NORTH CAROLINA COMMENTARY

The North Carolina Uniform Custodial Trust Act (hereinafter "the North Carolina Act") is based upon the Uniform Custodial Trust Act (hereinafter "the Uniform Act"). The most significant differences between the North Carolina Act and the Uniform Act are (i) the deletion of references to multiple beneficiaries, (ii) changes made to be consistent with Chapter 35A of the General Statutes, relating to guardianship, (iii) the addition of witness and acknowledgment requirements for writings or instruments designating someone other than the beneficiary's estate to receive the custodial trust property at the beneficiary's death, and (iv) the addition of a limitation on the aggregate value of transfers or declarations of property to the corpus of a custodial trust. The preference for single beneficiaries reflects a belief that the complexity raised by multiple beneficiaries is not justified by any competing benefit when the ease of creating a separate custodial trust for each individual beneficiary is considered. The drafters believed that although there is no absolute need for the North Carolina Act to be consistent with Chapter 35A, consistency in the various types of guardians, coordination of the use of the terms "incapacitated" and "incompetency," and the incorporation of the procedures and flexibility of Chapter 35A are all desirable goals.

It is believed that the North Carolina Act will be used for two main purposes. The first will be for the creation of a statutory trust with a built-in set of principles and forms that can be used for providing support to an incapacitated person. The second purpose is to allow an individual, while competent, to designate a person to act as the individual's trustee in the event of the individual's incapacity.

The North Carolina Commentary reflects changes to the Uniform Act that were made by the drafters. The Commentary discusses most but not all changes made by the General Assembly.

Editor's Note. - Permission to include the Official Comments was granted by the National Conference of Commissioners on Uniform State Laws and The American Law Institute. It is believed that the Official Comments will prove of value to the practitioner in understanding and applying the text of this Chapter.

The Official Comments appearing under individual sections in this Chapter have been printed by the publisher as received, without editorial change, and relate to the Chapter as originally enacted. However, not all sections in this Chapter may carry Official Comments. Furthermore, Official Comments may or may not have been received or updated in conjunction with subsequent amendments to this Chapter and, therefore, may not reflect all changes to the sections under which they appear.

Where they appear in this Chapter, "Amended Comment" usually means that an error in the original comment has been corrected by a subsequent amendment, and "Supplemental Comment" pertains to a later development, such as an amendment to the statute text. North Carolina Comments explain where the General Assembly has enacted variations to the text of the Uniform Act.

§ 33B-1. Definitions.

As used in this act:

1. "Adult" means an individual who is at least 21 years of age.
2. "Beneficiary" means an individual for whom property has been transferred to or held under a declaration of trust by a custodial trustee for the individual's use and benefit under this act.
3. "Guardian of the estate" means a guardian appointed for the purpose of managing the property, estate, and business affairs of a ward, or a person legally authorized to perform substantially the same functions. As used in this act the term "guardian of the estate" includes a general guardian or guardian of the estate appointed under the provisions of Chapter 35A of the General Statutes.
4. "Court" means the clerk of superior court of this State.
5. "Custodial trust property" means an interest in property transferred to or held under a declaration of trust by a custodial trustee under this act and the income from and proceeds of that interest.
6. "Custodial trustee" means a person designated as trustee of a custodial trust under this act or a substitute or successor to the person designated.
7. "Guardian of the person" means a guardian appointed for the purpose of performing duties relating to the care, custody, and control of a ward, but not a person who is only a guardian ad litem. As used in this act the term "guardian of the person" includes a general guardian or guardian of the person appointed under the provisions of Chapter 35A of the General Statutes.
8. "Incapacitated" means lacking the ability to manage property and business affairs effectively by reason of mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication, confinement, detention by a foreign power, disappearance, being under 21 years of age, or other disabling cause.
9. "Legal representative" means a personal representative or guardian of the estate.
10. "Member of the beneficiary's family" means a beneficiary's spouse, descendant, parent, grandparent, brother, sister, uncle or aunt, whether of the whole or half blood or by adoption.
11. "Person" means an individual, corporation, business trust, estate, trust, partnership, joint venture, association, or any other legal or commercial entity.
12. "Personal representative" means an executor, administrator, or special administrator of a decedent's estate, a person legally authorized to perform substantially the same function, or a successor to any of them.
13. "State" means a state, territory, or possession of the United States, the District of Columbia, or the Commonwealth of Puerto Rico.
14. "Transferor" means a person who creates a custodial trust by transfer or declaration.
15. "Trust company" means a financial institution, corporation, or other legal entity, authorized to exercise general trust powers in North Carolina.
16. "General guardian" means a guardian of both the estate and the person.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

1. "Adult" is a person 18 years of age for the purpose of custodial trusts. The result of this is that a person 18 years of age will be eligible to be a custodial trustee under this Act, although he or she may not be eligible under UTMA since minor custodianships under UTMA may run to age 21 and the minor could in some cases be older than the custodian. As the Comments under Section 1 of UTMA explain, the age of 21 was retained under that Act because the Internal Revenue Code continues to permit a "minority trust" under Section 2053(c), to continue in effect until age 21 and because it was believed that most transferors creating trusts or custodianships for minors would prefer to retain the property under management for the benefit of the young person as long as possible. The difference has little or no practical consequence and serves the purpose of each Act.

(3) "Conservator" is defined broadly to permit identification of a person functioning as a conservator.

(4) "Court" means ____________ court. Here the likelihood is that most states would utilize the same court, e.g., the probate court, that deals with conservators and estates.

(5 and 6) The terms, "custodial trust property" and "custodial trustee," are used throughout to identify clearly the statutory trust property and trustee under this Act. The statutory trust concept is used throughout the Act.

(7) A definition of guardian has been included and is based on the Uniform Probate Code Section 5-103(6).

(8) A definition of incapacitated has been included, for the purpose of this Act, because incapacity of the beneficiary converts the trust from a revocable trust to a discretionary trust. The definition is taken from the Uniform Probate Code Section 5-401(c) relating to the person who is unable to manage property. Compare Uniform Probate Code Section 5-103(7). Note that Section 10(a)(ii) permits a transferor to direct that the trust shall be administered as one for an incapacitated person. Section 10 deals specifically with the determination of incapacity.

(10) The beneficiary's family is broadly defined to identify persons who may have standing to seek judicial intervention or accounting (Sections 13 and 15).

(11) The definition of a person is taken from the Uniform Probate Code Section 1-201(29).

(12) Personal representative is broadly defined and the definition reflects that in the Uniform Probate Code Section 1-201(30).

NORTH CAROLINA COMMENTARY

The definition of "adult" is modified to mean an individual who is at least 21 rather than 18 years of age. The term "conservator" and its definition are replaced with the term "guardian of the estate" and its definition from the guardianship statutes, Chapter 35A of the General Statutes. The term "guardian" and its definition are replaced with the term "guardian of the person" and its definition from the guardianship statutes, Chapter 35A of the General Statutes. The definitions of "guardian of the estate" and "guardian of the person" are modified to include a general guardian or guardian of the estate whose powers are limited in accordance with an order of the court concerning the extent of incompetence under G.S. 35A-1112(d). The term "general guardian" is added and defined to be a guardian of both the estate and the person. The term "court" is defined to mean the clerk of superior court of this State. The definition of "incapacitated" is modified to substitute "being under 21 years of age" for "minority." The definition of "legal representative" is modified to substitute "guardian of the estate" for "conservator." The definition of "member of the beneficiary's family" is modified to delete the references to "stepchild" and "stepparent," paralleling a change in the North Carolina Uniform Transfers to Minors Act and reflecting the drafters' belief that the inclusion of the references in the definition is undesirable. The definition of "trust company" is modified to refer to a legal entity authorized to exercise general trust powers in North Carolina.

