(A128, R136, H3821)

AN ACT TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING ARTICLE 6 TO CHAPTER 5, TITLE 63 SO AS TO ENACT THE "SOUTH CAROLINA UNIFORM TRANSFERS TO MINORS ACT"; TO PROVIDE FOR THE UNIFORM MANNER IN WHICH AND PROCEDURES AND REQUIREMENTS UNDER WHICH TRANSFERS OF CUSTODIAL PROPERTY MAY BE MADE FOR THE BENEFIT OF A MINOR; TO AMEND SECTIONS 62-1-201, 62-1-302, AND 62-5-103, ALL RELATING TO THE SOUTH CAROLINA PROBATE CODE, SO AS TO MAKE CONFORMING CHANGES; AND TO REPEAL ARTICLE 5 OF CHAPTER 5, TITLE 63 RELATING TO THE "SOUTH CAROLINA UNIFORM GIFTS TO MINORS ACT".

Be it enacted by the General Assembly of the State of South Carolina:

South Carolina Uniform Transfers to Minors Act

SECTION     1.     Chapter 5, Title 63 of the 1976 Code is amended by adding:

Section 63-5-601.     This act shall be known and may be cited as the 'South Carolina Uniform Transfers to Minors Act'.

Section 63-5-605.     In this article:

(1)     'Adult' means an individual who has attained the age of twenty-one years.

(2)     'Benefit plan' means an employer's plan for the benefit of an employee or partner or an individual retirement account.

(3)     'Broker' means a person lawfully engaged in the business of effecting transactions in securities or commodities for the person's own account or for the account of others.

(4)     'Conservator' means a person appointed or qualified by a court to act as general, limited, or temporary guardian of a minor's property or a person legally authorized to perform substantially the same functions.

(5)     'Court' means the probate court where the minor resides, or if the minor is not a resident of this State, the probate court in the county where the custodian resides or has his principal place of business or where the custodial property is located.

(6)     'Custodial property' means (i) any interest in property transferred to a custodian under this article and (ii) the income from and proceeds of that interest in property.

(7)     'Custodian' means a person so designated under Section 63-5-645 or a successor or substitute custodian designated under Section 63-5-690.

(8)     'Financial institution' means a bank, trust company, savings institution, or credit union, chartered and supervised under state or federal law.

(9)     'Legal representative' means an individual's personal representative or conservator.

(10)     'Member of the minor's family' means the minor's parent, stepparent, spouse, grandparent, brother, sister, uncle, or aunt, whether of the whole or half blood or by adoption.

(11)     'Minor' means an individual who has not attained the age of twenty-one years.

(12)     'Person' means an individual, corporation, organization, or other legal entity.

(13)     'Personal representative' means an executor, administrator, successor, personal representative, or special administrator of a decedent's estate or a person legally authorized to perform substantially the same functions.

(14)     'State' includes any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession subject to the legislative authority of the United States.

(15)     'Transfer' means a transaction that creates custodial property under Section 63-5-645.

(16)     'Transferor' means a person who makes a transfer under this article.

(17)     'Trust company' means a financial institution, corporation, or other legal entity, authorized to exercise general trust powers.

To reflect the broader scope and the unlimited types of property to which the new Act will apply, a number of definitional changes have been made from the 1966 Act. In addition, several definitions specifically applicable to the limited types of property (cash, securities and insurance policies) subject to the 1966 Act have been eliminated as unnecessary. These include the definitions of "bank," "issuer," "life insurance policy or annuity contract," "security," and "transfer agent." No change in the meaning or construction of these terms as used in this Act is intended by such deletions.

The definitions of "domestic financial institution" and "insured financial institution" have been eliminated because few if any states limit deposits by custodians to local institutions, and the prudent person rule of Section 63-5-660(b) of this Act may dictate the use of insured institutions as depositories, without having the Act so specify.

The principal changes or additions to the remaining definitions are discussed below.

Item (2). The definition of "benefit plan" is intentionally very broad and is meant to cover any contract, plan, system, account or trust such as a pension plan, retirement plan, death benefit plan, deferred compensation plan, employment agency arrangement or, stock bonus, option or profit sharing plan.

Item (4). The term "conservator" rather than "guardian of the estate" has been employed in the Act to conform to Uniform Probate Code terminology. The term includes a guardian of the minor's property, whether general, limited or temporary, and includes a committee, tutor, or curator of the minor's property.

