This blog is intended to highlight certain aspects of the South Carolina Uniform Gift to Minors Act (the “SCUGMA”), which is found in Article 5 of Chapter 5 of Title 63 (the Children’s Code) of the South Carolina Code of Laws.
In general, the SCUGMA allows a donor to make a gift of assets, such as securities, to be held in a custodian’s name for the benefit of a minor without the legal expense of setting up a trust. Under the SCUGMA, the custodian must deliver or pay over the assets to the minor on his attaining the age of twenty-one (21) years. Notwithstanding this requirement, the SCUGMA also gives the custodian the discretion to deliver or pay over the assets when the minor attains the age of eighteen (18) years.
It is interesting to note that South Carolina is presently the only state in the United States to continue to have on its books a version of the Uniform Gifts to Minors Act (the “UGMA”) – as every other state in the country has enacted a version of the more modern Uniform Transfers to Minors Act (UTMA). This author is currently serving on a South Carolina Bar committee which is currently studying the SCUGMA, along with the possible recommendation of having South Carolina adopt the UTMA.
By way of background, the Uniform Law Commission (also known as the National Conference of Commissioners on Uniform State Laws) (ULC) completed the UGMA in 1956. The UGMA quickly became one of the ULC’s most successful products, and some version of it was eventually enacted in every jurisdiction of the United States. The original UGMA was based on an “Act concerning Gifts of Securities to Minors” which was sponsored by the New York Stock Exchange and the Association of Stock Exchange Firms and which had been adopted in 14 states. The 1956 version of UGMA broadened that earlier Act to cover gifts of money, as well as securities, but made few other changes.
In 1965 and 1966, the ULC revised the UGMA i) to expand the types of financial institutions which could serve as depositories of custodial funds, ii) to facilitate the designation of successor custodians, and iii) to add life insurance policies and annuity contracts to the types of property (cash and securities) that could be made the subject of a gift under the UGMA. Some states adopted the 1965/1966 revisions of the UGMA, and some states retained the original 1956 version of the UGMA. Many states revised their versions of the UGMA to expand the kinds of property that may be made the subject of a gift under the UGMA and to permit transfers to custodians from other sources, such as trusts and estates. The result of all of this was that there was great non-uniformity among the states with respect to the UGMA.
To solve this problem of non-uniformity, the ULC, in 1983, approved the UTMA. The UTMA follows the expansive approach that some states had already taken, and it was intended to make a number of other improvements over the UGMA. The UTMA differs from the earlier UGMA in a couple of important respects:
(1) Any kind of property may be transferred to a minor under the UTMA, whether real or personal, tangible or intangible. Unlike the UGMA, which restricted the types of property that could be gifted or transferred, the UTMA eliminates all restrictions on kinds of property that can be transferred.
(2) The earlier UGMA contemplated present gifts from adult persons only. The UTMA expands the types of transfers that are allowed. For example, the UTMA permits transfers based on the occurrence of a future event and allows transfers by powers of appointment. Transfers may be made by a personal representative or a trustee pursuant to the authorization of a will or trust instrument. Anyone obligated to a minor for property held, or for a liquidated debt, can make a transfer under the UTMA. A gift, as a kind of transfer, does not encompass all the possible transfers contemplated under the UTMA.
For one example relating to the kinds of property which may be transferred under the UGMA or the UTMA, consider a benefit plan. The UTMA specifically contemplates a transfer relating to a benefit plan, and the comments to the UTMA reflect that the term “benefit plan” is intentionally very broad. Because the UGMA does not specifically contemplate a transfer relating to benefit plan, there is some uncertainty regarding whether the UGMA could be used in connection with the transfer of certain retirement benefits. To avoid this type of uncertainty, and in the spirit of greater uniformity, this author is hopeful that South Carolina will soon pass the more modern UTMA and not continue to be the lone state in the country that operates under an older model of the law.