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“The Bundle of Sticks”

(severable)

Right to Timber: Sold to timber buyer

Water Rights: transferred to neighbor

Right of sole possession: Grant of Easement to neighbor

Right to subsurface minerals: Sold to energy developer

Right to Farm: Leased to farmer

Right of Sole Possession: Leased to house tenant

Right of sole possession: Transferred to DOT for Right of Way

Right to Subdivide: transferred to land trust in form of conservation easement

Right to Take Wildlife: Leased to hunt club

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Titled Estates in Land�(the ways land is owned)

Joint Tenancy with Right of Survivorship (RARE)

Two or more simultaneous owners of undivided interest
When an owner dies, his interest belongs to surviving owner(s) (Interest not inheritable)
One joint tenant may not transfer interest

Tenancy by the Entireties: Joint Tenancy except for married couples (NCGS §41-55)

property purchased during marriage presumed “marital property”
property deeded to both spouses considered Tenancy by Entireties

Tenancy in Common

Two or more simultaneous owners of undivided interests
When an owner dies, interest passes to owners heirs by will or intestacy
Each interest is freely alienable (can be sold or given to someone not currently a co-owner)
Inherited property is not marital property [NCGS §50-20(b)(2)]

Farm Law Article: Land Title: Understanding Rights in Property

An ownership interest in land is known as an estate, and the exploration of the development of estates and their current nature in modern law would take us into a whole different and future course of study. So let’s keep it simple for now.

If you own property in your name alone – you are the sole owner – you have what is called fee simple ownership: you own the whole show, and don’t share your ownership with anyone else. You own all of the rights, and can distribute those rights – what we’ll call the bundle of sticks in the next slide – to whomever you please. If you die owning the property, your heirs will receive your title.

Now, if you own your property concurrently with someone else, you have what is called a concurrent estate. When you own land concurrently with another owner, your ownership is expressed as a percentage but each of you have rights to the entire property. Your interest is called an undivided interest. The interest is not geographically defined within the boundaries of the property. For the moment, know that there are basically two types of ways people can own property concurrently.

First, there is joint tenancy with right of survivorship. This means that each owner owns a fractional share, but that share is tied to the life of each owner. When one owner dies, their interest automatically becomes the interest of their joint co-owner. Tenancy by the Entireties is essentially joint tenancy with right of survivorship between married persons. One cannot sell or alienate their interest in jointly-titled land unless all joint owners convey their interest or otherwise approve the transfer to a new joint owner.

Then, there is Tenancy in Common. A tenancy in common interest, like a joint tenancy interest is an undivided interest. However, each tenant in common can alienate their interest without the permission of another other owner. So one ownership interest can be freely swapped out so to speak. Because each interest is freely alienable, each interest is will pass to the interest holder’s heirs upon his or her death. Often after many years where co-tenants have died and their heirs inherit their interest, you can have dozens of concurrent owners. In North Carolina, one interest owner, regardless of how small the interest, has the right to petition the Clerk of Court to initiate a partition proceeding to divide up or auction the property and divide the proceeds. But like a more thorough discussion of estates in land, that is for another course in a future time.

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Transfer of Rights in Real Property

Must be in Writing

The Statute of Frauds – all dispositions of any right in land must be in writing to be enforceable (1677 England)

You can allow verbal access, but in most cases it does not amount to a transfer of right

Exception: Agricultural Tenancies of one year in North Carolina (protected by Statute) https://content.ces.ncsu.edu/the-verbal-statutory-farm-tenancy

Other “time” or “necessity” exceptions:

Easement by prescription: use easement long enough
Easement by necessity: landlocked land has no other access
Adverse possession (“squatter’s rights”)

Seen often as an encroachment of building, fence or driveway across property line

Writing must be recorded to convey a right against others

leases over 3 years

All transfers of an interest in real property must be in writing. The Statute of Frauds, one of most enduring common law traditions, has its origins as “statute” – which we consider a written law passed duly by a representative body, or legislature – in the law by the same name passed in 1677 by the English Parliament. It’s obvious purpose was to eliminate the element of perjury in disputes concerning whether land had been transferred between two parties – as well as a number of other important contracts, such as marriage. Prior to this time, it was still possible for a party to claim a right in land and be awarded the same by simply convincing a jury or judge with a presentation of verbal testimony of the circumstances of the transfer followed presumably by “I swear it’s true.” The statute of frauds, as part of the English common law tradition now common to all state statutes concerning transfers of land, but also other contracts governed by the Uniform Commercial Code.