Item (6). The definition of "custodial property" has been generalized and expanded to encompass every conceivable legal or equitable interest in property of any kind, including real estate and tangible or intangible personal property. The term is intended, for example, to include joint interests with right of survivorship, beneficial interests in land trusts, as well as all other intangible interests in property. Contingent or expectancy interests such as the designation as a beneficiary under insurance policies or benefit plans become "custodial property" only if the designation is irrevocable, or when it becomes so, but the Act specifically authorizes the "nomination" of a future custodian as beneficiary of such interests (see Section 63-5-615). Proceeds of custodial property, both immediate and remote, are themselves custodial property, as is the case under UGMA.

Custodial property is defined without reference to the physical location of the property, even if it has one. No useful purpose would be served by restricting the application of the Act to, for example, real estate "located in this state," since a conveyance recorded in the state of the property's location, if done with proper formalities, should be effective even if that state has not enacted this Act. The rights, duties and powers of the custodian should be determined by reference to the law of the state under which the custodianship is created, assuming there is sufficient nexus under Section 63-5-610 between that state and the transferor, the minor or the custodian.

Item (11). This definition of "minor" retains the historical age of twenty-one as the age of majority, even though most states have lowered the age for most other purposes, as well as in their versions of the 1966 Act. Nevertheless, because the Internal Revenue Code continues to permit "minority trusts" under Section 2503(c), IRC, to continue in effect until age twenty-one, and because it is believed that most donors creating minority trusts or custodianships prefer to retain the property under management for the benefit of the young person as long as possible, it is strongly suggested that the age of twenty-one be retained as the age of majority under this Act. For states that have reduced the age of majority in their versions of the 1966 Act, SECTION 22(c) of this Act provides that a change back to twenty-one will not affect custodianships that have already terminated at an earlier age. South Carolina did not include the optional subsection (c) of that section, codified herein as Section 63-5-710, in its act.

Item (13). The definition of the term "personal representative" is based upon that definition in Sec. 1-201(30) of the Uniform Probate Code.

Item (15). The new definition of "transfer" is necessary to reflect the application of the Act not only to gifts, but also to distributions from trusts and estates, obligors of the minor, and transfers of the minor's own assets to a custodianship by the legal representative of a minor, all of which are now permitted by this Act.

Item (16). The new definition of "transferor" is required because the term includes not only the maker of a gift, i.e., a donor in the usual sense, but also fiduciaries and obligors who control or own property that is the subject of the transfer. Nothing in this Act requires that a transferor be an "adult." If permitted under other law of the enacting state relating to emancipation or competence to make a will, gift, or other transfer, a minor may make an effective transfer of property to a custodian for his benefit or for the benefit of another minor.

Item (17). Only entities authorized to exercise "general" trust powers qualify as "trust companies"; that is, the authority to exercise only limited fiduciary responsibilities, such as the authority to accept Individual Retirement Account deposits, is not sufficient.

Section 63-5-610.     (a)     This article applies to a transfer that refers to 'The South Carolina Uniform Transfers to Minors Act' in the designation under Section 63-5-645(a) by which the transfer is made if at the time of the transfer, the transferor, the minor, or the custodian is a resident of this State or the custodial property is located in this State. The custodianship so created remains subject to this article despite a subsequent change in residence of a transferor, the minor, or the custodian, or the removal of custodial property from this State.

(b)     A person designated as custodian under this article is subject to personal jurisdiction in this State with respect to any matter relating to the custodianship.

(c)     A transfer that purports to be made and which is valid under the Uniform Transfers to Minors Act, the Uniform Gifts to Minors Act, or a substantially similar act, of another state is governed by the law of the designated state and may be executed and is enforceable in this State if at the time of the transfer, the transferor, the minor, or the custodian is a resident of the designated state or the custodial property is located in the designated state.

This section has no counterpart in the 1966 Act. It attempts to resolve uncertainties and conflicts-of-laws questions that have frequently arisen because of the present non-uniformity of UGMA in the various states and which may continue to arise during the transition from UGMA to this Act.

The creation of a custodianship must invoke the law of a particular state because of the form of the transfer required under Section 63-5-645(a). This section provides that a choice of the UTMA of the enacting state is appropriate and effective if any of the nexus factors specified in subsection (a) exists at the time of the transfer. This Act continues to govern, and subsection (b) makes the custodian accountable and subject to personal jurisdiction in the courts of the enacting state for the duration of the custodianship, despite subsequent relocation of the parties or the property.

Subsection (c) recognizes that residents of the enacting state may elect to have the law of another state apply to a transfer. That choice is valid if a nexus with the chosen state exists at the time of the transfer. If personal jurisdiction can be obtained in the enacting state under other law apart from this Act, the custodianship may be enforced in its courts, which are directed to apply the law of the state elected by the transferor.