§ 33B-2. Custodial trust; general.

1. A person may create a custodial trust of property by a written transfer of the property to a trust company or an adult other than the transferor executed in any lawful manner, naming as beneficiary an individual, who may be the transferor, in which the transferee is designated, in substance, as custodial trustee under the North Carolina Uniform Custodial Trust Act. A transfer is executed in a lawful manner if the formalities, if any, of the transfer of the particular property necessary under general principles of law are satisfied.
2. An adult may create a custodial trust of property by a written declaration which names as beneficiary an individual other than the declarant. The declaration shall be evidenced by registration of the property or by other instrument of declaration executed in any lawful manner, describing the property and designating the declarant, in substance, as custodial trustee under the North Carolina Uniform Custodial Trust Act. A registration or other declaration of trust for the sole benefit of the declarant is not a custodial trust under this act. A registration or declaration is executed in a lawful manner if the formalities, if any, of the transfer of the beneficial interest in the particular property under general principles of law are satisfied.
3. Title to custodial trust property is in the custodial trustee, and the beneficial interest is in the beneficiary.
4. Except as provided in subsection (e) of this section, a transferor may not terminate a custodial trust.
5. The beneficiary, if not incapacitated, or the guardian of the estate of an incapacitated beneficiary, may terminate a custodial trust by delivering to the custodial trustee a writing signed by the beneficiary or guardian of the estate declaring the termination. If not previously terminated, the custodial trust terminates on the death of the beneficiary.
6. Any person may augment existing custodial trust property by the addition of other property pursuant to a written instrument satisfying the requirements of subsections (a) or (b) of this section.
7. The transferor may designate, or authorize the designation of, a successor custodial trustee in the trust instrument.
8. This act does not displace or restrict other means of creating trusts. A trust, the terms of which do not conform to this act, may be enforceable according to its terms under the law.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

Section 2 is the principal provision authorizing the creation of a custodial trust and utilizes the concept of incorporation by reference when the transferee or titleholder of property is designated as custodial trustee under the Act. Section 2 sets forth the general effect of such a transfer. Section 18 provides forms which satisfy the requirements of this section and identifies customary methods of transferring assets to create a custodial trust.

Section 2(a) provides that a trust may be created by transfer to another for the benefit of the transferor or another. This is expected to be the most common way in which a custodial trust would be created. However, a custodial trust may also be created by declaration of trust by the owner of property to hold it for the benefit of another as is provided in Section 2(b). A declaration in trust by the owner of property for the sole benefit of the owner is not contemplated by this Act because such an attempt may be considered ineffective as a trust due to the total identity of the trustee and beneficiary. However, the doctrine of merger would not preclude an effective transfer under this Act for the benefit of the transferor and one or more other beneficiaries. See Section 6.

A custodial trust could be created by the exercise of a valid power of attorney or power of appointment given by the owner of property as one of the transfers "consistent with law."

These alternatives permit the major uses of the custodial trust to be accomplished expeditiously. For example, an older person, wishing to be relieved of management of property may transfer property to another for benefit of the transferor or of the transferor's spouse or child. The declaration may be used to establish a trust of which the owner is trustee to continue management of the property for benefit of another, such as a spouse or child. The trust may include a provision for distribution of assets remaining at the beneficiary's death directly to a named distributee.

This Act does not preclude the creation of trusts under other existing law, statutory or nonstatutory, but is designed to facilitate the creation of simple trusts incorporating the provisions of this Act. The written transfer or declaration "consistent with law" requires that the formalities of the transfer of particular property necessary under other law will be observed, e.g., if land is involved, the requirements of a proper deed and recording must be satisfied.

Section 2(c) provides for the retention of the beneficial interest in the custodial trust property in the beneficiary and, of course, not in the custodial trustee. The extensive control and benefit in the beneficiary who is not incapacitated maintains the simplicity of the trust and avoids tax complexity. The custodial trustee is given the title to the property and authority to act with regard to the property only as is authorized by the statute. The custodial trustee's powers are enumerated in Section 8.

Section 2(e) gives the adult beneficiary, who is not incapacitated, the power to terminate the custodial trust at any time during his or her lifetime. This power of termination exists in any beneficiary who is not incapacitated whether the beneficiary was or was not the transferor. A beneficiary may be determined to be incapacitated or the transferor may designate that the trust is to be administered as a trust for an incapacitated beneficiary under Section 10, in which event the beneficiary does not have the power to terminate. However, the designation of incapacity by the transferor can be modified by the trustee or the court by reason of changed circumstances pursuant to Section 10. The Act precludes termination by exercise of a durable power of attorney if the beneficiary is incompetent (Section 7(f)). If the donor prefers not to permit the beneficiary the power to terminate or to designate the beneficiary as incapacitated under Section 10, an individually drafted trust outside the scope of this Act would seem appropriate.

Upon termination of a custodial trust, the custodial trust property must be distributed as provided in Section 17.

A transfer under this Act is irrevocable except to the extent the beneficiary may terminate it. Hence, a transfer to a trustee for benefit of a person other than the transferor is not revocable by the transferor. If a power of revocation were retained by the transferor, that would be a trust outside the scope of this Act and enforceable under general law pursuant to subsection 2(h).

This Act does not provide for protection of the custodial trust assets from the claims of creditors of the beneficiary, whether those are general or governmental creditors. Other laws of the state remain unaffected. In this regard, unusual problems of handicapped persons and the coordination of resources and state or federal services call for special provision and planning outside the scope of this Act.

NORTH CAROLINA COMMENTARY

This section is modified for clarification and to conform to the decision not to authorize multiple beneficiaries. See comments to G.S. 33B-6. The section is also modified to limit those who may be custodial trustees to natural persons and trust companies authorized to act in a fiduciary capacity under North Carolina law.

§ 33B-3. Custodial trust to begin in the future.

1. A person may create a custodial trust to begin in the future by designating the transferee in substance "as custodial trustee for
   1. A will;
   2. A trust;
   3. An insurance policy;
   4. A deed;
   5. A payable-on-death account;
   6. An instrument exercising a power of appointment, provided that the donor of the power has not expressly prohibited the exercise of the power in favor of a custodial trustee, and provided further that the beneficiary of the custodial trust is a permissible object of the power, although the custodial trustee need not be a permissible object of the power; or
   7. A writing designating a beneficiary of contractual rights, including but not limited to rights under a pension or profit sharing plan, which is registered with or delivered to the fiduciary, payor, issuer, or obligor of the contractual right.
2. Persons may be designated as substitute or successor custodial trustees to whom the property must be paid or transferred in the order named if the preceding designated custodial trustee is unable or unwilling to serve.

______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act". A designation under this section may be made in:

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This section permits a future custodial trustee to be designated to receive property for the beneficiary of a custodial trust to be effective upon the occurrence of a future event or transfer. To accommodate changes in circumstances during the passage of time, one or more successors or substitute custodial trustees can also be designated. The designation of the future custodial trustee and the beneficiary can be made in an instrument which is revocable or irrevocable depending upon the nature of the transaction or transfer. Any person designated as a future custodial trustee may decline to serve before the transfer occurs or may resign under Section 13 after the transfer.

The source of this section is Section 3 of UTMA.

The enacting state's rule against perpetuities may limit or affect the creation of a custodial trust upon the occurrence of a future event, but because the use of a custodial trust usually contemplates dispositions for the benefit of living persons, perpetuity problems should rarely arise.

NORTH CAROLINA COMMENTARY

The designation of a future custodial trustee under this section is revocable or irrevocable depending upon the nature of the transaction or transfer. For example, the designation of a future custodial trustee in a will ordinarily would be revocable until the death of the testator, because wills are freely revocable. On the other hand, the designation of a future custodial trustee in a deed ordinarily would become irrevocable upon delivery of the deed, because deeds usually are irrevocable.

