BILL ANALYSIS



H.B. 2268
By: Hilbert
03-27-95
Committee Report (Amended)


BACKGROUND

For many years, Texas law has included the Texas Uniform Gift to
Minors Act ("TUGMA"), which provides for custodianships of minors
which terminate at age 18.  While TUGMA has been amended over the
years to modernize it and to give it greater flexibility, it is
still somewhat antiquated. Most states have now adopted the Uniform
Transfers to Minors act ("UTMA").  UTMA provides greater
flexibility, and extends custodianships to age 21.

PURPOSE

H.B. 2268 updates Texas statutes dealing with transfers to minors
from estates or through gifts.  The bill also extends the term of
the custodianship to age 21, when the child is better able to deal
with the assets.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly
grant any additional rulemaking authority to a state officer,
department, agency or institution.

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Chapter 141, Property Code, as follows:

     Sect. 1. TITLE. Texas Uniform Transfers to Minors Act (Texas
     UTMA).

     Sect. 2. DEFINITIONS.
     (1) Adult means an individual who is at least 21 years of age.

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

     (3) Broker means someone who lawfully handles securities and
commodities transactions for the person's own or another account.

     (4) Court means a court with original probate jurisdiction.

     (5) Custodial property means:
           (A) Any interest in property transferred to a custodian
           under this chapter; and
           (B) the income from and proceeds of that interest in
           property.

     (6) Custodian means a person designated under Sect. 10 or a
successor or substitute under Sect. 19.

     (7) Financial institution means a state- or federally-chartered and supervised bank, trust company, savings institution,
or credit union.

     (8) Guardian 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 function.

     (9) Legal representative means an executor, independent
executor, administrator or independent administrator of a
decedent's estate, an obligor under a benefit plan or other
governing instrument, a successor legal representative, or a person
legally authorized to perform substantially the same functions.

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

     (11) Minor means a person younger than 21 years of age.

     (12) Transfer means a transaction that creates custodial
property under Sect. 10.


     (13) Transferor means a person who makes a transfer under this
chapter.

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

     Sect. 3. SCOPE AND JURISDICTION.
     (a) Applies to a transfer that refers to the Texas UTMA in the
designation under Sect. 10(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 Texas or the custodial property is
located in Texas. Even if any of them move out of state or take the
custodial property out of state, this chapter still applies.

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

     (c) A transfer that purports to be made and that is valid
under UTMA, the UGMA 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 Texas, 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.

     Sect. 4. NOMINATION OF CUSTODIAN. 
     (a) A custodian may be revocably nominated by a person having
the right to designate the recipient of property transferable on
the occurrence of a future event. The nomination must, in
substance, include the following:  "as custodian for (name of
minor) under the Texas UTMA."  One or more substitute custodians,
who would act if the first nominee dies before the transfer or is
unable, declines or is ineligible to serve, can be nominated, too. 
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 that 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 Sect.
10(a).

     (c) The nomination of a custodian does not create custodial
property until the nominating instrument becomes irrevocable or a
transfer to the nominated custodian is completed under Sect. 10.
Unless revoked, the custodian becomes effective on the occurrence
of the future event, and the custodian shall enforce a transfer of
the custodial property under Sect. 10.

     Sect. 5. TRANSFER BY GIFT OR EXERCISE OF POWER OF APPOINTMENT.
Provides that a transfer to a custodian may be made by gift or
irrevocable exercise of a power of appointment.

     Sect. 6. TRANSFER AUTHORIZED BY WILL OR TRUST.
     (a) Provides for a transfer by a legal representative or
trustee to a person named in the governing instrument.

     (b) If the testator or settlor has nominated a custodian, the
transfer must be made to that person.

     (c) If the testator or settlor has nominated a custodian, or
all persons nominated as custodian dies before the transfer or are
unable, decline or are ineligible to serve, the legal
representative or the trustee shall designate the custodian from
among those person eligible to serve as custodian for property of
that kind under Sect. 10(a).

     Sect. 7. OTHER TRANSFERS BY FIDUCIARY. (a) A legal
representative or trustee may make an irrevocable transfer to
another adult or trust company as custodian for a minor's benefit
under Sect. 10 in the absence of a will or under a will or trust
that does not contain an authorization to do so.

     (b) With the approval of the court supervising the
guardianship, a guardian may make an irrevocable transfer to
another adult or trust company as custodian for a minor's benefit
under Sect. 10.

     (c) A transfer under (a) and (b) may be made only if:
           (1) the legal representative, or trustee considers the
           transfer to be in the best interest of the minor;
           (2) the transfer is not prohibited by or inconsistent
           with provisions of the applicable will, trustee
           agreement, or other governing instrument; and
           (3) the transfer is authorized by the court if it
           exceeds $10,000 in value.

