Opinion ID: 2001306
Heading Depth: 1
Heading Rank: 3

Heading: effect of ugma on support of children under 18

Text: Taken together, these appeals present a multifaceted question concerning the proper role of assets held by custodians under the UGMA in child support proceedings. The appeals in the support action raise the issue of how, if at all, such assets should be considered by the court in assessing the needs of the child and (if the custodian is a parent) the parents' ability to pay, and therefore ultimately in setting the amount of the support order. The appeal in the orphans' court case requires us to determine if and when a parent may use the custodial assets and income to satisfy an existing court-ordered support obligation. These are issues of first impression in our courts. Although both sides claim the Pennsylvania Supreme Court's plurality decision in Schwartz Estate, 449 Pa. 112, 295 A.2d 600 (1972), supports their position, it is more accurate to say that the supreme court in that case sidestepped the issue. Even if Schwartz were on point, we recognize it as a plurality opinion and therefore not controlling. In Schwartz, the precise question before the court was whether assets held by a decedent as custodian for his minor children under the UGMA were subject to his widow's right of election. Under the applicable statutory provisions at the time, the assets which the decedent conveyed to himself as custodian were subject to the election if decedent retained a power of consumption of the principal. In reaching the conclusion that a custodian under the UGMA did not retain such a power of consumption, the plurality expressly avoided deciding whether a donor-custodian could properly substitute custodial funds for his legal obligation to support his minor children, because the plurality believed that even if such use were permitted, it would not constitute a power of consumption. See 449 Pa. at 115 n. 2, 295 A.2d at 603 n. 2. In the same footnote, though, the plurality did express doubts that the UGMA could be so construed, stating that [t]he plain meaning of the language does not indicate that the custodian can use the proceeds of the fund in lieu of an independent prior support obligation. Id. [2] We believe that the issues in the case sub judice are best resolved by interpreting the UGMA in light of its purposes and the policies underlying our law of child support. The primary goal of the UGMA was to simplify the procedure for giving securities or money to minors; a great deal of the impetus for its adoption came from the securities industry. See Newman, The Uniform Gifts to Minors Act in New York and Other Jurisdictions  Tax Consequences, Possible Abuses, and Recommendations, 49 Cornell L.Q. 12 (1963). To achieve this goal, the statute gives the custodian broad discretion with respect to the investment and expenditure of custodial assets, and allows third parties (such as banks and brokers) to deal with the custodian free from liability and without any duty to determine whether the custodian has been duly designated or whether the transaction is within the custodian's power. Id. In other words, the UGMA is intended to obviate the legal problems of dealing directly with minors on the one hand, and the complexities of trust instruments and the limitations on the powers of trustees on the other hand, while at the same time protecting the rights of the minor in the gifted property. The statute was also intended to conform with the annual gift tax exclusion provisions of the Internal Revenue Code. Both parties find support for their positions in the language of the UGMA. Husband argues that the broad discretion which the UGMA gives the custodian allows him to expend custodial funds to satisfy his support obligations. He cites section 5305(b) of the UGMA, 20 Pa.C.S. § 5305(b), which provides: The custodian shall pay over to the minor for expenditure by him or expend for the minor's benefit so much of or all the custodial property as the custodian deems advisable for the support, maintenance, education and benefit of the minor, in the manner, at the time or times, and to the extent that the custodian, in his discretion, deems suitable and proper, with or without court order, with or without regard to the duty of himself or of any other person to support the minor, or his ability to do so, and with or without regard to any other income or property of the minor, which may be applicable or available for any such purpose. The lower court agreed with Husband and held that this section gave him the authority as custodian to make support payments out of the children's funds, regardless of his ability to make the payments from his own assets. Wife contends that the UGMA does not give the parent/custodian the freedom to relieve himself of his duty to provide support for his children by substituting the children's own funds. She argues that section 5305(b) only grants the custodian broad discretion to expend the custodial funds for the benefit of the minor, and that a parent/custodian who expends custodial funds to meet a court-ordered support obligation is expending the funds to benefit himself, because he thereby avoids the need to expend his own assets for the child's support. Wife emphasizes that the custodial property is indeed the children's: she cites § 5304(a) of