In order to avoid confusion between revocable and irrevocable transfers, this section is rewritten to list separately the types of transactions or transfers to which it applies. New subsection (a) deletes some ambiguous language about "property payable or transferable upon a future event . . ." in favor of a simpler concept of "a custodial trust to begin in the future." To aid in this restructuring, former subsection (c) is incorporated into new subsection (a).

The list of transactions deletes the term "multiple party account" in favor of the term "payable-on-death account." The term "multiple party account" is a Uniform Probate Code term that has no statutory use in North Carolina. Further, certain types of multiple party accounts are not properly within the scope of this section; for example, a depositor's establishing a joint account between the depositor and a custodian would be a present transfer governed by G.S. 33B-2.

The list of transactions adds the term "pension or profit sharing plan" as a specific example of payments pursuant to contract. This term appears also in G.S. 36A-6 (which exempts employee trusts from the Rule Against Perpetuities). The requirement of registration or delivery of the writing under subdivision (a)(7) is mentioned in this subdivision but not in others because the law applicable to the other kinds of transactions is well settled. This organization avoids an ambiguity in the Uniform Act as to whether the registration or delivery requirement applies to all kinds of transactions.

The catchline of this section is changed from "Custodial trustee for future payment or delivery" to "Custodial trust to begin in the future" to clarify the concept of the section.

§ 33B-4. Form and effect of receipt and acceptance by custodial trustee; jurisdiction.

1. Obligations of a custodial trustee, including the obligation to follow directions of the beneficiary, arise under this act upon the custodial trustee's acceptance, express or implied, of the custodial trust property.
2. The custodial trustee's acceptance may be evidenced by a writing stating in substance:
3. Upon accepting custodial trust property, a person designated as custodial trustee under this act is subject to personal jurisdiction in this State with respect to any matter relating to the custodial trust.

"CUSTODIAL TRUSTEE'S RECEIPT AND ACCEPTANCE

I, ______________, (name of custodial trustee) acknowledge receipt of the custodial trust property described below or in the attached instrument and accept the custodial trust as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act. I undertake to administer and distribute the custodial trust property pursuant to the North Carolina Uniform Custodial Trust Act. My obligations as custodial trustee are subject to the directions of the beneficiary unless the beneficiary is designated as, is, or becomes incapacitated. The custodial trust property consists of ____________________________. Dated: ________________ ________________________ (Signature of Custodial Trustee)".

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

Although a custodial trust is created by a transfer that satisfies Section 2 of the Act, the responsibility and obligations upon the trustee do not arise until the trustee has accepted the transfer. This detailed section is included to call the attention of the parties to the effective receipt and acceptance by the custodial trustee. Once a custodial trustee accepts the transfer of the custodial trust property, the custodial trustee assumes the obligation of a custodial trustee under this Act. The acceptance can be expressed or implied, but it is recommended that the written acceptance provided for in Section 4(b) be utilized. By the acceptance the custodial trustee submits to the personal jurisdiction of the courts of the enacting state for the purpose of the custodial trust, despite subsequent relocation of the parties or of the custodial trust property. The principal sources of these provisions are Sections 8 and 9 of UTMA and the analogous provisions under the Uniform Probate Code, Sections 3-602, 5-208, 5-307, 7-103.

NORTH CAROLINA COMMENTARY

This section is modified for clarification. The phrase "in this State" is substituted for the phrase "of the court" to reflect the intended use of the term "court" in the Uniform Act, i.e., to provide for the exercise of personal jurisdiction over custodial trustees by the courts of this State.

§ 33B-5. Transfer to custodial trustee by fiduciary or obligor; facility of payment.

1. A person, including a fiduciary other than a custodial trustee, who holds property of or owes a debt to an incapacitated individual not having a guardian of the estate may make a transfer to an adult member of the beneficiary's family or to a trust company as custodial trustee for the use and benefit of the incapacitated individual. If the value of the property or the debt exceeds twenty thousand dollars ($20,000), the transfer is not effective unless authorized by the court.
2. A written acknowledgment of delivery, signed by a custodial trustee, is a sufficient receipt and discharge for property transferred to the custodial trustee pursuant to this section.
3. This section shall not apply when the disposition of the property has been directed by an instrument designating a custodial trustee pursuant to G.S. 33B-3.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This section is in the nature of a facility-of-payment provision that permits persons owing money to an incapacitated individual to discharge a fixed obligation by a payment to a custodial trustee under this Act. The section does not authorize the custodial trustee to settle claims for disputed amounts but only to acknowledge an effective receipt of property paid or delivered. It is based primarily on Sections 6 and 7 of UTMA and includes the protections of Section 8 of UTMA as well. It permits a custodial trust to be established as a substitute for a conservatorship to receive payments due an incapacitated individual. Also, see Section 11, which protects transferors and other third parties dealing with the custodial trustee.

NORTH CAROLINA COMMENTARY

A designation under this section may be made in a will, a trust, a deed, a payable-on-death account, an insurance policy or an instrument exercising a power of appointment. A designation may also be made by a writing designating a beneficiary of contractual rights that is registered with or delivered to the fiduciary, payor, issuer, or obligor of the contractual right. Subsection (c) is added to clarify that the section cannot be used to defeat a custodial trust created under G.S. 33B-3.

§ 33B-6. Single beneficiaries; separate custodial trusts.

1. Beneficial interests in a custodial trust may not be created for multiple beneficiaries.
2. All custodial trust property held under this act by the same custodial trustee for the use and benefit of a single beneficiary may be administered as a single custodial trust.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This Act, unlike UTMA, does not preclude a custodial trust for more than one beneficiary. Adult persons creating custodial trusts are likely to set up custodial trusts in various forms, e.g., parents may wish to set up a custodial trust for their children or for themselves, then for a spouse, etc. However, the interests of each beneficiary are separate and the custodial trustee is obligated under subsection (c) to account separately to each beneficiary for administration of the beneficiary's interest in the custodial trust.

Subsection (b) allows a custodial trustee who is administering multiple custodial trusts for the same beneficiary to administer the custodial trusts as a single custodial trust. For example, if multiple trusts are created for an incapacitated beneficiary, the custodial trustee can administer them as a single custodial trust.

NORTH CAROLINA COMMENTARY

This section is modified to eliminate references to multiple beneficiaries of a custodial trust. While there are benefits to allowing multiple beneficiaries, the complexities arising from joint beneficiaries raise questions that are unnecessary in light of the ease of creating more than one custodial trust. The drafters believed that allowing multiple beneficiaries and a right of survivorship in the custodial trust property would raise a host of questions that are inconsistent with the overall goal of a mechanically simple statutory trust, the main incidents of which are designed to be practicable.

Under the provisions of G.S. 33B-17(a)(3)a. and b., a successor to the property following a termination of the custodial trust can be designated by either the creating instrument or a competent beneficiary. The drafters believed that no additional survivorship provisions are warranted.

Subsection (b) is modified for clarification.

§ 33B-7. General duties of custodial trustee.

1. If appropriate, a custodial trustee shall register or record the instrument vesting title to custodial trust property.
2. If the beneficiary is not incapacitated, a custodial trustee shall follow the directions of the beneficiary in the management, control, investment, or retention of the custodial trust property.
3. Subject to subsection (b) of this section, a custodial trustee shall take control of and collect, hold, manage, invest, and reinvest custodial trust property.
4. A custodial trustee at all times shall keep custodial trust property of which the custodial trustee has control, separate from all other property in a manner sufficient to identify it clearly as custodial trust property of the beneficiary. Custodial trust property, the title to which is subject to recordation, is adequately identified as such if an appropriate instrument so identifying the property is recorded in the name of the custodial trustee, designated in substance "as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act". Custodial trust property subject to registration is so identified if it is registered, or held in an account in the name of the custodial trustee, designated in substance "as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act".
5. A custodial trustee shall keep records of all transactions with respect to custodial trust property, including information necessary for the preparation of tax returns, and shall make the records and information available at reasonable times to the beneficiary or legal representative of the beneficiary.
6. Unless the durable power of attorney specifically provides otherwise, the exercise of the durable power of attorney for an incapacitated beneficiary is not effective to terminate or direct the administration or distribution of a custodial trust.

