a guardianship, if you die, you must have petitioned the court to name an alternative guardian. In a will or trust, the document should name a successor trustee. If no successor is named, the court will appoint someone.

Q: Can the child access money before age 21 in a UTMA account?

A: The custodian can spend UTMA funds on the child’s benefit before age 21 (for education, medical care, living expenses). However, the child cannot access or control the account. At age 21, the child can demand the balance, and you must surrender it.

Q: How do I know if a trust vs. UTMA is right?

A: Ask yourself:

• Is the inheritance more than $100,000? → Lean toward trust
• Does the will or family situation suggest detailed control? → Trust
• Do you want simplicity? → UTMA
• Is there family conflict? → Guardianship or trust with court oversight

Pathfinder, Afterpath’s AI guide, can walk through your specific situation to advise.

Q: Can the child sue me if they think I mismanaged the UTMA account?

A: Yes, if they can show you misused funds or acted negligently. This is why careful record-keeping is essential. Document all transactions and investments. If you followed a prudent investment strategy and spent funds only on the child’s benefit, you’re protected.

Q: What if the child says they don’t want the inheritance at age 21?

A: Once they reach 21, it’s their property. They cannot refuse it legally. However, they can:

• Disclaim (refuse) the inheritance entirely within a certain timeframe
• Retitle it or transfer it (gift it to others, put in their own trust)
• Leave it in the UTMA account and delay taking control (though the custodian’s duties end)

Encourage communication with the child as they approach 21 so there are no surprises.

Q: Can Afterpath help me choose between UTMA, guardianship, and trust for a minor’s inheritance?

A: Absolutely. Pathfinder can analyze your specific situation, the inheritance amount, the child’s age, NC law, and your family structure, and recommend the best approach. For substantial inheritances or complex situations, Afterpath’s marketplace connects you with NC attorneys specializing in minor’s property and trusts.

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Closing Thoughts

Managing inheritance for minor children is a profound responsibility. You’re not just handling money; you’re honoring a parent’s legacy and protecting a child’s financial future. The good news is that North Carolina law provides clear, proven structures for doing this right, from simple UTMA accounts to professional trusts with detailed guidance.

Choose the option that matches your situation’s complexity and your desire for control. If you’re ever uncertain, seek professional guidance. The cost of getting this right is far less than the cost of getting it wrong.

Dealing with probate while grieving is one of life’s hardest challenges. You don’t have to figure it out alone.

Afterpath was built for exactly this moment – to turn the overwhelming chaos of estate settlement into a clear path forward. Our AI guide Pathfinder can help you evaluate the best approach for minor beneficiaries, our task system ensures nothing is missed, and our marketplace connects you with vetted NC attorneys specializing in trusts for minors.

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