Yes, you can name a minor as a beneficiary on a bank account, and the usual way to do it is with a Payable on Death (POD) designation that also names an adult custodian under your state’s Uniform Transfers to Minors Act. The POD form transfers the balance directly to the child when you die, skipping probate. The custodian language gives an adult the legal authority to receive and manage the money on the child’s behalf, because a bank cannot hand funds to a child directly. Set up correctly, the two pieces work together and keep the courts out of it.
How a Payable on Death Designation Works
A POD designation is a short form you complete at your bank or credit union naming who receives the account balance at your death. While you are alive, the person you name has no access and no rights to the account. You keep full control, and you can change or revoke the beneficiary at any time by updating the form.
One detail catches people off guard: a POD designation overrides your will. If your will leaves the account to one person and the POD form names someone else, the POD form wins, even if the will was signed more recently. Keep your beneficiary forms consistent with the rest of your estate plan.
To add a child, you will typically need their full legal name, date of birth, and Social Security number. Listing the child’s name alone, however, creates a problem the bank cannot solve for you.
Why a Child Needs an Adult Custodian
Minors do not have the legal capacity to manage financial assets. If an account names a child as beneficiary with no adult attached, the funds get stuck. Someone has to petition a court to appoint a guardian or conservator over the child’s property, which brings legal fees, delays, and ongoing court oversight. That is precisely the outcome a POD is supposed to avoid.
The fix is to name a custodian under the Uniform Transfers to Minors Act, which has been adopted in nearly every state.1Social Security Administration. Social Security Administration POMS SI 01120.205 – Uniform Transfers to Minors Act On the POD form, you would write something like: “Jane Doe as custodian for John Smith under the [State] Uniform Transfers to Minors Act.” That single line gives Jane authority to receive and manage the money for John without any court proceeding.
The custodian does not own the funds. Once the transfer happens, the money belongs to the child irrevocably. The custodian’s job is to manage and invest the assets prudently for the child’s benefit. Spending on the child’s education, health care, and similar needs is permitted. Using the money for the custodian’s personal expenses or to cover basic parental obligations is not.1Social Security Administration. Social Security Administration POMS SI 01120.205 – Uniform Transfers to Minors Act
Name a Backup Custodian
Most people name one custodian and stop there. Worth thinking through: what happens if that person dies or becomes incapacitated before the child grows up? Without a successor named, the situation can end up in court anyway.
You can designate a successor custodian when you first set up the POD. If nothing is on file and the custodian dies, the outcome depends on the child’s age. In many states, a child who has reached 14 can designate a new custodian; younger than that, a court-appointed conservator typically steps in. Naming a successor from the start avoids both scenarios.
How the Custodian Claims the Money
Claiming the funds after your death is straightforward. The named custodian brings a certified copy of the death certificate and their own government-issued ID to the bank. Because a valid POD is in place, no court approval or probate paperwork is needed.
The bank will not write the custodian a personal check. It transfers the funds into a new custodial account titled something like “Jane Doe, custodian for John Smith under the [State] UTMA.” The custodian manages that account under their legal duties, and the account uses the child’s Social Security number as its tax identification number, not the custodian’s.
When the Child Takes Over the Account
The custodian’s authority ends at the age of termination set by state law, which in most states falls between 18 and 21.2Social Security Administration. SI SEA01120.205 – The Legal Age of Majority for Uniform Transfer to Minors Act (UTMA) Some states allow the person creating the custodianship to extend that age up to 25 when the account is first set up.3FINRA. Regulatory Notice 20-07 – FINRA Reminds Member Firms of Their Responsibilities for Supervising UTMA and UGMA Accounts
Once the child reaches the termination age, the custodian is legally required to hand over everything. There is no discretion to hold funds back because the young adult seems unready. The beneficiary shows proof of identity and age, the account is re-registered in their name, and the custodianship ends. That automatic handover at a fairly young age is the biggest structural drawback of the UTMA route, and it is worth weighing before you choose it.
Tax Treatment of the Inherited Funds
Once the money sits in the UTMA account, any interest or investment income it generates belongs to the child for tax purposes and is subject to the “kiddie tax,” which prevents parents from parking investment income in a child’s name at a lower rate.
For 2026, the tiers work like this:
- The first $1,350 of unearned income is tax-free, covered by the child’s standard deduction.
- The next $1,350 is taxed at the child’s own rate, typically 10%.
- Anything above $2,700 is taxed at the parent’s marginal rate.4Internal Revenue Service. Instructions for Form 8615
If the child’s unearned income exceeds $2,700, they need their own return with IRS Form 8615 attached, and the parent’s return has to be completed first because the parent’s taxable income feeds the calculation. For smaller amounts, the parent can include the child’s income on their own return using IRS Form 8814. A modest inherited bank account earning ordinary interest will produce a minimal tax bill; a larger balance in higher-yield instruments can push a real share of the earnings up to the parent’s rate.
Effect on College Financial Aid
This is the detail most families setting up a UTMA never think about, and it quietly costs money. For federal aid purposes, a UTMA account is the child’s asset. The FAFSA formula assesses student-owned assets at 20% per year when calculating the Student Aid Index.5Federal Student Aid. Student Aid Index (SAI) and Pell Grant Eligibility Parent-owned assets are assessed at roughly 5.6% at most.
A $50,000 UTMA account reduces the child’s aid eligibility by about $10,000 per year, versus roughly $2,800 if the same balance sat in a parent’s account. For families that expect to apply for need-based aid, that gap matters. A 529 plan, which is treated as a parent asset, or a trust may fit better if college funding is part of the picture.6Legal Information Institute. Uniform Transfers to Minors Act
When a Trust Beats a UTMA Account
A UTMA custodial account is simple, free, and appropriate for many families. It has two limits that cannot be worked around: the money transfers to the child at the age set by state law, and once transferred, there are no restrictions on what the child spends it on. For a $5,000 savings account, that is fine. For a six-figure inheritance, those limits start to look like serious problems.
A trust solves both. The person creating the trust chooses the distribution age, whether that is 25, 30, 35, or something else. The trust can also spell out what the funds may be used for, such as education or a first home, and release the balance in stages instead of all at once. Trust assets are also generally protected from the beneficiary’s creditors, which UTMA funds are not once they transfer to the child.
The cost is complexity. A trust needs an attorney to draft and can involve annual tax filings of its own. For a modest bank account balance passing to a grandchild, the UTMA route works. If the total inheritance is substantial, or if you have real concerns about how the beneficiary will handle money in their early twenties, a trust gives you controls the UTMA cannot.
FDIC Insurance Changes When You Add a Beneficiary
Adding a POD beneficiary changes how FDIC insurance applies to the account. A standard single-owner deposit account is insured up to $250,000. With a POD beneficiary, the account is treated as a trust account for insurance purposes, and coverage expands to $250,000 per beneficiary, up to a maximum of $1,250,000 for five or more beneficiaries.7FDIC. Your Insured Deposits
Two grandchildren named on one account doubles the insured amount to $500,000. Four brings it to $1,000,000. The coverage applies per bank, so the same account holder can hold additional insured deposits at another institution. For anyone with significant balances, naming POD beneficiaries is one of the simplest ways to expand FDIC protection while handling estate planning at the same time.7FDIC. Your Insured Deposits