If the beneficiary is incapacitated or the beneficiary has capacity but has not given direction, the custodial trustee shall observe the standard of care that would be observed by a prudent person dealing with property of another and is not limited by any other law restricting investments by fiduciaries. However, a custodial trustee, in the custodial trustee's discretion, may retain any custodial trust property received from the transferor.

If a custodial trustee has a special skill or expertise or is named custodial trustee on the basis of representation of a special skill or expertise, the custodial trustee shall observe the standard of care expected of one with that skill or expertise.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

Subsection (b) restates and confirms the control by the beneficiary who is not incapacitated. However, the trustee has a reasonable obligation to act when the beneficiary has not directed him. Under Sections 9 and 10, when a beneficiary becomes incapacitated, the custodial trust becomes a discretionary trust and the trustee is subject to the control of the statute and not the beneficiary's direction. The custodial trustee is subject to the usual trustee's standard as taken from Section 7-302 of the Uniform Probate Code. The statute also imposes a slightly higher standard on professional fiduciaries acting under the statute. Otherwise, much of this section is taken from Section 12 of UTMA. Whenever recordable assets, such as land, are in the custodial trust, the trustee would be expected to record title to the asset. The section is entitled "general duties" because there are additional specific duties identified in other sections such as Section 9.

NORTH CAROLINA COMMENTARY

Subsections (b) and (d) are modified for clarification. Subsection (f) is modified to add the introductory phrase "[u]nless the durable power of attorney specifically provides otherwise."

§ 33B-8. General powers of custodial trustee.

1. A custodial trustee, acting in a fiduciary capacity, has all the rights and powers over custodial trust property which an unmarried adult owner has over individually owned property, but a custodial trustee may exercise those rights and powers in a fiduciary capacity only.
2. This section does not relieve a custodial trustee from liability for a violation of G.S. 33B-7.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This section is taken from Section 13 of UTMA. It grants the trustee very broad powers over the property, subject, however, to the Prudent Person Rule and to the obligations set out in the Act. An alternative approach to subsection (a) that might be taken by an enacting state is to refer to the existing statutes granting powers to a trustee, such as the Uniform Trustee's Powers Act. For example: [(a) A custodial trustee has the powers of a trustee under the Uniform Trustee's Powers Act.]

NORTH CAROLINA COMMENTARY

This section is identical to the comparable section of the Uniform Act.

§ 33B-9. Use of custodial trust property.

1. A custodial trustee shall pay to the beneficiary or expend for the beneficiary's use and benefit so much or all of the custodial trust property as the beneficiary while not incapacitated may direct from time to time.
2. If the beneficiary is incapacitated, the custodial trustee shall expend so much or all of the custodial trust property as the custodial trustee considers advisable for the use and benefit of the beneficiary and the spouse and children, and other dependents of the beneficiary. Expenditures may be made in the manner, when, and to the extent that the custodial trustee determines suitable and proper, without court order and without regard to other support, income, or property of the beneficiary.
3. A custodial trustee may establish checking, savings, or other similar accounts of reasonable amounts from which either the custodial trustee or the beneficiary may withdraw funds or against which either may draw checks. Funds withdrawn from, or checks written against, the account of the beneficiary are distributions of custodial trust property by the custodial trustee to the beneficiary.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This section provides that the custodial trustee is obligated to follow the directions of the beneficiary who is not incapacitated in paying over or expending custodial trust property. If the beneficiary is incapacitated, this section imposes duties on the custodial trustee to apply funds for the beneficiary similar to those imposed on custodians for minors under Section 14 of UTMA. In addition, however, subsection (b) authorizes a custodial trustee to pay over or expend custodial trust property for the use and benefit of the incapacitated beneficiary's dependents who were supported by the beneficiary at the time the beneficiary became incapacitated or for whom there is a legal obligation to support.

The use-and-benefits standard for the expenditure of custodial property is intended to avoid any implication that the custodial trust property can be used only for the required support of the incapacitated beneficiary.

Subsection (c) allows a custodial trustee to maintain a bank account, of an amount reasonable under the circumstances, with the beneficiary whereby both the beneficiary and the custodial trustee may write checks on the account. This may be used as one method of making money available for the beneficiary's personal needs. Many incapacitated persons, unable to manage business affairs, are still competent to pay personal expenses. This type of arrangement would be important to them. A custodial trustee should maintain, of course, a separate bank account for use in managing the custodial trust property and investments.

An alternative approach might be taken to this section that refers to the distributive powers of a conservator under the laws of the enacting state, in the event that state should prefer that incorporation by reference. For example: [The custodial trustee has the distributive powers of a conservator under the Uniform Probate Code.]

NORTH CAROLINA COMMENTARY

The drafters were concerned with the broad discretion provided by this section to the custodial trustee when the beneficiary is incompetent. The concern focused on the provisions of subsection (b) stating that the custodial trustee may expend so much of the custodial trust property as the custodial trustee "considers advisable" and may do so "in the manner, when, and to the extent that the custodial trustee determines suitable and proper." There was also concern with the indefiniteness of the phrase "individuals who were supported by the beneficiary," which appears in the Uniform Act. The words "the spouse and children, and other dependents of the beneficiary" are substituted for the words "individuals who were supported by the beneficiary when the beneficiary became incapacitated, or who are legally entitled to support by the beneficiary." The drafters thought it would rarely be desirable to have the custodial trust property used for a person who did not fall within the substituted language (which has been taken from G.S. 32A-2(a) relating to durable powers of attorney). Also, by limiting the custodial trustee's discretion regarding which individuals may receive the custodial trust property, the concerns over the broad discretion granted to the custodial trustee in the administration of the custodial trust are lessened.

Subsection (c) is modified for clarification.

§ 33B-10. Determination of incapacity; effect.

1. The custodial trustee shall administer the custodial trust as for an incapacitated beneficiary if (i) the custodial trust was created under G.S. 33B-5, (ii) the transferor has so directed in the instrument creating the custodial trust, (iii) a determination that a beneficiary is an incompetent adult has been made under the provisions of Chapter 35A, including a determination of limited incompetence under the provisions of G.S. 35A-1112(d), unless the court provided otherwise, or (iv) the custodial trustee has determined that the beneficiary is incapacitated under subsection (b) of this section.
2. A custodial trustee may determine that the beneficiary is incapacitated in reliance upon (i) previous direction or authority given by the beneficiary while not incapacitated, including direction or authority pursuant to a durable power of attorney, (ii) the certificate of the beneficiary's physician, (iii) authority given to the custodial trustee in the instrument creating the trust to determine the incapacity of the beneficiary after the creation of the custodial trust, or (iv) other reasonable evidence.
3. If a custodial trustee for an incapacitated beneficiary determines that the beneficiary's incapacity has ceased, or that circumstances concerning the beneficiary's ability to manage property and business affairs have changed since the creation of a custodial trust directing administration as for an incapacitated beneficiary, the custodial trustee may administer the trust as for a beneficiary who is not incapacitated.
4. Regardless of whether any determination of incapacity under subsection (b) of this section has or has not been made, the beneficiary, the custodial trustee, or other person interested in the custodial trust property or the welfare of the beneficiary, may petition under the procedures of Chapter 35A for a determination by the court whether the beneficiary is or continues to be incapacitated as defined in G.S. 33B-1(8). A determination of incapacity does not require appointment of a guardian of the estate unless in the discretion of the court such appointment is otherwise warranted.
5. Incapacity of a beneficiary does not terminate (i) the custodial trust, (ii) any designation of a successor custodial trustee, (iii) rights or powers of the custodial trustee, or (iv) any immunities of third persons acting on instructions of the custodial trustee.
6. A custodial trustee shall not be liable for any determinations authorized by this section regarding the capacity or incapacity of the beneficiary made in good faith.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This is one of the more important sections of the Act under which the custodial trustee may determine that the beneficiary is incapacitated so the trust will change from one subject to the control of the beneficiary to a discretionary trust for the beneficiary. Subsection (b) allows the custodial trustee to determine that the beneficiary is incapacitated provided the determination is based upon the certificate of the beneficiary's physician, the prior direction or authority of the beneficiary, or other reasonable evidence. That authority could be evidenced, for example, by a durable power of attorney executed by the beneficiary prior to becoming incapacitated even though that power of attorney is not otherwise effective to control management or termination of the custodial trust. Such a durable power of attorney could be given to a child, spouse, friend, or other trusted individual. In addition, specific authority is provided in subsection (d) for the beneficiary, the custodial trustee, or other interested person to seek a declaration from the court as to the capacity of the beneficiary for the purposes of this Act. This is important to the custodial trustee, as his duties and responsibilities change on the event of the beneficiary's incapacity.