the UGMA, 20 Pa.C.S. § 5304(a), which states unequivocally that the gift irrevocably and indefeasibly vests legal title to the custodial property in the minor. We agree with the Wife that a father with ample resources of his own may not evade his obligation to support his children by applying to that obligation the children's funds which he or another party holds as custodian. More precisely, we hold that the assets of a minor child held by any custodian under the UGMA may not be considered by the court in setting the level of the support obligation of a parent who is financially able to support his minor child, and we further hold that a custodian under the UGMA abuses his discretion and acts improperly if he expends funds from the custodial accounts for the purpose of fulfilling a parent's support obligation in lieu of that parent's making the payments out of his own income and assets. Because of the different nature of a parent's duty to support a competent child who has reached the age of majority and is attending college, we shall state a somewhat different rule to be applied in such situations which will be explained in greater detail below. We believe this is the only holding consistent with the terms and purposes of the UGMA and with the policies underlying our law of child support. The primary basis of our holding is the paramountcy of a parent's obligation to support his or her minor children. We have described this duty as well nigh absolute. Commonwealth ex rel. Scanlon v. Scanlon, 311 Pa.Super. 32, 40, 457 A.2d 98, 102 (1983). Both parents have an equal obligation to support their children in accordance with the capacity and ability of each to do so. Conway v. Dana, 456 Pa. 536, 318 A.2d 324 (1974); Commonwealth ex rel. Hagerty v. Eyster, 286 Pa.Super. 562, 429 A.2d 665 (1981); Commonwealth ex rel. Mainzer v. Audi, 266 Pa.Super. 122, 403 A.2d 124 (1979). A parent is required to sacrifice personal luxuries to provide his or her children with their needs. Conway v. Dana ; Commonwealth ex rel. Williams v. Williams, 242 Pa.Super. 550, 364 A.2d 410 (1976); Commonwealth ex rel. Ulmer v. Sommerville, 200 Pa.Super. 640, 190 A.2d 182 (1963). The only limitation is that a support order should allow for reasonable living expenses of the paying parent and not be punitive or confiscatory. Shank v. Shank, 298 Pa.Super. 459, 444 A.2d 1274 (1982); Dugery v. Dugery, 276 Pa.Super. 51, 419 A.2d 90 (1980). The above cases are clearly predicated on the principle that the burden of supporting minor children is to be borne by the parents, and that the courts will not allow a minor child to fend for himself when his parents are able to support him. In Commonwealth ex rel. Byrne v. Byrne, 212 Pa.Super. 566, 568, 243 A.2d 196, 197 (1968), we held that [i]t is well established that a father of sufficient means must support his child . . . and it is no defense that. . . the child itself has independent means. Because section 5304(a) of the UGMA provides that a transfer of property to a custodian constitutes an irrevocable present gift to the minor, in applying the principle of Byrne we must consider the custodial property the property of the child, whatever its source. Section 5310(a) of the UGMA, 20 Pa.C.S. § 5310(a), states a rule of construction common to many uniform acts, that the UGMA should be construed in a way which makes uniform the law of those states which have enacted it. The overwhelming majority of jurisdictions which have considered the issue have held that a parent who is able to support his children may not use custodial funds to discharge his support obligation, and that if the parents are financially able, courts should not consider custodial assets in setting the amount of support to be paid. In Gold v. Gold, 96 Misc.2d 481, 409 N.Y.S.2d 114 (Sup.Ct. 1978), the New York court was faced with the issue whether the assets of children [held by a parent as custodian under the UGMA] should be disclosed as relevant to the measure of the parties' child support obligations in an action for divorce. In denying such disclosure, the court held that evidence concerning the minor children's assets was not relevant to the determination of child support because the parents had substantial resources from which they could provide support for their children. The court further held that the mother/custodian was barred from using the children's funds for their support, since by reducing her child care obligations, she would receive an indirect financial advantage, and the UGMA does not allow the custodial funds to be used to benefit the custodian. 