Uniform Laws Promulgated by the National Conference of
Commissioners on Uniform State Laws:
A Report and Recommendations to the Legislature
The Commission is charged by statute with several duties, among which is the duty to receive and consider proposed changes in law recommended by the National Conference of Commissioners on Uniform State Laws (NCCUSL). In carrying out this statutory charge, in 2003 the Commission undertook a review of the following uniform laws promulgated by the NCCUSL:
$ Uniform Athlete Agents Act
$ Uniform Interstate Family Support Act
$ Uniform Interstate Enforcement of Domestic Violence Protection Orders Act
$ Uniform Foreign Money Claims Act
$ Uniform Principal and Income Act
$ Uniform Custodial Trust Act
$ Uniform Arbitration Act
$ Uniform Computer Information Transactions Act
$ Uniform Parentage Act
$ Uniform Trust Code
$ Uniform Partnership Act
$ Uniform Anatomical Gift Act
$ Uniform Limited Partnership Act
$ Uniform Apportionment of Tort Responsibility Act
$ Uniform Child Witness Testimony by Alternative Methods Act
$ Uniform Disclaimer of Property Interests Act
$ Uniform Nonjudicial Foreclosure Act
$ Uniform Securities Act
The Commission recommends adoption of the Uniform Athlete Agents Act, the Uniform Interstate Family Support Act, the Uniform Foreign Money Claims Act, the Uniform Custodial Trust Act, and the Uniform Anatomical Gift Act (the Commission recommended adoption of this last Act in 1993 and renews that recommendation here).
The NCCUSL summary of these proposed laws follows. The text and commentary of these proposed laws are available on-line at http://www.law.upenn.edu/bll/ulc/ulc_frame.htm.
UNIFORM ATHLETE AGENTS ACT
PURPOSE: This act provides for the uniform registration, certification, and background check of sports agents seeking to represent student athletes who are or may be eligible to participate in intercollegiate sports. The act also imposes specified contract terms on these agreements to the benefit of student athletes, and provides educations institutions with a right to notice along with a civil cause of action for damages resulting from a breach of specified duties.
ORIGIN: Completed by the Uniform Law Commissioners in 2000.
APPROVED BY: American Bar Association
SUPPORTED BY: National Collegiate Athletic Association
District of Columbia
U.S. Virgin Islands
UNIFORM ATHLETE AGENTS ACT -- SUMMARY
With the proliferation of professional sport franchises in the United States, and the immense sums now paid to athletes for commercial endorsement contracts, it is no surprise that the commercial marketplace in which athlete agents operate has become very competitive. And while maximizing the income of one's clients is certainly the "American way" (as well as good business practice), the recruitment of a student-athlete while he or she is still enrolled in an educational institution may cause substantial eligibility or other problems for both the student and the school, especially where the athlete is not aware of the implications of signing the agency agreement or where agency is established without notice to the athletic director of the school. The problem becomes even more acute where an unscrupulous agent misleads a student. While several states have enacted legislation to address these issues, agent registration and disclosure requirements vary greatly from state to state, causing confusion among student athletes, athletic departments, educational institutions, and the agents themselves.
The Uniform Athlete Agents Act provides for the uniform registration, certification, and background check of sports agents seeking to represent student athletes who are or may be eligible to participate in intercollegiate sports, imposes specified contract terms on these agreements to the benefit of student athletes, and provides educational institutions with a right to notice along with a civil cause of action for damages resulting from a breach of specified duties.
The act requires agents to disclose their training, experience, and education, whether they or an associate have been convicted of a felony or crime of moral turpitude, have been administratively or judicially determined to have made false or deceptive representations, have had their agent's license denied, suspended, or revoked in any state, or have been the subject or cause of any sanction, suspension, or declaration of ineligibility. Agents are required to maintain executed contracts and other specified records for a period of five years, including information about represented individuals and recruitment expenditures, which would be open to inspection by the state.