This section is not a proceeding for the appointment of a conservator, and it is not contemplated that such a declaration would lead to court appointment of a conservator or guardian unless other factors would warrant such appointment. The existence of a comprehensive and well-managed custodial trust would be one factor that would tend to avoid the necessity for the appointment of a conservator or guardian of the estate.

This section also does not provide a proceeding to attack the legal competence of a transferor in setting up a trust under Section 2. Rather, Section 10 relates to a management matter in a validly established custodial trust.

Subsection (f) provides that the incapacity of the beneficiary does not terminate the custodial trust. If the beneficiary becomes incapacitated, the authority of the custodial trustee continues and the custodial trustee must follow the statutory provisions of the Act relating to managing custodial trusts for incapacitated individuals.

NORTH CAROLINA COMMENTARY

Subdivision (a)(iii) is added to permit a custodial trustee to administer the custodial trust as for an incapacitated beneficiary if a determination of incompetency has been made under Chapter 35A of the General Statutes, including a determination of limited incompetence under the provisions of G.S. 35A-1112(d). For clarification, a reference to subsection (b) is inserted in subdivision (a)(iv), thereby eliminating any interpretation that subdivision (a)(iv) provides additional independent authority for a custodial trustee to make a determination of incapacity. Subdivision (b)(iii) is added to permit a custodial trustee to determine that the beneficiary is incapacitated in reliance upon authority given to the custodial trustee in the instrument creating the custodial trust. In subdivision (b)(iv), "reasonable" is substituted for "persuasive" because "reasonable" has more object connotation. Subsection (c) is modified by substituting "determines" for "reasonably concludes" to conform the language of the subsection to the language of the new subsection (f). Subsection (d) is modified to clarify that when the petition for a determination of incapacity is filed under the provisions of subsection (d), the procedures of Chapter 35A regarding the determination of incompetency are to be used, but that the substantive criteria set out in the definition of "incapacitated" contain in G.S. 33B-1(8) are the criteria to be used in the proceedings. Subsection (e) of the Uniform Act is deleted because the drafters believed that the subsection would be interpreted as expanding the authority of the custodial trustee under subsection (b) to determine that the beneficiary is incapacitated in reliance upon other reasonable evidence. The drafters believed that subsection (e) would expose the custodial trustee to liability to a greater degree than subsection (a) or (b) and that subsection (e) would in effect defeat what the drafters tried to accomplish in modifying subsections (a) and (b). Subsection (f) has no counterpart in the Uniform Act and states what is believed to be implicit in the Uniform Act.

§ 33B-11. Third-party transactions.

A third person in good faith and without a court order may act on instructions of, or otherwise deal with, a person purporting to make a transfer as, or to act in the capacity of, a custodial trustee. In the absence of actual knowledge to the contrary, the third person is not responsible for determining:

1. The validity of the purported custodial trustee's designation;
2. The propriety of, or the authority under this act for, any action of the purported custodial trustee;
3. The validity or propriety of an instrument executed or instruction given pursuant to this act either by the person purporting to make a transfer or declaration or by the purported custodial trustee; or
4. The propriety of the application of property vested in the purported custodial trustee.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This section is based upon Section 16 of the UTMA and protects third persons who deal in good faith with the custodial trustee.

NORTH CAROLINA COMMENTARY

The catchline to this section is modified for clarification. The first sentence of this section is modified for grammatical reasons, with no intent to change the meaning of the section. The word "actual" is inserted before the word "knowledge" in the introductory language of the second sentence of this section for clarification.

§ 33B-12. Liability to the third person.

1. A claim based on (i) a contract entered into by a custodial trustee acting in a fiduciary capacity, (ii) an obligation arising from the ownership or control of custodial trust property, (iii) a tort committed in the course of administering the custodial trust, may be asserted by a third person against the custodial trust property by proceeding against the custodial trustee in a fiduciary capacity, whether or not the custodial trustee or the beneficiary is personally liable.
2. A custodial trustee may be held personally liable to a third person:
   1. On a contract entered into in a fiduciary capacity if the custodial trustee fails to reveal that capacity or to identify the custodial trust in the contract; or
   2. For an obligation arising from control of custodial trust property or for a tort committed in the course of the administration of the custodial trust if the custodial trustee is personally at fault.
3. A beneficiary is not personally liable to a third person for an obligation arising from beneficial ownership of custodial trust property or for a tort committed in the course of administration of the custodial trust unless the beneficiary is personally in possession of the custodial trust property giving rise to the liability or is personally at fault.
4. Subsections (b) and (c) of this section do not preclude actions or proceedings to establish liability of the custodial trustee or beneficiary as owner or possessor of the custodial trust property to the extent that person is protected as the insured by liability insurance.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This section is patterned after Section 17 of the UTMA and that section in turn was based upon Sections 5-428 and 7-306 of the Uniform Probate Code limiting the liability of conservators and trustees. See also Restatement of Trusts, 2d Sections 265 and 277. The effect of this section is to limit the claims of third parties to recourse against custodial trust property as both the custodial trustee and the beneficiary are protected from personal liability absent personal fault on their part. This section does not alter the obligations between the custodial trustee and the beneficiary arising out of the administration of the estate and the accounting for that administration.

There may be cases in which a custodial trustee or beneficiary may have a right to possession of custodial trust property and may insure against liability arising out of possession or control of the property as a named insured, e.g., under homeowner's or automobile liability insurance. In such a case, the beneficiary should be permitted as a party defendant under subsection (d) but only to the extent of the protection of the liability insurance.

NORTH CAROLINA COMMENTARY

Subsection (a) is subdivided for ease of reading. Subsection (b) is modified to state the liability of the custodial trustee in positive rather than negative terms. Subsection (d) is modified for clarification.

§ 33B-13. Declination, resignation, incapacity, death, or removal of custodial trustee; designation of successor custodial trustee.