     Sect. 8. TRANSFER BY OBLIGOR. (a) Subject to (b) and (c), a
person who is not subject to Sect. 6 and 7 and who holds property
of or owes a liquidated debt to a minor who does not have a
guardian may make an irrevocable transfer to a custodian for the
benefit of the minor under Sect. 10.

     (b) If a person who has the right to nominate a custodian has
nominated one to receive the custodial property, the transfer must
be made to that person.

     (c) If a custodian has not been nominated or all persons
nominated as custodians die before the transfer or are unable,
decline or ineligible to serve, a transfer may be made to an adult
member of the minor's family or to a trust company unless the
property exceeds $10,000 in value.

     Sect. 9. Provides that the custodian' receipt is a sufficient
discharge.

     Sect. 10. MANNER OF CREATING CUSTODIAL PROPERTY AND EFFECTING
TRANSFER; DESIGNATION OF INITIAL CUSTODIAN; CONTROL. (a) Custodial
property is created and a transfer is made when:

     (1) an uncertificated or certificated security in registered
     form is:
           (A) registered in the name of the transferor, another
           adult, or a trust company, followed in substance by the
           words:  "as custodian for (name of minor)  under the
           Texas UTMA"; or

           (B) delivered if in certificated form, or any document
           necessary for the transfer of an uncertificated security
           is delivered, with any necessary endorsement to another
           adult or to a trust company as custodian, accompanied
           by an instrument in substantially the form set forth in
           (b);

     (2) money is paid or delivered, or a security held in the name
     of a broker, financial institution, or its nominee is
     transferred, to a broker of financial institution for credit
     to an account in the name of the transferor, another adult, or
     a trust company, followed in substance by the words: "as
     custodian for (name of minor) under the Texas UTMA";

     (3) the ownership of a life or endowment insurance policy or
annuity contract is:
           (A) registered with the issuer in the name of the
           transferor, another adult, or a trust company, followed
           in substance by the words: "as custodian for (name of
           minor) under the Texas UTMA"; or

           (B) assigned in a writing delivered to another adult or
           to a trust company whose name in the assignment is
           followed in substance by the words: "as custodian for
           (name of minor) under the Texas UTMA";

     (4) an irrevocable exercise of power of appointment or an
     irrevocable present right to future payment under a contract
     is the subject of a written notification delivered to the
     payor, issuer, or other obligor that the right is transferred
     to the transferor, another adult, or a trust company, whose
     name in the notification is followed in substance by the
     words: as custodian for (name of minor) under the Texas UTMA."

     (5) an interest in real property is conveyed by instrument
recorded in the real property records in the county in which the
real property is located to the transferor, another adult other
than the transferor, or a trust company, followed in substance by
the words: "as custodian for (name of minor) under the Texas UTMA."

     (6) a certificate of title issued by a department or agency of
a state or of the U.S. that evidences title to tangible personal
property is:

           (A) issued in the name of the transferor, another adult,
           or a trust company, endorsed to that person followed in
           substance by the words: "as a custodian for (name of
           minor) under the Texas UTMA"; or

           (B) delivered to another adult or to a trust company,
           endorsed to that person followed in substance by the
           words: "as custodian for (name of minor) under the Texas
           UTMA"; or

     (7) an interest in any property not described in Subdivisions
(1)-(6) is transferred to another adult or to a trust company by a
written instrument in substantially the form set forth in
Subsection (b).

     (b) Specifies the form that will satisfy the requirements of
Subsection (a)(1)(B) and (7):

     (c) A transferor shall place the custodian in control of the
custodial property as soon as practicable.

     Sect. 11. SINGLE CUSTODIANSHIP. Provides that each transfer
must be made for only one minor and that one person may be
custodian.

     Sect. 12. VALIDITY AND EFFECT OF TRANSFER. (a) The validity of
a transfer made in a manner prescribed by this chapter is not
affected by the:
     (1) transferor's failure to comply with Sect. 10(c) concerning
     possession and control;
     (2) designation of an ineligible custodian, except designation
     of the transferor in the case of property for which the
     transferor is ineligible to serve or
     (3) death or incapacity of a nominee or designee or the
     disclaimer of the office by that person.

     (b) A transfer made under Sect. 10 is irrevocable, and the
custodial property is indefeasibly vested in the minor. Gives the
custodian the rights, powers, duties, and authority with respect to
custodial property over the minor or the minor's legal
representative.

     (c) By making a transfer, the transferor incorporates all the
provisions of this chapter in the disposition and grants to the
custodian, or to any third person dealing with a person designated
as custodian, the respective powers, rights and immunities provided
by this chapter.