While the act imposes significant disclosure, registration, and record-keeping requirements on athlete agents, those who are issued a valid certificate of registration or licensure in one state would be able to cross-file that application (or a renewal thereof) in all other states that have adopted the act. This aspect of the act at once simplifies regulatory compliance for agents, while at the same time facilitates the ability of all jurisdictions to obtain dependable, uniform information on an agent's professional conduct in other states.
Because the potential loss of intercollegiate eligibility is a serious, and often unexpected, effect of entering an athlete-agent contract, the act provides student-athletes with a statutory right to cancel an agency contract within 14 days after the contract is signed without penalty. In addition, athlete-agent contracts subject to the act are required to disclose the amount and method of calculating the agent's compensation, the name of any unregistered person receiving compensation because the athlete signed the agreement, a description of reimbursable expenses and services to be provided, as well as warnings disclosing the cancellation and notice requirements imposed under the act.
The potential loss of a student-athlete's eligibility is also a serious concern for athletic programs at educational institutions - accordingly, the act requires both the agent and the student-athlete to give notice of the contract to the athletic director of the affected educational institution within 72 hours of signing the agreement, or before the athlete's next scheduled athletic event, whichever occurs first. Where applicable, the agent must also provide this notice to a school where he or she has reasonable grounds to believe the athlete intends to enroll. The act would also provide educational institutions with a statutory right of action against an athlete agent or former student athlete (several, but not joint, liability) for damages, including losses and expenses incurred as a result of the educational institution being penalized, disqualified, or suspended from participation by an athletics association or conference, or as a result of reasonable self-imposed disciplinary actions taken to mitigate sanctions, as well as associated party costs and reasonable attorney's fees.
Finally, the act prohibits athlete agents from providing materially false or misleading information or making a materially false promise or representation with the intent of inducing a student athlete to enter into an agency contract, or from furnishing anything of value to a student athlete or another person before that athlete enters into an agency contract. The act provides that an athlete agent may not intentionally initiate contact with a student athlete unless registered under this act, and may not refuse or willfully fail to retain or permit inspection of required records, fail to register where required, provide materially false or misleading information in an application for registration or renewal thereof, predate or postdate an agency contract, or fail to notify a student athlete (prior to signing) that signing an agency contract may make the student athlete ineligible to participate as a student athlete in that sport. The act would impose criminal penalties for violations of these prohibitions.
The Uniform Athlete Agents Act provides important protections for student-athletes and the educational institutions where they compete, creates a uniform body of
agent registration information for use by state agencies, and simplifies the regulatory environment faced by legitimate sports agents.
Introduction in Michigan Legislature
Legislation was introduced in early 2002 to adopt the Uniform Athlete Agents Act in Michigan (HB 4857). HB 4857 passed the House in November 2002 and was referred to the Senate on November 14, 2002.
The House Legislative analysis summarizes the arguments for and against the Uniform Act as follows:
Among the beneficial features of the model act are:
$ a requirement that athlete agents must be registered with the state (with the assumption that the information regarding their experience, education, and background that an applicant files will be open for public inspection) and reciprocity arrangements that allow an agent registered or licensed in one state to cross-file applications with other states that have adopted the act;
$ mandatory notification by agents and student-athletes to the educational institution when an agency contract has been entered into (so that the institution can avoid using an ineligible player);
$ the ability of student-athletes to cancel a contract without penalty within 14 days after signing (due to the supposed disparity in the sophistication of the parties to the contract) and the automatic voiding of contracts that fail to contain certain specified features (with the student under no obligation to return any consideration received as an inducement to sign);
$ mandatory notification in the contracts themselves to the student-athlete that signing the contract could result in losing eligibility and that the student must notify his or her school of the existence of the contract;
$ limitations on agent conduct, including prohibitions on certain kinds of inducements, with misdemeanor penalties, as well as civil penalties and administrative fines, for violations;
$ the granting of subpoena power to the state so it can obtain materials needed to administer the model act;
$ the creation of a cause of action to educational institutions for damages caused by an athlete agent or a former student-athlete due to a violation of the act.