1. Before accepting the custodial trust property, a person designated as custodial trustee may decline to serve by notifying the person who made the designation, the transferor, or the transferor's legal representative. In such case, the transferor or the transferor's legal representative may designate a substitute custodial trustee. If the custodial trust is being created under G.S. 33B-3, the substitute custodial trustee designated under G.S. 33B-3 becomes the custodial trustee, or, if a substitute custodial trustee has not been designated, the person who made the designation may designate a substitute custodial trustee pursuant to G.S. 33B-3.
2. A custodial trustee who has accepted the custodial trust property may resign by (i) delivering written notice to a successor custodial trustee, if any, the beneficiary, and, if the beneficiary is incapacitated, to the beneficiary's guardian of the estate, if any, and (ii) transferring and, where appropriate, registering or recording an instrument relating to the custodial trust property in the name of the successor custodial trustee identified under subsection (c) of this section.
3. If a custodial trustee or successor custodial trustee is ineligible, resigns, dies, or becomes incapacitated, the successor designated under G.S. 33B-2 or G.S. 33B-3 becomes custodial trustee. If there is no effective provision for a successor, the beneficiary, if not incapacitated, may designate a successor custodial trustee; if the beneficiary fails to act within 90 days, the resigning custodial trustee may designate a successor custodial trustee. If there is no effective provision for a successor custodial trustee and if the beneficiary is incapacitated, the beneficiary's guardian of the estate becomes successor custodial trustee. If the beneficiary does not have a guardian of the estate or the guardian of the estate fails to act as custodial trustee, the resigning custodial trustee may designate a successor custodial trustee.
4. If a successor custodial trustee is not designated pursuant to subsection (c) of this section, the following persons may in the order listed petition the court to designate a successor custodial trustee: the transferor, the legal representative of the transferor, the legal representative of the custodial trustee, the general guardian of the beneficiary, the guardian of the estate of the beneficiary, an adult member of the beneficiary's family, a person interested in the custodial trust property, or a person interested in the welfare of the beneficiary.
5. A custodial trustee who declines to serve or resigns, or the legal representative of a deceased or incapacitated custodial trustee shall put the custodial trust property and records in the possession and control of the successor custodial trustee as soon as practical. The successor custodial trustee shall enforce the obligation to deliver custodial trust property and records.
6. A beneficiary, the beneficiary's guardian of the estate, an adult member of the beneficiary's family, a guardian of the person of the beneficiary, a person interested in the custodial trust property, or a person interested in the welfare of the beneficiary, may petition the court (i) to remove the custodial trustee for cause and to designate a successor custodial trustee, (ii) to require the custodial trustee to furnish a bond or other security for the faithful performance of fiduciary duties, or (iii) for other appropriate relief.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This section follows many of the provisions of Section 18 of UTMA with some substantive changes. It is designed to accommodate in a single section the circumstances in which a custodial trustee would be replaced by another custodial trustee. Under subsection (b), if the beneficiary is incapacitated, a custodial trustee who resigns must give written notice to both the beneficiary and the beneficiary's conservator if one exists. Under subsection (c), a beneficiary who is not incapacitated may designate, without limitation, a successor custodial trustee. If, however, the beneficiary fails to act or is incapacitated, the procedure to be followed is very similar to that found in UTMA except that the nonincapacitated beneficiary has 90 days to act and if the beneficiary has no conservator or if the conservator declines to act, the custodial trustee may eventually designate a successor custodial trustee.

Under subsection (f), the beneficiary, whether or not incapacitated, can petition the court to remove the custodial trustee for cause and to designate a successor trustee, or the court may require the custodial trustee to give bond or other appropriate relief.

This section, unlike Section 18 of UTMA, does not give the custodial trustee the general power to designate a successor custodial trustee but rather limits that power to the situation in which the procedure for designating successor custodial trustees by others has been exhausted.

NORTH CAROLINA COMMENTARY

This section is modified for clarification and to establish the priority of those involved in the selection of successor custodial trustees.

The second sentence of subsection (e) is modified by substituting "shall" for "may" to conform to existing trust practice, which dictates that a successor trustee obtain a full and complete accounting from his predecessor.

§ 33B-14. Expenses, compensation, and bond of custodial trustee.

Except as otherwise provided in the instrument creating the custodial trust, in an agreement with the beneficiary, or by court order, a custodial trustee:

1. Is entitled to reimbursement from custodial trust property for reasonable expenses incurred in the performance of fiduciary services;
2. May charge, no later than six months after the end of each calendar year, a reasonable compensation for fiduciary services performed during that year; and
3. Need not furnish a bond or other security for the faithful performance of fiduciary duties.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This section follows the pattern of Section 15 of the UTMA except it does subject the arrangements for payment of expenses, compensation, and bond to provisions in the custodial trust instrument or agreement of the beneficiary or court order.

As in UTMA, the provisions with regard to compensation are designed to avoid imputed compensation to the custodian who waives compensation and also to avoid the accumulation of claims for compensation until the termination of the custodial trust. Although the ability to control these matters by the trust instrument or agreement of the beneficiary seems to be implied, as was assumed in UTMA, it is here expressly stated because of the possibility of informal arrangements with persons as trustees.

NORTH CAROLINA COMMENTARY

Subdivision (2) is modified for simplification.

§ 33B-15. Reporting and accounting by custodial trustee; determination of liability of custodial trustee.

1. Upon the acceptance of custodial trust property, the custodial trustee shall provide a written statement that the custodial trust property is held pursuant to this act and describing the custodial trust property. The custodial trustee shall thereafter provide a written statement of the administration of the custodial trust property (i) once each year, (ii) upon request at reasonable times by the beneficiary or the beneficiary's legal representative, (iii) upon resignation or removal of the custodial trustee, and (iv) upon termination of the custodial trust. The statements must be provided to the beneficiary or to the beneficiary's legal representative. Upon termination of the beneficiary's interest, the custodial trustee shall furnish a statement to the person to whom the custodial trust property is to be delivered.
2. A beneficiary, the beneficiary's legal representative, an adult member of the beneficiary's family, a person interested in the custodial trust property, or a person interested in the welfare of the beneficiary may petition the court for an accounting by the custodial trustee or the custodial trustee's legal representative.
3. A successor custodial trustee may petition the court for an accounting by a predecessor custodial trustee or the legal representative of a predecessor custodial trustee.
4. In an action or proceeding under this act or in any other proceeding, the court may require or permit the custodial trustee or the custodial trustee's legal representative to account. The custodial trustee or the custodial trustee's legal representative may petition the court for approval of annual or final accounts.
5. If a custodial trustee is removed, the court shall require an accounting and order delivery of the custodial trust property and records to the successor custodial trustee and the execution of all instruments required for transfer of the custodial trust property.
6. On petition of the custodial trustee or any person who could petition for an accounting, the court, after notice to interested persons, may issue instructions to the custodial trustee or review the propriety of the acts of a custodial trustee or the reasonableness of compensation determined by the custodial trustee or others.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This section requires that the custodial trustee inform the beneficiary of the initiation of the trust and provide reasonably current reports of the administration of the custodial trust to the beneficiary or the beneficiary's legal representative. Even though some custodial trustees may act informally, it seems appropriate that both the trustee and the beneficiary be expected to exchange complete information concerning the administration of the trust at least once each year. In some cases, more frequent exchanges of information between the custodial trustee and beneficiary would be expected, e.g., when they use a bank account to which both have access. This is particularly true with regard to necessary information for tax reporting by the parties involved. This section assumes the usual minimum components of an account, i.e., assets and values at the beginning of the accounting period, receipts, and disbursements during the accounting period and assets and their values on hand or available for distribution at the close of the accounting period.

Subsection (a) identifies the necessary reports and accountings for the parties, and subsection (b) identifies a broad group of persons who may petition the court for an accounting by the custodial trustee or the custodial trustee's legal representative. Much of the section is drawn from Section 19 of the UTMA modified to fit the custodial trust. Subsection (f) recognizes the inherent power of the court to instruct trustees and review their actions. This paragraph is patterned after Uniform Probate Code Section 7-205.