Now, as a landowner you can always verbally allow access to land, such as a verbal agreement to hunt on the land, draw water from the land, and farm the land. But such verbal assent by an owner does not amount to a property right on the part of the granted access to remain if told to leave, or to take something from the land if told not to. If challenged, the recipient of a verbal promise must quit their presence from the land and take nothing from it. There is one statutory exception, at least in North Carolina: if you verbally grant a farmer access to your land and he or she prepares it for planting, he or she is guaranteed the right to access the land to tend and harvest their crop within the period of one calendar year.

There are other, mostly time and occupancy-based exceptions which have been developed in the common law by courts, such as an easement by prescription – whereby a non-owner has been traversing another’s property for so long it amounts to an “earned” easement so to speak, or adverse possession – called sometimes “squatters rights” – whereby an unauthorized occupier of land can do so openly and for a long period of time (now defined by statute) sufficient to transfer actual title, or otherwise serve to prevent their ouster by the record title holder. Such issues are common when one landowner builds a building or driveway that sits across the property line of his or her neighbor for many years without the neighbor’s notice or objection. This is called an encroachment.

Regarding personal property, you sometimes hear that “Possession is nine-tenths of the law.” As it happens, this adage is generally true, in that if you possess something, whoever claims it generally has the burden of establishing before a court that it is theirs. They can of course weather such burden of proof – again, convince the trier of fact that their claim is true - with verbal testimony, photographs, and other evidence such as certificate of insurance, tax forms, etc. The obvious exception is personal property that requires title – such as over the road vehicles – or is traditionally titled or registered, such as livestock and domestic animals.

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Life Estates

Deed to Grantee(s) with a reservation of life estate in Grantor(s)

Grantee’s remainder interests vests upon recording of deed, but possession delayed until death of Grantor
Entire value of property may be reportable as gift (IRC § 2702)

Life Tenant responsible for taxes (NCGS §105-384)
Life Tenant may not commit “waste” (deplete resources) (NCGS § 1-533)
May not encumber property beyond term of life without agreement of remainderman

Generally may not timber the land without agreement
Life tenant or remainderman may partition standing timber (§ 46A-80(b))

Tip: reserve timber rights when granting life estate
NWOA Article: Use Life Estates with Caution

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Partition of real property

Tenant in common has right of partition land

Co-tenant files partition petition with Clerk of Court

Clerk appoints a commissioner to study partition claim and make recommendation

Actual Division (§46-1 et seq)

Land surveyed into equal divisions

Sale in Lieu of Partition (NCGS §46-22)

Commissioner cannot recommend equal land division without damage to interests
Too many heirs (“Heirs Property”): multiple tenants-in-common of differing generations

Timber Partition (§ 46A-80(b))

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Verbal Farm Tenancies

Scenario: Farmer has prepped or planted or is grazing ground on a handshake with the land owner

Owner dies
Owner sells
Co-owner objects to tenancy upon discovery

No hard figures or research, but likely a majority of farming on rented land is verbal (no written lease)
N.C.G.S. §42-23 protects tenancy until Dec 1 (26 counties) or Jan 1 (remainder of counties)
If landowner does not terminate 30 days prior, farmer’s tenancy renews

Sample termination letter

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Verbal Farm Tenancies

Owner dies and heirs do nothing before Dec 1 or Jan 1

Farmer’s tenancy theoretically does not renew: permission to farm another year has died with the previous owner; heir(s) will have to grant a new permission

Owner sells property

Rent “still due” should be apportioned between “Lessor” owner and new owner (NCGS 42-7)

this should be done at closing (similar to how property taxes are allocated) (should be disclosed in purchase contract)
Farmer may not renew without new permission

Farmer may collect “trade fixtures” at end of term

Article Word of Mouth: Verbal Farm Tenancies in North Carolina

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Basic Lease Elements

Identity of Parties
Description of property

PIN’s/Address OK
Specific areas designate
Google Earth

Term
Rent amount
Insurance
Use Restrictions
Access by Landlord, invitees of Tenant
What does Tenant take when he/she leaves?