In the past, legislation of this kind has encountered several objections. The bill requires the registration of agents but imposes no competency requirements. The public, however, and student-athletes searching for an agent might assume that a person who is a "registered" agent has been approved by the state as competent and qualified. Moreover, generally speaking, the state has resisted efforts in recent years to register any additional occupations, partly because to do so will invite a flood of such requests. There have also been concerns that this kind of legislation ignores the possibility that part of the problem lies with the rules of the governing athletic associations, the nature of big-time college sports, and the special status of the student-athlete.
UNIFORM INTERSTATE FAMILY SUPPORT ACT
PURPOSE: Limits child and family support orders to a single state, eliminating interstate jurisdictional disputes. Amendments were added in 2001 to clarify many of the provisions of the Act, increasing its usefulness.
ORIGIN: Completed by the Uniform Law Commissioners in 2001. The 1996 UIFSA has been adopted in every state and the District of Columbia.
APPROVED BY: American Bar Association
AMENDMENTS TO THE UNIFORM INTERSTATE FAMILY SUPPORT ACT (2001) -- SUMMARY
In 1992, the National Conference of Commissioners on Uniform State Laws (NCCUSL) promulgated the Uniform Interstate Family Support Act (UIFSA), which replaced the Uniform Reciprocal Enforcement of Support Act (URESA). URESA, was originally promulgated in 1950, and was adopted by every state. UIFSA has now replaced URESA in every American jurisdiction.
UIFSA provides universal and uniform rules for the enforcement of family support orders, by setting basic jurisdictional standards for state courts, by determining the basis for a state to exercise continuing exclusive jurisdiction over a child support proceeding, by establishing rules for determining which state issues the controlling order in the event proceedings are initiated in multiple jurisdictions, and by providing rules for modifying or refusing to modify another state's child support order.
The adoption of UIFSA in all American jurisdictions in some respects tracked the development of welfare reform efforts in the mid-1990s. Certain provisions of UIFSA were amended in 1996 following a review and analysis requested by state child support enforcement community representative. A month after these adoptions were promulgated by NCCUSL, Congress enacted the Personal Responsibility and Work Opportunity Reconciliation Act, the last major expression of child support enforcement reform from the Congress. As a result, federal grants to a state for child support enforcement became partially dependent upon the enactment of UIFSA.
The 2001 Amendments to UIFSA again follow a review and analysis requested by representatives of the state child support enforcement community. While some of these changes are procedural, and others substantive, none make a fundamental change in UIFSA policies and procedures. UIFSA continues to serve the basic principle of one order from one state that will be enforced in other states. The amendments are meant to enhance that basic objective.
The 2001 Amendments
One of the most important accomplishments of UIFSA was the establishment of bedrock jurisdictional rules under which a tribunal in one state only would issue or modify one support order only. That order would be the order any other state would enforce and would not modify. Further, if more than one state tribunal issues an order pertaining to the same beneficiary, one of those would become the enforceable, controlling order. The 2001 amendments clarify jurisdictional rules limiting the ability of parties to seek modifications of orders in states other than the issuing state (in particular, that all parties and the child must have left the issuing state and the petitioner in such a situation must be a nonresident of the state where the modification is sought), but allow for situations where parties might voluntarily seek to have an order issued or modified in a state in which they do not reside. The amendments also spell out in greater specificity how a controlling order is to be determined and reconciled in the event multiple orders are issued, and clarify the procedures to be followed by state support enforcement agencies in these circumstances, including submission to a tribunal where appropriate.
The amendments give notice that UIFSA is not the exclusive method of establishing or enforcing a support order within a given state B for example, a nonresident may voluntarily submit to the jurisdiction of a state for purposes of a divorce proceeding or child support determination, and seek the issuance of an original support order at that tribunal. The amendments also clarify, however, that the jurisdictional basis for the issuance of support orders and child custody jurisdiction are separate, and a party submitting to a court's jurisdiction for purposes of a support determination does automatically submit to the jurisdiction of the responding state with regard to child custody or visitation.
The amendments also provide clearer guidance to state support agencies with regard to the redirection of support payments to an obligee's current state of residence, clarifies that the local law of a responding state applies with regard to enforcement procedures and remedies, and fixes the duration of a child support order to that required under the law of the state originally issuing the order (i.e., a second state cannot modify an order to extend to age 21 if the issuing state limits support to age 18).