NORTH CAROLINA COMMENTARY

The language "that the custodial trust property is held pursuant to this act and" is inserted in the first sentence of subsection (a) for the purpose of insuring that the transfer is a present interest for gift tax purposes. The language ", if any" is deleted from the third sentence of subsection (a) and "current" is deleted from the fourth sentence of subsection (a) as being unnecessary. The language "annual or" is inserted in the second sentence of subsection (d) to allow the custodial trustee or the custodial trustee's legal representative to petition the court for approval of annual accounts as well as final accounts. Apparently the language "for the services of the custodial trustee" was inadvertently deleted from subsection (f).

§ 33B-16. Limitations of action against custodial trustee.

1. Except as provided in subsections (b) and (c) of this section, a claim for relief against a custodial trustee for accounting or breach of duty is barred as to a beneficiary, a person to whom custodial trust property is to be paid or delivered, or the legal representative of an incapacitated or deceased beneficiary or payee:
   1. Who has received a final account or statement fully disclosing the matter unless an action or proceeding to assert the claim is commenced within two years after receipt of the final account or statement; or
   2. Who has not received a final account or statement fully disclosing the matter unless an action or proceeding to assert the claim is commenced within three years after the termination of the custodial trust.
2. Except as provided in subsection (c) of this section, a claim for relief to recover from a custodial trustee for fraud, misrepresentation, or concealment is barred unless an action or proceeding to assert the claim is commenced within five years after the termination of the custodial trust.
3. A claim for relief is not barred by this section if the claimant:
   1. Is a minor, until the earlier of two years after the claimant becomes an adult or dies;
   2. Is an incapacitated adult, until the earliest of two years after (i) the appointment of a guardian of the estate, (ii) the removal of the incapacity, or (iii) the death of the claimant; or
   3. Was an adult, now deceased, who was not incapacitated, until two years after the claimant's death if the claim was not barred by adjudication, consent, or limitation prior to the claimant's death.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

In an effort to provide as comprehensive a statute as possible to inform the parties of substantially all of their obligations and rights, statutes of limitation are provided in this section. The limitations provided in this section are derived from the Uniform Probate Code, Sections 1-106 and 7-307, and from the Missouri Custodial Act.

The nature of the limitations imposed by the section are illustrated by the situation in which a custodial trustee is removed, resigns, or dies. If the former custodial trustee accounts as required under Section 13 on removal or resignation, or the deceased custodial trustee's personal representative accounts, the two-year limitation of subsection (a)(1) applies. Should the former custodial trustee or the personal representative fail to account, then, subsection (a)(2) would apply to limit the time in which a proceeding to assert the claim could be commenced. This time would begin to run on the date the trust terminated. Of course, if the claim is one for fraud or concealment, the longer time limitation of subsection (b) would apply. In any event, should the beneficiary become incapacitated or die before the applicable time limitation had expired, the tolling provision of subsection (c) could postpone the time bar until two years after removal of the disability or death.

NORTH CAROLINA COMMENTARY

The following modifications are made for clarification: the reference to subsection (b) is added to subsection (a); the Uniform Act's language "unless previously barred by adjudication, consent, or limitation," is deleted from subsection (a); and the Uniform Act's language "related to the final settlement of the custodial trust or concealment of the existence of the custodial trust," is deleted from subsection (b). The language "if the claim was not barred by adjudication, consent, or limitation prior to the claimant's death" is inserted in subdivision (c)(3) to eliminate the possibility that the subdivision might be interpreted to revive a claim barred prior to the death of the claimant.

§ 33B-17. Distribution on termination.

1. Upon termination of a custodial trust, the custodial trustee shall transfer the unexpended custodial trust property:
   1. To the beneficiary, if not incapacitated or deceased;
   2. To the guardian of the estate or other recipient designated by the court for an incapacitated beneficiary; or
   3. Upon the beneficiary's death, in the following order:
      1. As last directed in a writing signed by the deceased beneficiary while not incapacitated and received by the custodial trustee during the life of the deceased beneficiary;
      2. As designated in the instrument creating the custodial trust; or
      3. To the estate of the deceased beneficiary.
2. If, when the custodial trust would otherwise terminate, the distributee is incapacitated, the custodial trust continues for the use and benefit of the distributee as beneficiary until the incapacity is removed or the custodial trust is otherwise terminated.
3. Death of a beneficiary does not terminate the power of the custodial trustee to discharge obligations of the custodial trustee or beneficiary incurred before the termination of the custodial trust.
4. The writing described in G.S. 33B-17(a)(3)a. or the instrument described in G.S. 33B-17(a)(3)b. must also be signed by at least two witnesses, neither of whom is the custodial trustee or the distributee of the custodial trust property, and be acknowledged by the beneficiary or transferor before an individual authorized to administer oaths or take acknowledgements. Failure to comply with the witness or acknowledgement requirement shall not affect the validity of the custodial trust during the life of the beneficiary, but shall invalidate only the direction or designation of the distributee on termination of the custodial trust under G.S. 33B-17(a)(3)a. or G.S. 33B-17(a)(3)b., and upon termination of the custodial trust the custodial trustee shall transfer the unexpended custodial trust property according to the remaining provisions of this section.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This section controls distribution of the custodial trust property when the custodial trust is terminated under Section 2(e). It is designed to provide for efficient and certain distribution without judicial proceedings. Subsection (a)(3) is an important provision for avoiding complications on distribution and provides that distribution may be controlled first, by the direction of the deceased beneficiary or second, by the custodial trust instrument (see Sections 2, 6 and 18) and, only if no effective prior designation for the payment or distribution of the property on the death of the beneficiary has been made, shall it pass through the beneficiary's estate.

The direction to the custodial trustee by the beneficiary, who is not incapacitated, for distribution on termination of the custodial trust may be in any written form clearly identifying the distributee. For example, the following direction would be adequate under the statute:

I, ________ (name of beneficiary) hereby direct ______________ (name of trustee) as custodial trustee, to transfer and pay the unexpended balance of the custodial trust property of which I am beneficiary to ________ as distributee on the termination of the trust at my death. In the event of the prior death of ________ above named as distributee, I designate ________ as distributee of the custodial trust property.

Receipt Acknowledged Signed (signature) ____________________________________________________________ (signature) _____________________________________________________________ Custodial Trustee Beneficiary Date ________ Date ________

NORTH CAROLINA COMMENTARY

Subdivision (a)(3)(ii) of the Uniform Act, relating to the concept of multiple beneficiaries, is deleted.

Subsection (d), which has no counterpart in the Uniform Act, was added by the General Assembly to require a writing or instrument designating someone other than the beneficiary's estate to receive the custodial trust property at the beneficiary's death (i) to be signed by at least two witnesses, neither of whom is the custodial trustee or the distributee of the custodial trust property and (ii) to be acknowledged by the beneficiary or transferor before an individual authorized to administer oaths or take acknowledgments. These requirements apply only where someone other than the beneficiary's estate is designated to receive the custodial trust property at the beneficiary's death.

§ 33B-18. Methods and forms of creating custodial trusts.