     Sect. 13. (a) A custodian shall:
     (1) take control of custodial property;
     (2) register or record tile to custodial property if
     appropriate; and
     (3) collect, hold, manage, sell, convey, invest, and reinvest
     custodial property.

     (b) The custodian in dealing with custodial property, shall
act as a prudent person would deal with property of another. The
custodian shall utilize any special skill or expertise they may
have. The custodian, using discretion and without liability, may
retain any custodial property received from a transferor. 

     (c) A custodian may invest in or pay premiums on life
insurance or endowment policies on the life of:
     (1) the minor only if the minor or the minor's estate is the
     sole beneficiary; or
     (2) another person in whom the minor has an insurable interest
     only to the extent that the minor, the minor's estate, or the
     custodian in the capacity of the custodian is the irrevocable
     beneficiary.

     (d) A custodian at all times shall keep custodial property
separate and distance from all other property in a manner
sufficient to identify it clearly as custodial property of the
minor.
Custodial property consisting of an undivided interest and
custodial property subject to recordation are required to be
identified as such.

     (e) Records of all custodial property transactions are to be
kept, including information to prepare the minor's tax returns, and
make those records available for inspection by a parent or legal
representative of the minor.

     Sect. 14. POWERS OF CUSTODIAN. (a) A custodian, acting in a
custodial capacity, has the same rights that unmarried adult owners
have over their own property, but the custodian can only use that
authority in their capacity as a custodian.

     (b) A custodian is not relieved from liability for breach of
Sect. 13.

     Sect. 15. USE OF CUSTODIAL PROPERTY. (a) A custodian can use
the minor's custodial property for the benefit of the minor as he
or she considers advisable without court order and without regard
to:
     (1) the duty or ability of the custodian personally or of any
     other person to support the minor; or
     (2) any other income or property of the may be applicable or
     available for that purpose.

     (b) An interested person or the minor may petition and the
court may order the custodian to deliver or pay to the minor or
expend for the minor's benefit as much of the custodial property as
the court considers advisable for the use and benefit of the minor.

     (c) A delivery, payment, or expenditure under this section is
in addition to, not in substitution for, and does not affect any
obligation of a person to support the minor.

     Sect. 16. CUSTODIAN'S EXPENSES, COMPENSATION, AND BOND.
Provides for reimbursement of expense, compensation for the
custodian, and that no bond shall normally be required.

     Sect. 17. EXEMPTION OF THIRD PERSON FROM LIABILITY. Provides
that third persons may deal with the custodian without liability.

     Sect. 18. LIABILITY TO THIRD PERSON. (a) A claim based on a
contract entered into by a custodian acting in a custodial
capacity, an obligation arising from owning or controlling
custodial property, or a tort committed during the custodianship
may be asserted against the custodial property by proceeding
against the custodian in his official capacity, whether or not the
custodian or the minor is personally liable for the claim.

     (b) A custodian is not personally liable:
     (1) on a contract properly entered into in the custodian's
     custodial capacity unless the custodian fails to reveal that
     capacity and to identify the custodianship in the contract; or
     (2) for an obligation arising from control of custodial
     property or for a tort committed during the custodianship
     unless the custodian is personally at fault.

     (c) A minor is not personally liable for an obligation arising
from ownership of custodial property or for a tort committed during
the custodianship unless the minor is personally at fault.

     Sect. 19. RENUNCIATION, RESIGNATION, DEATH, OR REMOVAL OF
CUSTODIAN; DESIGNATION OF SUCCESSOR CUSTODIAN. (a) If a custodial
nominee or designee wishes to decline to serve, they must deliver
a written notice to the person who made the nomination or to the
transferor's legal representative. A substitute nominee may be
selected by the nominator; otherwise the transferor or the
transferor's legal representative shall designate a substitute
custodian. 

     (b) A custodian at any time may designate as successor
custodian a trust company or an another adult by executing and
dating an instrument of designation before a subscribing witness
other than the successor. In order for a successor to take over,
the instrument must include the custodian's resignation. If not,
the successor can't take over until the custodian resigns, dies,
becomes incapacitated, or is removed.

     (c) A custodian may resign at any time by delivering:
     (1) written notice to the successor custodian and to the minor
     if the minor is at least 14 years of age; and
     (2) the custodial property to the successor custodian.

     (d) If a custodian is ineligible, dies or becomes
incapacitated without designating a successor and the minor is at
least 14 years old, the minor may designate as successor custodian
an adult member of the minor's family, a guardian of the minor, or
a trust company in the manner prescribed by Subsection (b). If the
14 or younger minor fails to act within 60 days after the
ineligibility, death, or incapacity of the custodian, the minor's
guardian becomes successor custodian. The court can be petitioned
to designated a successor custodian if the minor has no guardian or
the minor's guardian declines to act.