The amendments incorporate certain technical updates in response to changes in the law in the intervening years since 1996 B specifically, the use of electronic communications in legal and other contexts (i.e. E-Sign and the Uniform Electronic Transactions Act) and the evolution of federal and state agency practice (including specifically the usage of certain forms and the sealing of records in connection with certain child custody action information), and make other nonsubstantive changes to grammar and organization in an effort to clarify certain provisions.
Finally, the amendments expand UIFSA to include coverage of support orders from foreign country jurisdictions pursuant to reciprocity and comity principles. While a determination by the U.S. State Department that a foreign nation is a reciprocating country is binding on all states, recognition of additional foreign support orders through comity is not forbidden by federal law. UIFSA clearly provides that a foreign country order may be enforced as a matter of comity. In the event a party can establish that a foreign jurisdiction will not or may not exercise jurisdiction to modify its own order, a state tribunal is also authorized to do so.
UNIFORM INTERSTATE FAMILY SUPPORT ACT B WHY STATES SHOULD ADOPT IT
Currently, one in four children in the U.S. -- more than 10 million children -- grows up in a single-parent household, and millions of these children fail to receive the financial support that they are owed. This support is crucial to sustaining family life, and often to averting outright poverty. Children whose parents live in different states suffer the most, since a conflict between jurisdictions can often stand as a serious impediment to the enforcement of a support order.
In recent years, Congress has made substantial changes to federal child support enforcement laws. Perhaps most significantly, it has mandated that the states adopt child support guidelines and establish enforcement devises such as tax intercepts and credit reporting.
To eliminate interstate jurisdictional disputes and enable the new federal legislation to be effective, the Uniform Law Commissioners (ULC) have drafted the Uniform Interstate Family Support Act (UIFSA), which provides for one-state control of a case and for a clear, efficient method of interstate case processing. This new act simplifies the muddle of conflicting child and spousal support laws that develop when parents live in different states. It represents a major overhaul of national child support rules and should be adopted in every state.
UIFSA UPDATES AND IMPROVES URESA
The Uniform Reciprocal Enforcement of Support Act (URESA), drafted by the ULC in 1950, amended in 1958 and 1968, and adopted in every state, has been one of the ULC's most successful acts. Yet URESA recognizes the coexistence of multiple support orders from different states, often making it difficult to enforce an order for collection of child and spousal support.
It is the overriding principle of UIFSA that, to the maximum extent possible, only one valid support order will be in existence at any one time. This act makes the child's "home state" dominant in establishing priority of competing courts.
UIFSA also provides for a "long arm" provision which allows one court to retain exclusive jurisdiction over both parties in the support dispute, even though one - or both - may be living outside the boundaries of the court's jurisdiction.
A number of other improvements are made to URESA to streamline interstate proceedings: support proceedings may be initiated by or referred to administrative agencies rather than to courts in states that use those agencies to establish support orders; vital information and documents may be transmitted through electronics and other modern means of communication for quicker facilitation; courts are required to cooperate in the discovery process for use in a court in another state; a registered support order is immediately enforceable, unless the respondent files a written objection within twenty days and sustains that objection.
UIFSA MAKES SUPPORT ORDER ENFORCEMENT EASIER
If a court finds that support is owed, it issues a support order requiring that support or reimbursement be paid. To enforce its support orders, a court may: order the person owing support to make payments; order that income be withheld; enforce orders by claiming civil or criminal contempt; set aside property for payment of support; or order the person owing support to seek appropriate employment. Except under narrowly defined circumstances, the only court or tribunal that can modify a support order is the one having continuing, exclusive jurisdiction over the order. If two or more states claim jurisdiction to establish or modify an order, UIFSA has a priority scheme that favors the child's home state.
Also, UIFSA provides two direct enforcement procedures that do not require assistance from a court. First, the support order may be mailed directly to an obligor's employer in another state, which triggers wage withholding by that employer without the necessity of a hearing, unless the employee objects. Second, the act provides for direct administrative enforcement by the support enforcement agency of the obligor's state.