If the choice of law under subsection (a) or (c) is ineffective because of the absence of the required nexus, the transfer may still be effective under the Act of another state with which a nexus does exist. See Section 63-5-705.

Section 63-5-615.     (a)     A person having the right to designate the recipient of property transferable upon the occurrence of a future event may revocably nominate a custodian to receive the property for a minor beneficiary upon the occurrence of the event by naming the custodian followed in substance by the words: 'as custodian for ______________ (name of minor) under the South Carolina Uniform Transfers to Minors Act'. The nomination may name one or more persons as substitute custodians to whom the property must be transferred, in the order named, if the first nominated custodian dies before the transfer or is unable, declines, or is ineligible to serve. The nomination may be made in a will, a trust, a deed, an instrument exercising a power of appointment, or in a writing designating a beneficiary of contractual rights which is registered with or delivered to the payor, issuer, or other obligor of the contractual rights.

(b)     A custodian nominated under this section must be a person to whom a transfer of property of that kind may be made under Section 63-5-645(a).

(c)     The nomination of a custodian under this section does not create custodial property until the nominating instrument becomes irrevocable or a transfer to the nominated custodian is completed under Section 63-5-645. Unless the nomination of a custodian has been revoked, upon the occurrence of the future event the custodianship becomes effective and the custodian shall enforce a transfer of the custodial property pursuant to Section 63-5-645.

This section is new and permits a future custodian for a minor to be nominated to receive a distribution under a will or trust, or as a beneficiary of a power of appointment, or of contractual rights such as a life or endowment insurance policy, annuity contract, P.O.D. Account, benefit plan, or similar future payment right. Nomination of a future custodian does not constitute a "transfer" under this Act and does not create custodial property. If it did, the nomination and beneficiary designation would have to be permanent, since a "transfer" is irrevocable and indefeasibly vests ownership of the interest in the minor under Section 63-5-655(b).

Instead, this section permits a revocable beneficiary designation that takes effect only when the donor dies, or when a lifetime transfer to the custodian for the minor beneficiary occurs, such as a distribution under an inter vivos trust. However, an unrevoked nomination under this section is binding on a personal representative or trustee (see Section 63-5-625(b)) and on insurance companies and other obligors who contract to pay in the future (see Section 63-5-635(b)).

The person making the nomination may name contingent or successive future custodians to serve, in the order named, in the event that the person first nominated dies, or is unable, declines, or is ineligible to serve. Such a substitute future custodian is a custodian "nominated ... under Section 63-5-615" to whom the transfer must be made under Sections 63-5-625(b) and 63-5-635(b).

Any person nominated as future custodian may decline to serve before the transfer occurs and may resign at any time after the transfer. See Section 63-5-690.

Section 63-5-620.     A person may make a transfer by irrevocable gift to, or the irrevocable exercise of a power of appointment in favor of, a custodian for the benefit of a minor pursuant to Section 63-5-645.

To emphasize the different kinds of transfers that create presently effective custodianships under this Act, they are separately described in Sections 63-5-620, 63-5-625, 63-5-630, and 63-5-635. This section in part corresponds to Section 2(a) of the 1966 Act and covers the traditional lifetime gift that was the only kind of transfer authorized by the 1966 Act. It also covers an irrevocable exercise of a power of appointment in favor of a custodian, as distinguished from the exercise of a power in a revocable instrument that results only in the nomination of a future custodian under Section 63-5-615.

Section 63-5-625.     (a)     A personal representative or trustee may make an irrevocable transfer pursuant to Section 63-5-645 to a custodian for the benefit of a minor as authorized in the governing will or trust.

(b)     If the testator or settlor has nominated a custodian under Section 63-5-615 to receive the custodial property, the transfer must be made to that person.

(c)     If the testator or settlor has not nominated a custodian under Section 63-5-615, or all persons so nominated as custodian die before the transfer or are unable, decline, or are ineligible to serve, the personal representative or the trustee, as the case may be, shall designate the custodian, subject to the approval of the court from among those eligible to serve as custodian for property of that kind under Section 63-5-645(a).

This section is new and has no counterpart in the 1966 Act. It is based on nonuniform provisions adopted by Connecticut, Illinois, Wisconsin and other states to validate distributions from trusts and estates to a custodian for a minor beneficiary, when the use of a custodian is expressly authorized by the governing instrument. It also covers the designation of the custodian whenever the settlor or testator fails to make a nomination, or the future custodian nominated unde