96 Misc.2d at 483, 409 N.Y.S.2d at 116. We endorse the New York court's declaration of sound policy underlying this rule: Children have always been objects of special concern to the courts, entitled to protection from exploitation even by their parents. Absent evidence of need, children should not be forced unwittingly to use their funds or diminish their assets to support themselves. Id. at 483, 409 N.Y.S.2d at 116. The courts of California, Colorado, Connecticut, and Wisconsin have likewise held that the burden of support falls first on the parents, and that a parent/custodian financially able to support his children may not use custodial property to satisfy that personal obligation, because doing so would constitute using the funds for the parent/custodian's benefit rather than the children's. See Newman v. Newman, 123 Cal.App.3d 618, 176 Cal.Rptr. 723 (1981); In re Marriage of Wolfert, 42 Colo.App. 433, 598 P.2d 524 (1979); Weisbaum v. Weisbaum, 2 Conn.App. 270, 477 A.2d 690 (1984); Erdmann v. Erdmann, 67 Wis.2d 116, 226 N.W.2d 439 (1975). We are especially persuaded by the Connecticut court's concise response to an argument identical to that made by Mr. Sutliff: The defendant argues in effect that the order in question simply confirms what the defendant is permitted to do under General Statutes § 45-104(b) [comparable to 20 Pa.C.S. § 5305(b)], which is part of the UGMA. This argument misses the mark. The purpose of General Statutes § 45-104(b) is to insulate the custodian from claims, by the minor or third parties dealing with the custodian, of improper management or unauthorized disbursements. Its purpose is not to control the exercise of the court's discretion in a marital dissolution case; nor is its purpose, in such a case, to discharge the parent's primary duty of support. It must be read together with the statutory and common law provisions regarding that duty. Weisbaum, 2 Conn.App. at 273-274, 477 A.2d at 693. As further support for its decision, the Connecticut court quoted the holding of the Colorado court in Wolfert that [t]he section does nothing to relieve a parent of the separate duty to support his children. . . . This interpretation is unavoidable in light of the fact that the gift is irrevocable and gives the children an `indefeasible [sic] vested legal title' to the gift. 2 Conn.App. at 274, 477 A.2d at 693, quoting Wolfert, 42 Colo.App. at 435-36, 598 P.2d at 526. We also agree with the Colorado court that the intent of the UGMA is to allow custodians to disburse funds whether or not the children are adequately supported. Wolfert, 42 Colo.App. at 435, 598 P.2d at 526. We therefore emphasize that our decision today does not in any way limit the sound discretion of any custodian to make any particular expenditure on behalf of the minor. Rather, we simply hold that custodians may not exercise this discretion in a way which would allow one or both parents to avoid expending their personal resources to meet their children's needs. Husband's attempts to distinguish Erdmann and Wolfert are unsuccessful. Husband argues that Erdmann is inapposite because the fund involved therein was court-created, and therefore the court could impose any conditions it wished. The fund in Erdmann was court-created in the sense that the divorce decree provided that, pursuant to an agreement between the parties, the father was to transfer certain securities to himself as custodian for the parties' children under the Wisconsin UGMA. Husband's argument ignores the fact that the conditions imposed by the court on the fund were primarily those contained in the UGMA. Although the court did suggest that the circumstances under which the fund was created imposed additional duties on the father, the court was clearly referring to the father's role as custodian when it stated: [W]e see an obvious benefit to the appellant, as custodian, using the funds to make support payments that he would otherwise have had to make as parent out of his own funds. We do not see the benefit to the children deriving from the use of their property to make the payments that, if their fund was not used, their father would be required to make out of his income or assets. . . . [W]e hold that the fund created for the benefit of the children could not be used by this custodian to make payments he was ordered by the court, as their parent, to make for their support and maintenance. 67 Wis.2d at 124, 226 N.W.2d at 443 (emphasis added). We therefore believe that the principles set forth in Erdmann are applicable to the case sub judice. Husband then attempts to distinguish Wolfert on the grounds that the case involved the issue of the court's power (Husband's Brief in No. 2423 Philadelphia 1982 at 17). This cryptic argument is based on the Wolfert court's statement that where the parents are financially able to support their children the court may order that such gifts [UGMA funds] not be used to reduce the legal obligation of support. 42 Colo.App. at 436, 598 P.2d at 526. This is nothing more than a statement by the Colorado court of the obvious fact that it had the power to enter an appropriate order to enforce its holding that custodial funds may not be expended to reduce the parents' legal duty to support. The instant case involves the power of the court in the same way. Wife's very reason for bringing the orphans' court action was to invoke the power of the court to prevent a similar misuse of the custodial funds. Husband cites as contrary authority several rulings of the Internal Revenue Service, two federal estate tax cases, and one state inheritance tax case, Korschun v. Clayton, 13 N.C.App. 273, 185 S.E.2d 417 (1971), in which the IRS and the several courts appeared to base their decisions as to the applicability of income and estate taxes on their belief that a parent/custodian under the UGMA could use custodial funds to meet his or her support obligation. We believe these cases, which were focused on the applicability of taxing statutes to certain types of property rather than on the right of minor children to parental support, are outweighed by the persuasive force of the state decisions cited above. In resolving the taxation issues with which they were faced, the Tax Court and the North Carolina court did not grapple with the question whether a custodian's exercise of his power to expend custodial funds was proper under circumstances such as those presented in the instant case, where our courts in entering and enforcing an order of support seek to protect the rights of the children of a broken marriage. In Korschun, the North Carolina court stated that the applicable rule of construction was that a law imposing an inheritance tax is to be liberally construed. . . and all property fairly and reasonably coming within the provisions of such law may be taxed. 