The problems this act addresses have long cried out for uniformity, and it may well be the answer to long-standing interstate jurisdictional conflicts that have often been a refuge for those hoping to avoid paying child support.
If adopted everywhere, the bottom line effect of this act would be to eliminate multiple litigation across state lines and also to counter inefficiencies within the URESA bureaucracy, both of which form major barriers to child support enforcement.
The UIFSA holds the promise of exerting a positive effect on the lives of untold numbers of American children, one quarter of whom now live in single parent households. The ULC envisions that the new law's influence will be extremely broad, and some form of it should be adopted in every state.
UNIFORM FOREIGN MONEY CLAIMS ACT -- SUMMARY
The necessary engagement of Americans in international trade has increased the amount of business conducted by Americans in foreign currency. Also, more travel to foreign countries by Americans, and more travel to the United States by citizens of other countries, increases the number of tort claims that can be expressed in foreign currency, or in both foreign currency and dollars. When a business deal goes bad, the losses are appropriately taken in the currency that is the foundation of the deal. Injuries suffered may, also, be most appropriately compensated in a foreign currency, depending upon where the losses were suffered and where damages accrued. Yet the general rule in the United States requires judgments on all claims to be stated and paid in dollars. A number
of states fix the payment of judgments in dollars by statute.
Requiring that judgments be always in dollars does not accord with the international character of much litigation, and is contrary to the rules that pertain in most countries, which do recognize judgments in foreign currency--including dollars. So it is appropriate for the United States to join the rest of the world with respect to the payment of judgments. However, to do so, the law must also select appropriate rules for converting a judgment in a foreign currency to dollar value. The Uniform Foreign-Money Claims Act (UFMCA) reverses the rule that all money judgments must be valued in dollars, and provides the rules for fair conversions of foreign money judgments into dollar amounts.
UFMCA allows any claimant to assert a claim in foreign money. It also allows any opposing party to contest such a claim, and to assert and prove that a different money should be the basis for the claim. How does a court determine the money to be used? UFMCA establishes some basic alternative standards. If a specific money is regularly used between the parties as a matter of usage or course of dealing, it can be asserted as the currency to be used in assessing damages in an action. If a specific currency is used for valuing or settling transactions in a particular commodity or service by trade usage or common practice, it can be the currency used in the litigation. Lastly, if a loss is ultimately felt or incurred by a party in a specific currency, that money can be used to establish the price of a claim. By hearing evidence as to any of these basic standards, the court determines what money shall be used to value a claim.
The parties themselves can establish the money that is appropriate. UFMCA permits parties to agree to the money that will govern the transaction between them. They can also agree to settle a claim in any currency that they choose. If there is a contract specifying payment in a certain currency, that currency is the proper money for payment of any claim under that contract. But conversion between dollars and a foreign currency remains a problem. American litigants will ordinarily have dollars with which to satisfy judgments against them. Foreign defendants may prefer to pay in dollars, as well. Since the dollar is actively traded in international money markets, it is not rare for dollars to be available to foreign entities.
If currencies remained at fixed values with respect to each other, there would be no problem. However, currencies fluctuate against each other in an international market. We hear that the dollar goes up or down against the pound, the euro and the yen, as a part of the normal business news every day. Anybody who travels out of the United States is aware of these fluctuations as he or she exchanges dollars for the foreign currency of choice. If judgments are to be converted from another currency to dollars, what is the fair time to value the exchange?
With respect to judgments, there are three possibilities, the day a person suffers a loss (breach day), the day the judgment is rendered by a court (judgment day), or the day the judgment is actually paid (payment day). If the breach day or the judgment day are chosen as the date of conversion, then currency fluctuations between the chosen date and the date of payment are at the risk of the claimant. After a conversion date that is either the breach day or the judgment day, if the dollar drops against the currency in which the judgment is stated, the claimant gets less value on payment day. Conversely, if the dollar rises against that currency, the claimant gets more value on payment day.
