Hi Jackie,

This is what Canon Law states on this issue:

Chapter IV.

Sponsors

Canon 872 Insofar as possible, a person to be baptized is to be given a sponsor who assists an adult in Christian initiation or together with the parents presents an infant for baptism. A sponsor also helps the baptized person to lead a Christian life in keeping with baptism and to fulfill faithfully the obligations inherent in it.

Canon 873 There is to be only one male sponsor or one female sponsor or one of each.

Canon 874 §1. To be permitted to take on the function of sponsor a person must:

°1 be designated by the one to be baptized, by the parents or the person who takes their place, or in their absence by the pastor or minister and have the aptitude and intention of fulfilling this function;

°2 have completed the sixteenth year of age, unless the diocesan bishop has established another age, or the pastor or minister has granted an exception for a just cause;

°3 be a Catholic who has been confirmed and has already received the most holy sacrament of the Eucharist and who leads a life of faith in keeping with the function to be taken on;

°4 not be bound by any canonical penalty legitimately imposed or declared;

°5 not be the father or mother of the one to be baptized.

§2. A baptized person who belongs to a non-Catholic ecclesial community is not to participate except together with a Catholic sponsor and then only as a witness of the baptism.

That said, Yes, they have to be completely "sacramentalized", meaning they have to be a baptized and confirmed Catholic.

Ideally, yes, they should be in a state of grace, technically, no, they don't have to be, and if they aren't, it manifests a lack of willingness to lead a Christian life in keeping with baptism and fulfilling faithfully the obligations inherent in it.

Hope this helps,

Mike