The North Carolina Uniform Transfers to Minors Act
Article Date: Tuesday, May 18, 2010
Written By: Leslee Ruth Sharp
My personal experience with the UTMA began when a friend asked if I could serve as a guardian of the estate. Like many elder law practitioners, I have found that an elder law practice includes issues relating not only to the elderly, but also issues common to people with mental and physical disabilities. One group of individuals considered to be subject to a disability in North Carolina are minors. Section 35A-1202 (12) of the North Carolina Statutes defines a minor as a person who is under the age of 18, is not married, and has not been legally emancipated. Section 35A-1201(a) (6) references a minor’s legal incompetence to transact business or to give consent for most purposes. If the minor becomes the owner of cash or some other assets, then this lack of majority often leads to the need for a guardian of the estate.
I was appointed Guardian of the Estate (hereinafter “GOE”) for a minor, “Sam.” In addition to his status as a minor, Sam has mental and psychological disabilities. Sam’s disability is not important for the purposes of this article, but might have had some relevance if Sam’s mother had thought ahead to set up a special needs trust. A transfer made under the Uniform Transfers to Minors Act (hereinafter “UTMA”) is not a special needs trust (hereinafter “SNT”) and because of its limited duration may not meet the requirements of an SNT. Such a discussion is beyond the scope of this article, as is any discussion of the tax implications (state or federal) of a UTMA transfer for either the transferor or the minor.
Sam was to inherit some monies and a piece of real estate from his deceased mother under her will. At the outset, I didn’t concern myself too much with the UTMA account, as it had been set up prior to my appointment as GOE. My main task was to oversee the real estate, social security benefits and other assets that had not gone into the UTMA account. Section 35A-1227(d) lists the UTMA account as one of a few statutory exceptions to the need for a guardian of the estate of a minor. I proceeded with my duties as guardian of Sam’s estate in accordance with Chapter 35A of the North Carolina General Statutes.
After a few years, the custodian of Sam’s UTMA account decided that Sam’s interests might be better served if the custodial responsibilities under the UTMA were transferred to me. It seemed like a good decision because the party who is responsible for all of the minor’s property and fulfilling the varying fiduciary duties is likely to be in a better position to make decisions about managing funds in the best interests of the ward/minor. Please note that this dual role made sense for types and quantity of property owned by Sam, and tasking one person with different fiduciary roles may not always be in the best interest of the minor or his/her estate.
I began by researching the UTMA act. I located the Uniform Transfers to Minors Act contained in N.C.G.S. Chapter 33A. Next, my computer research led me to the website of The National Conference of Commissioners of Uniform State Laws (www.nccusl.com) where I read all about the Uniform Transfers to Minors Act. One can visit the Web site for more information about “Uniform Acts” in general and the history of the UTMA in particular.
The purpose of the UTMA, as stated on the NCCUSL Web site, was to update and expand the usefulness of the Uniform Gifts to Minors Act. Our own UTMA, Chapter 33A of the North Carolina General Statutes, became effective Oct. 1, 1987 and superseded the North Carolina Uniform Gifts to Minors Act (N.C.G.S. § 33A-22). I will refrain from discussing in any detail the differences between UGMA and UTMA as enacted in North Carolina, except to say that the UTMA expanded the types of property that can be held for minors.
An account created under the UTMA creates a relationship between the Transferor, the Custodian and the Minor. Contrary to our general notation of who is a minor, “minor” is defined under the UTMA as an individual who has not attained the age of 21 years. N.C.G.S. § 33A-1(11).
The party charged with the fiduciary responsibility is the “custodian”. As defined in Section 33A-1, the custodian is “a person so designated under Section 33A-9 or a successor or substitute custodian designated under Section 33A-18”. By virtue of being designated, a person becomes Custodian. The words “as custodian for ________ (name of minor) under the North Carolina Uniform Transfers to Minors Act” or use of the form set forth in N.C.G.S. § 33A-9(b) acts must be used to distinguish the custodial account from a regular account. Section 33A 9 also lists specifies types of property and the method for conversion of each into custodial property. For instance, when an interest in real property is conveyed or devised, the custodian can be the transferor, an adult other than the transferor, or a trust company. N.C.G.S. § 33A-9(a)(5).