13 N.C.App. at 277, 185 S.E.2d at 420. Our decision in this case is governed by a far different principle, namely the principle that the duty of a parent to support his minor child is well-nigh absolute, Commonwealth ex rel. Scanlon v. Scanlon . In the instant case, a portion of the assets was held by Husband as custodian and the remainder was held by Fred K. Collins, a business associate of Husband, who is also a defendant in the orphans' court action. The question therefore arises (and is discussed by Husband and Collins in their brief) whether any distinction should be made between parent/custodians and third party custodians. We hold that the same principles apply regardless of the identity of the custodian and his relationship to the minor. The requirement that the custodian manage and expend the custodial property for the minor's benefit means that a parent/custodian may not expend the funds for his own benefit by applying them in lieu of his personal support obligation and that a third party custodian may not expend the funds for the benefit of another party, i.e. the parent, by knowingly expending funds in such a way as to allow or facilitate the parent's avoidance of his primary support obligation. The foregoing discussion has assumed that the children in question are under the age of eighteen and that their parents are financially able of providing for their support. In cases involving children over age eighteen who are still entitled to parental support, or children whose parents are not financially able to meet all their support needs, we hold that funds held by a custodian under the UGMA may play a limited role in determination and fulfillment of the support obligation. Pennsylvania courts have often held that resources held by or for minor children in forms other than the UGMA may be considered in determining the children's needs and the parental support obligation when a parent's ability to provide for his children is in question. See Commonwealth ex rel. Goichman v. Goichman, 226 Pa.Super. 311, 316 A.2d 653 (1973); Doelp v. Doelp, 219 Pa.Super. 420, 281 A.2d 721 (1971). Both of these cases involved assets held in conventional trusts for the children. In Goichman, we stated that the rule allowing the income from such assets to be considered in determining the support obligation is rooted in sound policy and ought to be extended, wherever equitable, in order to encourage the establishment of such trusts for the protection of children. 226 Pa.Super. at 319, 316 A.2d at 657. We believe that we should similarly encourage the establishment of funds and accounts under the UGMA for the benefit of children, in a way consistent with the principle that the primary burden of supporting minor children must rest on the parent. We also note that the drafters of the UGMA provided for a procedure by which the court may order a custodian to expend custodial funds to meet the minor's support, education, and maintenance needs. Section 5305(c) of the UGMA, 20 Pa.C.S. § 5305(c), provides: The court on the petition of a parent or guardian of the minor, or of the minor if he has attained the age of 14 years, may order the custodian to pay over to the minor for expenditure by him or to expend so much of or all the custodial property as is necessary for the minor's support, maintenance or education. (Emphasis added). We believe that this section was intended to create a mechanism to ensure that a minor child whose assets are held by a custodian under the UGMA will be adequately supported even if his parents cannot provide fully for him from their own resources. Accordingly, we hold that where the court is unable to fashion a support order based solely on the parents' resources which meets all the properly determined support needs of a minor child or children without violating the principle that support orders should be nonconfiscatory, the court may treat the complaint for support as a petition meeting the requirements of 20 Pa. C.S. § 5305(c) and enter an appropriate order which ensures that the children's needs are met. We emphasize that § 5305(c) does not diminish the parents' primary duty to provide as much of the children's support as they can. Short of subjecting either parent to a confiscatory or punitive support order, the court must still direct that both parents appropriately expend their resources before turning to the custodial funds. We simply hold that the court need not risk imposing a confiscatory support obligation on a parent because the UGMA authorizes it to look to the custodial funds to meet those needs which the parents are unable to provide.