1. If a transaction (including a declaration with respect to or a transfer of specific property) otherwise satisfies applicable law, the criteria of G.S. 33B-2 are satisfied by:
   1. The execution and either delivery to the custodial trustee or recording of an instrument in substantially the following form:

"TRANSFER UNDER THE NORTH CAROLINA

UNIFORM CUSTODIAL TRUST ACT

I, ________________________ (name of transferor or name and representative capacity if a fiduciary), transfer to ______________ (name of trustee other than transferor), as custodial trustee for ______________ (name of beneficiary) as beneficiary and ______________ as distributee on termination of the trust in absence of direction by the beneficiary under the North Carolina Uniform Custodial Trust Act, the following: (insert a description of the custodial trust property legally sufficient to identify and transfer each item of property). Dated: __________________ ______________ (Seal) ______________ (Witness) Signature ______________ (Witness) STATE OF ____________ COUNTY OF ____________ On this ______ day of ____________, ________, personally appeared before me, the said named ____________ to me known and known to me to be the person described in and who executed the foregoing instrument and he (or she) acknowledged that he (or she) executed the same and being duly sworn by me, made oath that the statements in the foregoing instrument are true. My Commission Expires ______________ ________________________ (Signature of Notary Public) Notary Public (Official Seal)"; or (2) The execution and the recording or giving notice of its execution to the beneficiary of an instrument in substantially the following form:

"DECLARATION OF TRUST UNDER THE NORTH CAROLINA

UNIFORM CUSTODIAL TRUST ACT

I, ________________________ (name of owner of property,) declare that henceforth I hold as custodial trustee for ______________ (name of beneficiary other than transferor) as beneficiary and ______________ as distributee on termination of the trust in absence of direction by the beneficiary under the North Carolina Uniform Custodial Trust Act, the following: (Insert a description of the custodial trust property legally sufficient to identify and transfer each item of property). Dated: __________________ ______________ (Seal) ______________ (Witness) Signature ______________ (Witness) STATE OF ____________ COUNTY OF ____________ On this ______ day of ____________, ________, personally appeared before me, the said named ____________ to me known and known to me to be the person described in and who executed the foregoing instrument and he (or she) acknowledged that he (or she) executed the same and being duly sworn by me, made oath that the statements in the foregoing instrument are true. My Commission Expires ______________ ________________________ (Signature of Notary Public) Notary Public (Official Seal)" (b) Any customary methods of transferring or evidencing ownership of property may be used to create a custodial trust, including, but not limited to, any of the following: (1) Registration of a security in the name of a trust company, an adult other than the transferor, or the transferor if the beneficiary is other than the transferor, designated in substance "as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act"; (2) Delivery of a certificated security, or a document necessary for the transfer of an uncertificated security, together with any necessary endorsement, to an adult other than the transferor or to a trust company as custodial trustee, accompanied by an instrument in substantially the form prescribed in subsection (a)(1); (3) Payment of money or transfer of a security held in the name of a broker or a financial institution or its nominee to a broker or financial institution for credit to an account in the name of a trust company, an adult other than the transferor, or the transferor if the beneficiary is other than the transferor, designated in substance "as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act"; (4) Registration of ownership of a life or endowment insurance policy or annuity contract with the issuer in the name of a trust company, an adult other than the transferor, or the transferor if the beneficiary is other than the transferor, designated in substance "as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act"; (5) Delivery of a written assignment to an adult other than the transferor or to a trust company designated in the assignment in substance by the words "as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act"; (6) Irrevocable exercise of a power of appointment, pursuant to its terms, in favor of a trust company, an adult other than the donee of the power, or the donee who holds the power if the beneficiary is other than the donee, designated in the appointment in substance "as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act"; (7) Delivery of a written notification or assignment of a right to future payment under a contract to an obligor which transfers the right under the contract to a trust company, an adult other than the transferor, or the transferor if the beneficiary is other than the transferor, designated in the notification or assignment in substance "as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act"; (8) Execution and delivery of a conveyance of an interest in real property in the name of a trust company, an adult other than the transferor, or the transferor if the beneficiary is other than the transferor, designated in substance "as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act"; (9) Issuance of a certificate of title by an agency of a state or of the United States which evidences title to tangible personal property: a. Issued in the name of a trust company, an adult other than the transferor, or the transferor if the beneficiary is other than the transferor, designated in substance "as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act"; or b. Delivered to a trust company or an adult other than the transferor or endorsed by the transferor to that person, designated in substance "as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act"; or (10) Execution and delivery of an instrument of gift to a trust company or an adult other than the transferor, designated in substance "as custodial trustee for ______________ (name of beneficiary) under the North Carolina Uniform Custodial Trust Act".

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This section largely follows Section 9 of UTMA. It provides instructional detail for forms and methods of transferring assets that satisfy the requirements of the statute. Although many of the customary methods of transferring assets are identified, these methods are not intended to be exclusive since any type of property that can be transferred by any legal means is intended to be within the scope of the statute, provided the requirements of Section 2 are met. The method of transfer or conveyance appropriate to the asset should be used, e.g., if land is involved, a deed or conveyance that satisfies the local requirements would be appropriate. In the effort to make the statute as self-contained and as fully explanatory as possible, these provisions for implementation are included in the statute rather than being appended or inserted in the Comments.

NORTH CAROLINA COMMENTARY

The forms in subsection (a) were modified by the General Assembly to conform to the witness and acknowledgment requirements of G.S. 33B-17(d). The witness and acknowledgment provisions in the forms are necessary only where someone other than the beneficiary's estate is designated to receive the custodial trust property at the beneficiary's death. As provided in G.S. 33B-17(d), failure to comply with the witness or acknowledge requirement shall not affect the validity of the custodial trust during the life of the beneficiary.

The phrase ", but not limited to," is inserted in the introductory language to subsection (b) to clarify that the list of methods of transferring property is illustrative and nonexclusive. Clarifying stylistic changes are made to the Uniform Act's language in subdivisions (b)(5), (6) and (7) by changing "whose name in the assignment is designated," "whose name in the appointment is designated," and "whose name in the notification or assignment is designated" to "designated in the assignment," "designated in the appointment," and "designated in the notification or assignment," respectively. Subdivision (b)(8) is modified by deleting the reference to recordation because recordation (as opposed to delivery of the deed) generally is technically unnecessary for the validity of a conveyance or transfer of an interest in real property in North Carolina. G.S. 47-26 however requires deeds of gift, which would include deeds of gift to a custodial trustee, to be recorded within two years; therefore, under most circumstances the custodial trustee has a duty to record the deed. A change similar to the change made in subdivision (b)(8) was made in the North Carolina Uniform Transfers to Minors Act.

§ 33B-19. Applicable law.

1. This act applies to a transfer or declaration creating a custodial trust that refers to this act if, at the time of the transfer or declaration, the transferor, beneficiary, or custodial trustee is a resident of or has its principal place of business in this State or the custodial trust property is located in this State. The custodial trust remains subject to this act despite a later change in residence or principal place of business of the transferor, beneficiary, or custodial trustee, or removal of the custodial trust property from this State.
2. A transfer made pursuant to an act of another state substantially similar to this act is governed by the law of that state and may be enforced in this State.

History

(1995, c. 486, s. 1.)

OFFICIAL COMMENT

This section is designed to avoid confusion in the event a party or assets are removed from the state.

NORTH CAROLINA COMMENTARY

This section is identical to the comparable section of the Uniform Act.

§ 33B-20. Uniformity of application and construction.

This act shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this act among states enacting it.

History

(1995, c. 486, s. 1.)

NORTH CAROLINA COMMENTARY

This section is identical to the comparable section of the Uniform Act.

§ 33B-21. Short title.

This act may be cited as the "North Carolina Uniform Custodial Trust Act".

History

(1995, c. 486, s. 1.)

NORTH CAROLINA COMMENTARY

This section is identical to the comparable section of the Uniform Act, except that the words "North Carolina" are inserted before the words "Uniform Custodial Trust Act."

§ 33B-22. Limitation on value of custodial trust property.

Transfers or declarations of property to the corpus of a custodial trust under this act shall not exceed in the aggregate one hundred thousand dollars ($100,000) in value, exclusive of the value of the transferor's or declarant's personal residence. This limitation shall not apply to any appreciation in the value of the corpus held in the custodial trust. A good faith violation of this section shall not invalidate a custodial trust.

History

(1995, c. 486, s. 1.)

NORTH CAROLINA COMMENTARY

This section, which was added by the General Assembly, has no counterpart in the Uniform Act.