BILL ANALYSIS H.B. 2268 By: Hilbert (Whitmire) Jurisprudence 5-10-95 Senate Committee Report (Unamended) BACKGROUND 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 which provides even more adjustability and extends custodianships to age 21. PURPOSE As proposed, H.B. 2268 sets forth the Texas Uniform Transfers to Minors Act and deletes the Texas Uniform Gifts to Minors Act. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 141, Property Code, as follows: Sec. 1. SHORT TITLE: Texas Uniform Transfers to Minors Act (Transfers Act). Sec. 2. DEFINITIONS. Defines "adult," "benefit plan," "broker," "court," "custodial property," "custodian," "financial institution," "guardian," "legal representative," "member of the minor's family," "minor," "transfer," "transferor," and "trust company." Sec. 3. SCOPE AND JURISDICTION. (a) Applies this chapter to a transfer that refers to the Transfers Act 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 (property) is located in this state. Provides that the custodianship created under Section 10 remains subject to this chapter despite a subsequent change in residence of a transferor, the minor, or the custodian (parties) or the removal of property from this state. (b) Subjects a person designated as a custodian to personal jurisdiction in this state with respect to any matter relating to the custodianship. (c) Provides that a transfer that is made and valid under this Act, the Uniform Gifts to Minors Act, or similar out-of-state act is governed by the law of the designated state and may be executed and enforceable in this state if the parties are residents of or the property is located in the designated state. Sec. 4. NOMINATION OF CUSTODIAN. (a) Authorizes a person having the right to designate the recipient of property transferable on the occurrence of a future event to revocably nominate a custodian to receive the property for a minor beneficiary on the occurrence of the event by naming one or more custodians by following a certain procedure. (b) Requires a custodian named under this section to be a person to whom a transfer of property of that kind may be made. (c) Provides that the nomination does not create property until the nominating instrument becomes irrevocable or a transfer is completed. Provides that unless the nomination has been revoked, the custodianship becomes effective on the occurrence of the future event, and the custodian shall enforce a transfer of the property. Sec. 5. TRANSFER BY GIFT OR EXERCISE OF POWER OF APPOINTMENT. Authorizes a person to 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. Sec. 6. TRANSFER AUTHORIZED BY WILL OR TRUST. (a) Authorizes a legal representative or trustee (representative) to make an irrevocable transfer to a custodian for a minor's benefit as authorized in the governing will or trust. (b) Requires the transfer to be made to the testator or settlor if that person has nominated a custodia to receive the property. (c) Requires the representative to designate the custodian from persons eligible to serve as custodian if the testator or settlor has not nominated a custodian or all persons nominated as custodian are unable to serve for certain reasons. Sec. 7. OTHER TRANSFER BY FIDUCIARY. (a) Authorizes, subject to Subsections (b) and (c) a representative of guardian to make an irrevocable transfer to another adult or trust company as custodian in the absence of a will or under a will or trust that does not contain an authorization to do so. (b) Authorizes a guardian, with approval of the court supervising the guardianship, a guardian to make an irrevocable transfer to another adult or trust company as custodian. (c) Authorizes a transfer under Subsection (a) and (b) to be made only under certain circumstances. Sec. 8. TRANSFER BY OBLIGOR. (a) Authorizes, subject to Subsections (b) and (c), a person who is not subject to Section 6 or 7 and who holds property of or owes a liquidated debt to a minor who does not have a guardian to make an irrevocable transfer. (b) Requires the transfer to be made to a person who has been nominated to receive the property by an authorized person. (c) Authorizes a transfer to be made to an adult member of the minor's family or to a trust company if a custodian has not been nominated or all persons are ineligible for certain reasons, with an exception. Sec. 9. RECEIPT FOR CUSTODIAL PROPERTY. Provides that a written acknowledgement of delivery by a custodian constitutes a sufficient receipt and discharge for property transferred to the custodian. Sec. 10. MANNER OF CREATING CUSTODIAL PROPERTY AND EFFECTING TRANSFER; DESIGNATION OF INITIAL CUSTODIAN; CONTROL. (a) Sets forth circumstances under which property is created and a transfer is made. (b) Sets forth the form and language for an instrument that satisfies the requirements of Subsections (a)(1)(B) and (7). (c) Requires a transferor to place the custodian in control of the property as soon as practicable. Sec. 11. SINGLE CUSTODIANSHIP. Authorizes a transfer to be made only for one minor, and only one person may be the custodian. Provides that all property held for the benefit of the same minor constitutes a single custodianship. Sec. 12. VALIDITY AND EFFECT OF TRANSFER. (a) Sets forth factors which do not affect the validity of a transfer made in a manner prescribed by this chapter. (b) Provides that a transfer under Section 10 is irrevocable, and the custodian has all the rights, powers, duties, and authority provided in this chapter, and the minor or the minor's representative does not have any similar responsibilities with respect to the property except as provided by this chapter. (c) Provides that the transferor incorporates all the provisions of this chapter in the disposition and grants to the custodian, or any third person dealing with a designated custodian, the respective powers, rights and immunities provided by this chapter. Sec. 13. CARE OF CUSTODIAL PROPERTY. (a) Sets forth activities a custodian is required to perform. (b) Requires a custodian to observe the standards of care that would be observed by a prudent person when dealing with property and is not limited by any other statute restricting investments by fiduciaries. Requires the custodian to use any skill or expertise the custodian has. Authorizes a custodian, in the custodian's discretion and without liability to the minor or the minor's estate, to retain any property received from a transferor. (c) Authorizes a custodian to invest in or pay premiums on life insurance or endowment policies on the life of the minor or another person in whom the minor has an insurable interest, under certain circumstances. (d) Requires a custodian to keep custodial property separate and distinct from all other property to identify it as custodial property of the minor. Provides that property consisting of an undivided