In connection with Section 33A-9, I looked at Section 33A 3, which provides for the nomination of a custodian for receipt of property transferable upon the occurrence of a future event. This nomination may be revocable, unlike the irrevocable designation of a custodian under Section 33A-9. The nomination under Section 33A-3, however, “does not create custodial property until the nominating instrument becomes irrevocable or a transfer to the nominated custodian is completed under G.S. 33A 9” (see subsection (c)).
Following this research, I understood how to use the designation/nomination of a custodian to initially set up the UTMA account. By looking to Section 33A 18 (the methods for renunciation, resignation, death, or removal of custodian; and designation of successor custodian) I found the requirements for correct assumption of the custodial property as successor custodian. In part, this statute provides that a custodian may designate the successor custodian. The current custodian of Sam’s UTMA needed only to execute a designation naming me as successor, and to execute a resignation. Formalities for both of these documents are outlined in Section 33A-18, as are the necessary service requirements. In order to complete the transition, I needed to execute a written acknowledgement of delivery of the custodial property in accordance with Section 33A-8. The prior custodian and I drafted the appropriate documents, signed and had them acknowledged by a notary. I was now responsible for the custodial property.
Although Section 33A-5 provides for the designation of a custodian in a will, Section 33A-6 grants authority under certain circumstances to a personal representative to make a transfer to a custodian when not provided in the will, so long as the transfer is not prohibited by or inconsistent with the terms of the will. This was the case with Sam’s mother’s will; the circumstances allowed for creation of the UTMA with court approval.
As guardian of Sam’s estate under the applicable provisions of Chapter 35A, and specifically §35A-1253(1), I was charged with taking possession of all of the minor’s estate. I always interpreted this to include the duty to make reasonable inquiry to locate and collect all potential assets, keeping in mind the exceptions of §35A-1227. Contrast this to the concept of custodial property under the UTMA. Custodial Property is defined in Section 33A-1(5) as “(i) any interest in property transferred to a custodian under [Chapter 33A] and (ii) the income from and proceeds of that interest in property.” Contrary to the guardianship situation, custodial property must be actively transferred to the custodian. This section also gives a listing of the types of property that can be transferred.
As successor Custodian now in possession of the custodial property, I needed a further review of Chapter 33A to determine my rights and responsibilities. A brief listing is included here. Section 33A-12 discusses the care of custodial property, Section 33A-13 sets forth the custodians powers, Section 33A-14 talks about use of the custodial property and Sections 33A-16 and 33A-17 identify the liabilities to and from third parties. These statutes describe what a custodian can and cannot do in relation to the custodial property and to whom the custodian must account.
As guardian of Sam’s estate, I am required to make annual accountings to the Court, but this is not required of a custodian under the UTMA. Section 33A-19 provides for an accounting by the custodian, but only upon petition by specified persons to the court under certain circumstances. Even so, the custodian is well advised to keep good records and to segregate the custodial property from other guardianship property.
As part of the annual account to the court, a guardian of the estate generally presents a petition for commissions allowable by statute. There is no similar provision for compensation to the Custodian. Section 33A-15(b) allows for a noncumulative election for a reasonable compensation by the custodian for services performed during the year. The determination as to what is reasonable will likely be up to the court. Note that a custodian who possesses a special skill or expertise is required by statute to use that skill or expertise when caring for the custodial property. N.C.G.S. §33A-12(b). This might affect the determination of reasonableness in compensation.
As Sam nears his 18th birthday, I am aware as guardian of his estate that the guardianship will terminate when Sam reaches majority. At this time, the custodian of a UTMA account should be mindful of the manner in which the UTMA account was established. Generally speaking, the custodianship will terminate upon the minor reaching 21 years of age. However, there are a few exception found in Section 33A-20. The exceptions include those transfers where the initial transfer was made under Section 33A-4 or Section 33A-5 and included language providing for termination at sometime between ages 18 and 21, as well as when the custodial property was transferred under Section 33A-6 (by a fiduciary) or Section 33A-7 (by an obligor), as well as upon the death of the minor.
In conclusion, elder law attorneys practicing in North Carolina would be well-advised to review the UTMA provisions under Section 33-A of the North Carolina statutes and to integrate these rules into their practice.
Leslee Ruth Sharp, Esq., practices in Raleigh, North Carolina.
Views and opinions expressed in articles published herein are the authors' only and are not to be attributed to this newsletter, the section, or the NCBA unless expressly stated. Authors are responsible for the accuracy of all citations and quotations.