Rather than subject the claimant to that risk of currency fluctuation, UFMCA establishes payment day as the proper date for making the conversion. We assume that the claimant is being paid in the currency that is appropriate. He or she should get the value that is inherent in a judgment stated in that currency. Conversion to dollars on payment day conforms most closely to that principle. Payment day is, also, the day of conversion in the law of the major participating countries in international trade.
Whether to pay in dollars or in the foreign currency is, in fact, at the option of the judgment debtor under UFMCA. If dollars are chosen, the rate of exchange is the bank-offered spot rate on the conversion date, which is the basically the free market rate of exchange on the day preceding the day of payment.
Judgments in a law suit are not the only money awards that UFMCA will govern. Arbitration awards are, also, subject to this Act. Another kind of proceeding that may require conversion from a foreign currency to dollars is a "distribution proceeding." This is defined as "a judicial or nonjudicial proceeding for an accounting, an assignment for the benefit of creditors, a foreclosure, for the liquidation or rehabilitation of a corporation or other entity, for the distribution of an estate, trust, or other fund in or against which a foreign-money claim is asserted."
To convert foreign money to dollars in a "distribution proceeding," the selected date is the day the proceeding is initiated. The kinds of actions that are "distribution proceedings" involve distributing money from an established fund to those persons entitled to it. There are no losses that may fluctuate in value. Therefore, value established at the time the distribution is asked for is the fair value.
UFMCA serves the goals of permitting claims in foreign currency and of establishing a fair conversion to dollars. These are its principal purposes. However, there are some other issues that must be covered, and UFMCA covers them. The right to pre-judgment interest and the rate of interest are treated as substantive law regarding the right to recovery under the conflict of laws rules that pertain in a state. A court might choose the law of the foreign jurisdiction, therefore, in deciding the right to pre-judgment interest and the rate to be applied if there is a right to pre-judgment interest. However, the interest on a judgment is at the same rate as any other judgment under the law of the state rendering the judgment.
A judgment of a court in another jurisdiction that is expressed in terms of a foreign currency is enforceable, and may be converted into dollars under UFMCA at the judgment debtor's option, even though the jurisdiction in which the judgment is rendered does not provide for such a conversion. Such a judgment is to be enforced as any other foreign judgment is enforced.
UFMCA provides for temporary valuations of foreign money claims in dollars for the purposes of taking certain provisional steps in an action, such as seizing or restraining assets pursuant to a writ of attachment, assessing costs of litigation, or determining the amount of a surety bond. The time for making a temporary valuation is the banking day next preceding the filing of the application for the specific process of the court, and the rate is the bank-offered spot rate of exchange prevailing on that day.
Sometimes a foreign country will revalorize its currency, such as Brazil did in recent history. If a foreign money claim is stated in the old currency, then a rate of exchange must be stated for conversion into the new currency. The rate under UFMCA is the rate of conversion officially established by the issuing country.
These are the basic issues addressed in UFMCA. The United States is preparing itself for a greater and more competitive role in international trade. UFMCA is a measure that states can adopt as part of the general preparation for assuming that improved role. Uniformity is essential for that role to be fully assumed in the administration of civil justice in the states.
UNIFORM FOREIGN MONEY CLAIMS ACT B WHY STATES SHOULD ADOPT IT
The Uniform Law Commissioners promulgated the Uniform Foreign Money Claims Act (UFMCA) to allow courts in the United States to accept or render judgments valued in a foreign currency. There are many reasons why the Uniform Foreign Money Claims Act should be adopted in every state.
Increased Need Due to International Claims. Foreign money claims are greatly increasing as more Americans participate in the global economy. Additionally, increased international travel also increases the number of personal claims in foreign money.
United States Role in Foreign Trade. Most of the United States' major trading partners allow judgments in dollars. The UFMCA will bring the United States in line with the international practice by allowing judgments in foreign money.
A Settled Payment Date. UFMCA endorses the payment day rule, which is used by most other countries for converting foreign money judgments into dollars.
A Fair Payment Date. The payment day rule meets the reasonable expectations of the parties involved and places the aggrieved party in the position it would have been in financially but for the wrong that gave rise to the claim.
A Fair Conversion to Dollars. The UFMCA establishes a fair conversion to dollars by using the bank spot rate as of the day of payment.