interest is so identified if the minor's interest is held as a tenant in common and is fixed. Provides that property subject to recordation is so identified if it is recorded, and the property subject to registration is so identified if it is registered, or held in an account designated in a certain manner. (e) Requires a custodian to keep records of transactions with respect to custodial property and to make the records available for inspection by a parent or representative of the minor or by the minor if the minor is at least 14-years-old. Sec. 14. POWERS OF CUSTODIAN. (a) Provides that a custodian has all the rights, powers, and authority over the property that unmarried adult owners have, but a custodian may exercise those rights in that capacity only. (b) Provides that this section does not relieve a custodian from liability for breach of Section 13. Sec. 15. USE OF CUSTODIAL PROPERTY. (a) Authorizes a custodian to deliver or pay to or expend for the minor as much of the property as the custodian advisable for the use and benefit of the minor, without court order and without regard to certain factors. (b) Authorizes the court to order the custodian to deliver or pay to or expend for the minor as much of the property as the court considers advisable on the petition or an interested party or the minor if the minor is at least 14-years-old. (c) Provides that a delivery, payment, or expenditure is in addition to and does not affect any obligation of a person to support the minor. Sec. 16. CUSTODIAN'S EXPENSES, COMPENSATION, AND BOND. (a) Entitles a custodian to reimbursement from property for reasonable expenses incurred in the performance of the custodian's duties. (b) Provides that a custodian has a noncumulative election to charge reasonable compensation for services performed, except for one who is a transferor under Section 5. (c) Provides that a custodian is not required to give a bond, except as provided by Section 19(f). Sec. 17. EXEMPTION OF THIRD PERSON FROM LIABILITY. Authorizes a third person to act on the instructions of or deal with any person purporting to make a transfer or act in the capacity of a custodian and is not responsible for determining the validity or propriety of certain actions. Sec. 18. LIABILITY TO THIRD PERSON. (a) Authorizes a claim based on a contract entered into by a custodian acting in official capacity, an obligation arising from the ownership or control of property, or a tort committed during the custodianship to be asserted against the property by proceeding against the custodian in the custodian's custodial capacity. (b) Sets forth circumstances under which a custodian is not personally liable. (c) Provides that 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 at fault. Sec. 19. RENUNCIATIONS, RESIGNATION, DEATH, OR REMOVAL OF CUSTODIAN; DESIGNATION OF SUCCESSOR CUSTODIAN. (a) Authorizes a person nominated or designated to serve as a custodian to decline to serve. Provides that if the event giving rise to a transfer has not occurred and no able substitute was nominated, the person who made the nomination may nominate a substitute custodian; otherwise requires the transferor or the transferor's representative to designate a substitute. Provides that a substitute has the rights of a successor custodian. (b) Authorizes a custodian to designate as successor custodian a trust company or an adult other than a transferor by executing an instrument of designation before subscribing witness other than the successor. Provides that the designation does not take effect until the custodian resigns, dies, becomes incapacitated, or is removed. (c) Sets forth authorized method for a custodian to resign. (d) Authorizes the minor to designate as successor custodian an adult member of the minor's family, a guardian of the minor, or a trust company if a custodian is unable to continue serving and the minor is older than 14-years-old. Provides that the minor's guardian becomes successor if the minor is younger or fails to act within a certain time period. Authorizes certain interested persons to petition the court to designate a successor candidate. (e) Requires a custodian who declines to serve or resigns under this Act, or the representative of a deceased or incapacitated custodian, to put the property and records in the possession and control of the successor custodian. Authorizes the successor by action to enforce the obligation. (f) Authorizes a transferor, the representative, the adult member of the minor's family, a guardian of the person of the minor, a guardian of the minor, or the minor if the minor is at least 14-years-old, to take certain actions. Sec. 20. ACCOUNTING BY AND DETERMINATION OF LIABILITY. (a) Authorizes certain parties to petition the court for an accounting by the custodian or the custodian's representative or a determination of responsibility for claims against the property, with an exception. (b) Authorizes a successor custodian to petition the court for an accounting by the predecessor custodian. (c) Authorizes the court to require or permit the custodian or the custodian's representative to account. (d) Requires the court to require an accounting and order delivery of the custodial property and records to the successor custodian and the very execution of all instruments required for transfer of the custodial property. Sec. 21 TERMINATION OF CUSTODIANSHIP. Requires the custodian to transfer in an appropriate manner the custodial property to the minor or to the minor's estate within a specified time frame. Sec. 22. APPLICABILITY. Applies this chapter to a transfer within the scope of Section 3 made after September 1, 1995, if the transfer purports to have been made under this Act or the instrument by which the transfer purports to have been made uses in substance a certain designation and the application of this chapter is necessary to validate the transfer. Sec. 23. EFFECT ON EXISTING CUSTODIANSHIPS. (a) Provides that any transfer made before September 1, 1995, is validated. (b) Provides that Sections 2 and 21, with respect to the age of a minor for whom custodial property is held do not apply custodial property held in custodianship that terminated because the minor attained the age of 18 before August 26, 1973 and before September 1, 1995. Sec. 24. UNIFORMITY OF APPLICATION AND CONSTRUCTION. Requires this chapter to be applied and construed to effect its general purpose, to make uniform the law with respect to the subject of this chapter. Deletes existing Subchapter A relating to the Texas Uniform Gifts to Minors Act. SECTION 2. Makes application of this Act prospective, except to the extent that the application impairs constitutionally vested rights or extends the duration of custodianships in existence on the effective date. SECTION 3. Emergency clause. Effective date: 90 days after adjournment.