Setting Up a Trust for Your Children in New York City

If you have young children, leaving them an inheritance outright is rarely the right answer. A 19-year-old who suddenly receives $400,000 from a life insurance policy is not equipped to manage it, and New York law will not let a minor manage it at all. A children's trust solves this problem: it lets you name a person you trust to manage the money, control when your children actually receive it, and shield those assets from the divorce, lawsuit, and creditor problems your children may face as adults. This page explains how children's trusts work specifically under New York law — the statutes, the distribution structures, the trustee duties, and the real costs — so you can decide whether one is right for your family.

This page focuses on trusts created by parents for their minor or young-adult children. If you are researching a broader plan, see our related pages on the benefits of a living trust, testamentary trusts, and special needs trusts for disabled children.

What Happens in New York If You Leave Money to a Minor With No Trust

New York does not allow a minor to legally own and control significant assets. If a child under 18 inherits money outright — through a will, intestacy, or as a default beneficiary — the funds cannot simply be handed to them or to the surviving parent. Instead, the Surrogate's Court typically requires a guardian of the property to be appointed under SCPA Article 17, and the money is often deposited into a court-supervised account that the child can only access at age 18.

That outcome has two problems. First, the appointment process requires a petition, possible bonding, and ongoing court accountings — time and legal expense your family pays for. Second, the child receives everything at 18, the worst possible age to inherit a lump sum. A trust avoids both problems. You name the manager (the trustee) yourself, you set the age and conditions for distribution, and no Surrogate's Court guardianship of the property is needed for the trust assets.

UTMA Custodial Account vs. a Children's Trust

The simplest alternative to a trust is a custodial account under New York's Uniform Transfers to Minors Act (UTMA), found in EPTL Article 7, Part 6. A UTMA account is easy and free to set up at a bank or brokerage, but it has hard limits that make it a poor substitute for a trust in many families:

• Forced payout age: In New York, UTMA custodianships generally end and the property must be turned over to the child at age 21 (and only up to age 21, not later). You cannot stretch distributions to 25, 30, or 35.
• No spendthrift protection: Once the child controls the account, the funds are fully exposed to that child's creditors, divorce, and poor decisions.
• No conditions: You cannot say "only for college" or "only if drug-free" — the custodian's discretion is narrow and the payout is absolute.

A UTMA account can make sense for modest amounts (a few thousand dollars) where the cost of a trust is not justified. For larger inheritances, life insurance payable to minors, or any situation where you want control past age 21, a trust is the appropriate tool.

Comparing the Trust Structures Parents Use for Children

For most NYC parents, the children's trust is either a sub-trust written into a revocable living trust or a testamentary trust written into a will. The drafting of the children's terms — trustee, distribution schedule, and spendthrift clause — is nearly identical in either case.

Designing the Distribution Schedule: When Should Your Kids Inherit?

The most important decision in a children's trust is when and how the child gets the money. Three common approaches:

1. Staggered distributions by age

A very common structure releases the principal in thirds. For example: one-third at 25, one-half of the remaining balance at 30, and the rest at 35. Until those ages, the trustee can still pay for the child's health, education, maintenance, and support (the "HEMS" standard). This gives a young adult a chance to make a mistake with the first share while preserving the bulk of the inheritance.

Worked example: Suppose a child's trust holds $600,000 when she turns 25. She receives $200,000 (one-third). At 30, the balance has grown to $440,000; she receives half, or $220,000. At 35 she receives whatever remains. Meanwhile, the trustee has discretion to pay college tuition and medical bills along the way.

2. Lifetime discretionary trust

The trust never fully distributes the principal. Instead, the trustee makes distributions for the child's needs for life. This is the strongest asset-protection structure because assets the child cannot demand generally cannot be reached by the child's creditors or divorcing spouse. Many parents use this for children with creditor exposure (doctors, business owners) or unstable marriages.

3. Single distribution at one age

Everything is held until, say, age 30, then paid out. Simpler, but offers no second chance and no ongoing protection after the payout.

Spendthrift Protection Under New York Law (EPTL 7-1.5)

A key reason to use a trust rather than an outright gift is the spendthrift protection authorized by EPTL 7-1.5. Under that statute, a beneficiary's interest in trust income (and, when properly drafted, principal) generally cannot be transferred, assigned, or pledged, and a creditor generally cannot reach the assets before they are actually distributed to the child. New York law in fact makes income interests in many trusts inalienable by default, and an express spendthrift clause reinforces and extends that protection.

The protection has limits you should understand:

• It applies before distribution, not after. Once the trustee hands money to the child, that cash is the child's and is exposed. This is why a fully discretionary structure protects more than a fixed payout.
• Mandatory distributions weaken protection. If the trust says the child has the unrestricted right to demand money, a creditor may "step into the child's shoes" and reach what the child could have demanded. Discretion in the trustee's hands is what keeps assets safe.
• Certain claims can pierce it. New York law allows some creditors — for example, in limited circumstances involving support obligations — greater reach than ordinary commercial creditors.

Divorce example: Inherited assets are generally separate property in New York and not subject to equitable distribution — but only as long as they stay separate. If a child receives a distribution and deposits it into a joint account or uses it to buy a marital home, it can become commingled and divisible in divorce. A discretionary spendthrift trust that holds assets in the trustee's hands keeps the inheritance out of the marital pot far more reliably than an outright gift.