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Lease Recording Requirement

Leases terms in excess of 3 years must be written (NCGS §22-2)
Must record leases 3 years to be enforceable against purchaser for value (§ 47-18)
Lease vs. Memorandum Recording

Generally, too much information disclosure with lease

Memorandum Requirements

1) the names of the parties;
2) a description of the leased property;
3) the term of the lease, including extensions, renewals and options to purchase, if any; and
4) reference sufficient to identify the complete agreement between the parties. (NCGS §47-118)

Published statute provides sample form
Template: Sample Termination of Farm Tenancy

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Present Use Value Disqualification

Tax deferment program, full taxes must be paid at some point in future

benefit: only past 3 years must be paid
called a “roll back”

Purchaser may agree to continued use and lien
Roll Back assessed by county upon disqualification

voluntary removal (sell to non-farm purchaser)
discovery upon transfer
discovery upon audit (all PUV tracts reviewed once every 8 years)

some counties have shorted 8 year review
use of new satellite imagery to discover land changes

Care exercised in subdivision and transfer

careful not to reduce tract size below min acreage
careful to allocate ‘roll back’ or ‘continued use’ to purchaser (must be done in purchase contract [or non-farm commercial lease, e.g. solar)

Fact Sheet submitted for review

Article on Farm Law

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Fence Law and Livestock Liability

NC Fence Law: criminal misdemeanor for not keeping livestock fenced

statutory liability for escaped poultry if damage to other’s crops

Impoundment process for unclaimed livestock
Off-farm liability to motorists based on negligence theory

plaintiff must show farmer did not take reasonable steps to contain animal (not strict liability)
reasonable steps: periodic check fencing, count cows, hot or barbed wire
if animal history of escapes, extra containment effort

On-farm injury subject to negligence theory (was this a dangerous animal?)

probably some protection under 99E laws

Fact Sheets Published

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Three Ways to Dispose of Property

Sale

Completely relinquish rights in property, receive fair market value in cash or equivalent (aka consideration)
May reserve rights (timber, an easement, etc.)

Gift

Completely relinquish dominion over property, nothing in return
May reserve rights (timber, an easement, etc.)

Death

Property interests pass to heirs testacy or intestacy

By Will: Devisees
By Statute: Heirs

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Property Disposition Tax Implications

Sale of property: Capital Gains Tax

Gifting of property:

Carry-Over Basis (potential higher capital gains tax)
Gift Tax (for annual gifts above $16,000 [per donee])
Lifetime gift tax exemption: $12,060,000

Property at Death:

Estate Tax: percentage tax levied by law on all owned wealth transferred at death (aka “taxable estate”)

Subject to ”Wealth Exemption”
Federal Exemption = $12,060,000 per individual (federal only) (spouse gets other exemption for double)
“Unified” with lifetime gift tax exemption (reduced dollar for dollar each annual aggregate gift above annual exclusion of $16,000/yr/donee)
Estate tax abolished in North Carolina

Probate costs: percentage levied by county on personal property wealth (aka “probate estate”)

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Disposition at Death

Testate: person dies (decedent) with a valid will

late 15c., from Latin testatus "public, manifest, published"

Intestate: person dies without a valid will, property is distributed according to Intestate Succession Act (N.C.G.S. Chapter 29)

Distributions to spouse, lineal descendants, lateral descendants, or ancestors depending on facts at moment of death

Spouse % varies with # of children or grandchildren
Children and grandchildren (% varies by glass)
Siblings and parents (depends on whether lineal descendants alive)

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Vito

Santino

Freddo

Michael

Connie

Carmela

Mary

Anthony

Victor

Michael

Santino, Jr.

Francesca

Frank

Kathryn

Carlo

Kay

Sandra

Parents

Children + Spouses

Grandchildren

Predeceased Vito in 1946

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Corleone Family Forest Parcels

Inherited by Vito

Purchased by Vito and Carmela

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Vito

Santino

Freddo

Michael

Connie

Carmela

Mary

Anthony

Victor

Michael

Santino, Jr.

