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What is the difference between trusts and custodial accounts?

Trusts and custodial accounts are two methods of leaving property for the benefit of minors. Individuals under age 18 cannot legally own title to property in North Carolina, so these methods allow for an adult to care for the property and manage it on behalf of the minor.

While both types of arrangements can be used to benefit minors, there are several differences between trusts and custodial accounts. Your estate planning attorney can give you more information about these and other ways of structuring your estate plan.

Creation of the Property Arrangement

Trusts are typically more complex than custodial accounts. Trust law can be very complex and can be used to achieve a number of different goals—including providing financial support for minors or disabled individuals, minimizing estate taxes, and keeping assets out of probate. You may even create multiple different trusts with different beneficiaries or purposes.

Custodial accounts can be created much more easily. You simply need to include language indicating who the minor beneficiary is and that you are naming a custodian to manage the asset under the Uniform Transfers to Minors Act (UTMA). This is sufficient to create a custodial relationship to manage the property for the benefit of the minor.

Instruction for Distributing the Assets

A trust can include very specific instructions for distributing the property. You may wish to have a trust specifically to pay for your child or grandchild’s college expenses, and the trustee would only be permitted to use the trust funds for this purpose. You could also include more general instructions to use the trust funds for the support of the minor child.

A custodian typically has discretion to manage the property for the benefit of the minor. They have a duty to manage the property as a prudent person would, but they don’t have detailed instruction to follow regarding the property’s use.

Age When the Minor Receives the Property

Custodial property will be given to minor outright when they reach age 18 or 21, depending on whether the decedent specified an age to transfer the property to the minor.

Trusts offer much more flexibility in this area. You can decide to give the minor control of the property upon reaching age 25, 30, or any other age. You can even provide that the trustee must manage the trust for the beneficiary’s entire lifetime without ever giving control of the assets to the beneficiary. There are some situations where this may be a preferable arrangement, such as for a disabled beneficiary who cannot manage the assets by themselves.

At Reznik Law, we walk you through the entire estate planning process to make it as seamless as possible. Planning your estate is easier than you think, and more important than you realize! Contact us today for a free estate planning consultation,


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