Choosing a Trustee — and Whether You Can Be Your Own

For a trust that holds your children's inheritance after you die, you are not the trustee — you choose someone to serve when the trust becomes active. Common choices include a trusted relative, a professional fiduciary, a bank trust department, or a combination (a family member plus a professional co-trustee). New York imposes serious fiduciary duties on whoever serves: the duty of loyalty, the duty to account, the prudent-investor standard under the Prudent Investor Act, and the duty to treat beneficiaries impartially.

Practical considerations for NYC families:

• Avoid naming the same person who will raise the children as the sole trustee in every case — separating the role of guardian (who cares for the child) from trustee (who controls the money) creates a useful check.
• Always name successor trustees. If your first choice dies, declines, or becomes unable to serve and there is no named successor, your family may have to go to court to appoint one.
• Consider a trust protector with limited power to remove and replace a trustee who is not performing.

For a deeper look at fiduciary selection, see our pages on using a bank as trustee and the duties involved in administering an NYC trust.

New York and Federal Tax Issues to Plan Around

For most families leaving an inheritance to children, the trust itself is not the cause of new taxes — but the size of your overall estate matters. New York has its own estate tax separate from the federal estate tax, and it contains a feature that catches many people off guard:

• The New York estate tax "cliff." New York provides an estate-tax exemption (the "basic exclusion amount," which is indexed and changes annually). If your taxable estate exceeds that exemption by more than about 5%, you lose the exemption entirely and the tax applies to the whole estate, not just the excess. Because the exemption amount changes each year, you should confirm the current figure before relying on it.
• No portability in New York. Unlike federal law, New York does not let a surviving spouse use a deceased spouse's unused exemption. For couples near the threshold, this makes trust-based planning more important.
• Income tax on undistributed trust income. Trusts reach the top income-tax brackets at very low income levels. A trustee often distributes income to carry it out to the child's lower bracket, balancing tax efficiency against the goal of keeping assets protected inside the trust.

Because these thresholds move and interact with your full estate plan, tax structuring should be confirmed with an attorney rather than assumed. See advanced New York estate planning techniques for larger estates.

If Your Child Has a Disability

A standard children's trust can actually harm a child who relies on needs-based government benefits like Medicaid or SSI, because trust assets and certain distributions can disqualify them. These children need a specially drafted supplemental (special) needs trust instead, which supplements rather than replaces public benefits. This is a distinct planning tool with its own rules — please read our dedicated page on special needs trusts if this applies to your family.

Frequently Asked Questions

How much does it cost to set up a children's trust in NYC?

Cost depends on whether the trust is part of a will (a testamentary trust) or a fully funded revocable living trust, and on the complexity of your assets and distribution terms. Trusts are usually drafted as part of a complete estate plan rather than as a standalone document. We quote a flat fee after a consultation so you know the price before you commit. Contact us for current pricing for your situation.

Can I be my own trustee of my children's trust?

You can serve as trustee of a revocable living trust you create during your lifetime. But the children's trust that holds their inheritance is designed to operate after you are gone, so you choose a successor trustee to manage it for them. The point of the trust is to have a responsible manager in place when your children cannot manage the money themselves.

At what age should my kids inherit?

There is no single right answer, but most parents who use staggered distributions choose milestones such as 25, 30, and 35 rather than 18 or 21. Releasing the money in stages gives a young adult room to learn from a smaller share while protecting the bulk of the inheritance. Some families keep assets in a lifetime discretionary trust for maximum protection.

Is a UTMA account good enough instead of a trust?

For small amounts, a New York UTMA custodial account is simple and inexpensive. But it must pay out to the child by age 21 and offers no protection from the child's future creditors or divorce. For larger inheritances or any desire to control distributions past 21, a trust is the better tool.

Will a trust keep my child's inheritance out of their divorce?

An inheritance held in a properly drafted discretionary spendthrift trust is far better protected than an outright gift. Inherited property is generally separate property in New York, but it can become marital if commingled. Keeping assets inside the trust, in the trustee's discretion, helps preserve their separate, protected character.

Does a children's trust avoid probate?

A children's sub-trust inside a funded revocable living trust avoids probate. A testamentary children's trust written into your will does not — the will must still be probated in Surrogate's Court before the trust is funded, though the trust then governs how the children receive the assets.

Speak With a New York Children's Trust Attorney

The Law Offices of Albert Goodwin draft children's trusts tailored to New York law — not form documents. We help you choose between a testamentary and living-trust structure, design a distribution schedule that fits your children, draft enforceable spendthrift provisions under EPTL 7-1.5, and name trustees and successors who will protect your family's assets.

To discuss a trust for your children, call (212) 233-1233 or email [email protected]. We serve families throughout New York City, including Manhattan, Brooklyn, Queens, the Bronx, and Staten Island.

Reviewed by Albert Goodwin, Esq., attorney admitted to practice in New York. This article is general legal information about New York trust and estate law and is not legal advice for your specific situation; statutory thresholds such as the New York estate-tax exemption change over time and should be confirmed before you rely on them.