     (e) As soon as practicable, a custodian who declines to serve
under Subsection (a) or resigns under Subsection (c), or the legal
representative of a deceased or incapacitated custodian, shall put
the custodial property and records in the possession and control of
the successor custodian. 

     (f) A transferor, the legal representative of a transferor, an
adult member of the minor's family, a guardian of the person of the
minor, the guardian of the minor, or the minor if the minor is at
least 14 years of age may petition the court to:
     (1) remove the custodian for cause and designate a successor
     custodian other than a transferor under Sect. 5; or
     (2) require the custodian to give appropriate bond.

     Sect. 20. ACCOUNTING BY AND DETERMINATION OF LIABILITY. (a)
The court may be petitioned for:
     (1) an accounting by the custodian or the custodian's legal
     representative; or
     (2) a determination of responsibility, as between the
     custodial property and the custodial personally, for claims
     against the custodial property unless the responsibility has
     been adjudicated in an action under Sect. 18 to which the
     minor or the minor's legal representative was a party.

     (b) A successor custodian may petition the court for an
accounting by the predecessor custodian.

     (c) The court, in a proceeding under this chapter or in any
other proceeding, may require or permit the custodian or the
custodian's legal representative to account.

     (d) If a custodian is removed under Sect. 19(f), the court
shall require an accounting and order delivery of the custodial
property and records to the successor custodian and the execution
of all instruments required for transfer of the custodial property.

     Sect. 21. TERMINATION OF CUSTODIANSHIP. The custodian shall
transfer the custodial property to the minor or the minor's estate
on the earlier of the date:

     (1) the minor attains 21 years of age, with respect to
     custodial property transferred under Sect. 5 or 6;
     (2) the minor attains the age of majority under the laws of
     this state other than this chapter, with respect to custodial
     property transferred under Sect. 7 or 8; or
     (3) the minor's death.

     Sect. 22. Makes the Act applicable to transfers after
September 1, 1995, if:

     (1) the transfer purports to have been made under the Texas
     UTMA; or
     (2) the instrument by which the transfer purports to have been
     made uses in substance the designation "as custodian under the
     Uniform Gift to Minors Act" or "as custodian under the Uniform
     Transfer to Minor Act" of any other state, and the application
     of this chapter is necessary to validate the transfer.

     Sect. 23.  EFFECT ON EXISTING CUSTODIANSHIPS. (a) Any transfer
of custodial property under this chapter made before Sept. 1, 1995,
is validated notwithstanding that there was no specific authority
for the coverage of custodial property of that kind or for a
transfer from that source at the time the transfer was made.

     (b) Sects. 2 and 21, with respect to the age of a minor for
whom custodial property is held under this chapter, do not apply to
custodial property held in a custodianship that terminated because
the minor attained the age of 18 after Aug. 26, 1973, and before
Sept. 1, 1995.

     Sect. 24. UNIFORMITY OF APPLICATION AND CONSTRUCTION. Provides
that the Act is to be construed to effect its general purpose.
Deletes entirely the Texas Uniform Gifts to Minors Act.

SECTION 2. (a) Act takes effect Sept. 1, 1995, and applies to
transfer made in a manner and form prescribed by Chapter 141,
Property Code, as amended by this Act, on or after that date.

     (b) This Act applies to transfers made before the effective
date of this Act in a manner and form prescribed by Chapter 141,
Property Code, as amended by this Act, except to the extent that
the application impairs constitutionally vested rights or extends
the duration of custodianships in existence on the effective date
of this Act.

SECTION 3.  Emergency clause.

EXPLANATION OF AMENDMENTS

The amendment to Section 10, Subsection 5, clarifies that the real
property transfer is done by conveyance and not be recording.

The amendment to Section 13, Subsection (a)(3) clarifies that the
powers of the custodian includes the power to convey real property.

The amendments to Section 2, Subsection (9); and Section 7,
Subsections (a), (b) and (c)(1) clarifies that a guardian could not
make gifts without the approval of the court supervising the
guardianship.

SUMMARY OF COMMITTEE ACTION
House Bill 2268 was considered by the Committee on Civil Practices
in a public hearing on March 29, 1995. The following individuals
testified in support of the bill: Alvin J. Golden, representing the
Texas Academy of Probate and Trust Lawyers. No one testified in
opposition to or neutrally on the bill. The bill was left pending.
House Bill 2268 was considered by the Committee on Civil Practices
in a public hearing on April 12, 1995. The committee considered one
amendment, which was adopted without objection. The bill was
reported favorably as amended, with the recommendation that it do
pass and be printed, by a record vote of six ayes, zero nays, zero
pnv, and three absent.