Allocation of Risk of Exchange Rate Fluctuation. UFMCA recognizes the rights of parties to agree upon the money that governs their relationship. In the absence of an agreement, the Act adopts the rule of giving the aggrieved party the amount to which it is entitled in its own money or the money in which the loss occurred.
Non-Adjudicated Claims. UFMCA also covers arbitration awards.
Uniformity. A lack of uniformity in the states in resolving foreign money claims stimulates forum shopping and creates a lack of certainty in the law. The rapid adoption of UFMCA will help to encourage and sustain the United States' leading role in international trade in the coming decades.
UNIFORM CUSTODIAL TRUST ACT
PURPOSE: To enable lawyers to make the benefits of trusts available at low cost to people without extensive financial assets.
ORIGIN: Completed by the Uniform Law Commissioners in 1987.
ENDORSED BY: American Bar Association
American Association of Retired Persons
District of Columbia
UNIFORM CUSTODIAL TRUST ACT -- SUMMARY
We are perfectly free to be irresponsible with the property that we accumulate. We can dissipate it, abandon it, or ignore it. Most of us choose to be more responsible, however. We tend to accumulate property for the economic security it provides ourselves and our families. It comes as a great shock, therefore, when we find that controlling and protecting it at key moments in our lives is much harder than we imagined. What happens if we become incapacitated? Guardianships and conservatorships are expensive last resorts that mean total loss of control. What happens when we die? Wills and the probate process offer some solace, but probate becomes more onerous and expensive than helpful. Extensive estate planning with its panoply of generation-skipping devices, such as trusts, is expensive and beyond the resources of most people. The search for a better way continues.
The Uniform Law Commissioners' Uniform Custodial Trust Act, promulgated in 1987, offers some needed help. Inter vivos and testamentary, discretionary trusts are too complicated to meet certain needs. But the trust form of ownership, simplified and carefully prescribed in a statute, can meet them, thus the Uniform Custodial Trust Act (UCTA).
A trust is, simply, a legal structure for organizing the ownership and management of property for its preservation on behalf of specified individuals. A trust involves three fundamental participants: a donor who puts property in a trust; a trustee who owns and manages the trust; and beneficiaries who receive the financial benefit of the trust and for whom the property is preserved. A trust arises in a trust agreement or instrument (a document) in which the donor names the trustee and beneficiaries. The donor also establishes the trustee's powers over the property and the beneficiaries' rights to principal and income in the trust instrument. The donor then transfers property to the trustee, who owns it for the benefit of the beneficiaries. The trustee is also a fiduciary, meaning that he or she is subject to special rules and standards of care when managing the trust's assets. All trusts have these characteristics, and a custodial trust is but one of a number of kinds of trusts.
The UCTA allows any person to create a custodial trust by executing a simple statement (it may be a separate document or merely a notation on an existing title document) that the property is being placed in trust under the Act. The trustee's
obligations arise upon acceptance of the property. That is all that is necessary to create the trust.
The UCTA permits a kind of springing trust too-a trust that arises upon the happening of a future event. Any person can create such a trust with respect to specific property by executing a simple statement, indicating that the trust will be established upon the happening of the event.
The UCTA also allows anybody obligated to an incapacitated person, without a conservator (a conservator is a court-appointed manager of an incapacitated person's property), to establish a custodial trust into which property satisfying the obligation is placed for the incapacitated person as beneficiary. If the value of the property so placed exceeds $20,000, however, a transfer into such a trust must be approved by a court.
What distinguishes a custodial trust from other kinds of trusts? To begin with, the UCTA governs all aspects of the trust relationship, including a trustee's powers and obligations. Therefore, elaborate trust documents are not needed. Second, a custodial trust exists at the will of its beneficiaries. Any beneficiary can terminate his or her share of the trust. Third, trust beneficiaries can direct the trustee's payment of income to themselves. Fourth, the beneficiaries can direct the trustee's investment and management of the trust property. Fifth, at a beneficiary's incapacity, the trust continues as a discretionary trust, with the trustee as a full fiduciary. Therefore, no conservator needs to be appointed for the purposes of managing the trust property. Sixth, a beneficiary may direct the trustee by a simple writing to distribute the trust property in any fashion the beneficiary desires at the beneficiary's death. The writing is not a will unless the beneficiary makes it one, and the distribution is a nonprobate transfer of the property.
These powers of beneficiaries distinguish a custodial trust from all other trusts. Trustees under the common law are not subject to the direction of beneficiaries. The powers of the beneficiaries in the UCTA suggest why such a trust is called "custodial" and suggest the values of a custodial trust, as well as its limitations.
A trust is custodial because the trustee's powers are limited by the beneficiaries - the trustee is a custodian for the beneficiaries' interests. The trustee is a custodian until such time as a beneficiary becomes incapacitated. The custodial trust is an ideal form of ownership for anyone who wants to make sure property is properly managed before incapacity and protected afterwards. A person with property merely conveys the property to a trustee, naming himself or herself as beneficiary. While there are no questions of capacity, the beneficiary retains significant powers over the property. At incapacity, his or her appointed trustee continues to manage the property and use it for the beneficiary. If incapacity is temporary, the beneficiary reasserts his or her powers when capacity returns. If at any time a beneficiary with capacity desires to terminate the custodial trust, he or she simply terminates it.
Who will use the trust? Older people who want to make sure they control who manages their property when they are incapacitated, are the most likely users of the UCTA. People who go on long trips and who want to assure proper management while they are gone or who want protection if they become incapacitated while traveling can use a custodial trust rather than a power of attorney if it suits their needs. These are examples of people and situations for which the UCTA was created.
At the same time, people who need discretionary trusts for estate planning and tax purposes will continue to turn to traditional trust law. The control provided to beneficiaries in the UCTA and the ability to terminate a custodial trust do not make it suitable for these purposes.
The UCTA fills very particular needs of ordinary people. It should be considered strongly by any state or jurisdiction conscious of the difficulties an ordinary person has in preparing for personal incapacity and death.
UNIFORM CUSTODIAL TRUST ACT B WHY STATES SHOULD ADOPT IT
The Uniform Custodial Trust Act (UCTA), promulgated by the National Conference of Commissioners on Uniform State Laws in 1987, offers everyone a chance to establish a kind of trust that guarantees control of property at a time when a person becomes incapacitated, and that may also be used to pass on property at death without probate. The act is designed to offer a new, very simplified custodial trust, making the benefits of trusts available to people without extensive financial assets.
The UCTA was inspired by the Uniform Transfers to Minors Act, and the highly useful concept of a custodian for property of a minor under the terms of that act. But why should minors be the only beneficiaries of a good idea?
There are many reasons why every state should consider and adopt the Uniform Custodial Trust Act.
A custodial trust is inexpensive to create. Fees for consultation and drafting will be minimum - and non-existent in many cases. In addition, the UCTA provides an alternative to a costly court-supervised conservator or guardian. It can be used to avoid the costs and delays of probate proceedings at death. Economies can accrue broadly with the use of custodial trusts.
A custodial trust can be set up by simple language referencing the statute. No elaborate trust document is necessary. Rights and obligation are derived directly from the statute.
Any person who creates a custodial trust retains complete control over it until incapacity or death. The named trustee manages the property in the case of incapacity, but until then, control remains with the beneficiary - the creator of the trust. The beneficiary directs the management of the property, receives income and principal, and can cancel the trust at any time.
Any kind of property, real or personal, tangible or intangible, can be put in a custodial trust. Anybody can be made a beneficiary. Any legally competent person or entity can be appointed as trustee.
The Uniform Custodial Trust Act is simple, inexpensive, comprehensive, and complete. The most frequent users of this trust will most likely be senior citizens who want to provide for the management of assets in the event of future incapacity. It is also available for a parent to establish a custodial trust for an adult child who may be incapacitated. Those leaving the country temporarily can also place their property with another for management without relinquishing permanent control of their property.
The Uniform Custodial Trust Act should be adopted in every state. Although it meshes with the Uniform Probate Code (UPC), it is appropriate in states which have not adopted the UPC.