Francesca

Frank

Kathryn

Carlo

Kay

Sandra

Parents

Children + Spouses

Grandchildren

Predeceases Vito in 1947

Vito and Carmela execute reciprocal wills

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Vito

Santino

Freddo

Michael

Connie

Carmela

Mary

Anthony

Victor

Michael

Santino, Jr.

Francesca

Frank

Kathryn

Carlo

Kay

Sandra

Parents

Children + Spouses

Grandchildren

Predeceased Vito in 1947

Basic Will Disposition

“I devise and bequeath my entire estate to my spouse.”
“If my spouse predeceases me, I devise and bequeath my personal and real property to my children, per stirpes.”

Dies in 1953

Result:

Vito’s 100% ownership of tracts A, B, and C pass to Carmela via Vito’s Will
Vito’s 50% share of tracts D, E, F vest in Carmela (owns D, E, F 100%)

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Vito

Santino

Freddo

Michael

Connie

Carmela

Mary

Anthony

Victor

Michael

Santino, Jr.

Francesca

Frank

Kathryn

Carlo

Kay

Sandra

Parents

Children + Spouses

Grandchildren

Basic Will Disposition

“I devise and bequeath my entire estate to my spouse.”
“If my spouse predeceases me, I devise and bequeath my personal and real property to my children, per stirpes.”

Predeceased Vito

1/4

1/16

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Vito’s Parcels Inherited by Heirs as Co-Tenants

¼ Connie

¼ Mike

¼ Freddo

1/16 Santino, Jr.

1/16 Frank

1/16 Kathryn

1/16 Francesca

¼ Connie

¼ Mike

¼ Freddo

1/16 Santino, Jr.

1/16 Frank

1/16 Kathryn

1/16 Francesca

¼ Connie

¼ Mike

¼ Freddo

1/16 Santino, Jr.

1/16 Frank

1/16 Kathryn

1/16 Francesca

¼ Connie

¼ Mike

¼ Freddo

1/16 Santino, Jr.

1/16 Frank

1/16 Kathryn

1/16 Francesca

¼ Connie

¼ Mike

¼ Freddo

1/16 Santino, Jr.

1/16 Frank

1/16 Kathryn

1/16 Francesca

¼ Connie

¼ Mike

¼ Freddo

1/16 Santino, Jr.

1/16 Frank

1/16 Kathryn

1/16 Francesca

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Corleone Family Forest Parcels

Inherited by Vito

Purchased by Vito and Carmela

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Vito

Santino

Freddo

Michael

Connie

Carmela

Mary

Anthony

Victor

Michael

Santino, Jr.

Francesca

Frank

Vincent

Kathryn

Carlo

Kay

Sandra

Parents

Children + Spouses

Grandchildren

Vito dies intestate

Carmela opens estate with Clerk of Court, appointed Personal Representative

Vito’s estate distributed according to NC Intestate Succession Act

Predeceased Vito

Carmela inherits ⅓ interest in tracts A, B, and C
Carmela gets $60,000 plus 1/3 remaining personal property
Vito’s 50% share of tracts D, E, F vest in Carmela (owns D, E, F 100%)

1/12 share of personal property; 1/12 interest in land

1/12 …

1/48 …

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Managing Tenancy in Common

Tenancy in Common Agreement

contract between co-tenants concerning

management
purchase of interests
waiver of partition right

must record memorandum in chain of title

Option to Purchase

Right of First Refusal

option holder allowed to match purchase offer by another party

Right of First Offer

requires other party to offer interest at market value ascertainable by appraisal (or otherwise by agreement)

Limited Liability Company

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Business Entities

Business Entity Interests

Governing document (e.g. Operating Agreement) controls disposition of interests in entity

The Buy-Sell Agreement (option, valuation (purchase price, payment)

Business Entity interest (shares, membership) = intangible personal property

Gifts of interest to create equity in younger generation

Land titled to business entity = personal property

May transfer interests in business entity to successors by gift, sale or at death
Farm Law Article: Business Entities: Partnerships, Corporations and LLCs

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Limited Liability Company

Operating LLC (or S Corp)

Partners contribute their ownership interest in cattle, bins, machinery, “sweat” etc.
Use as transfer vehicle to farming heir (gifts/structured sale)
Existing S Corp or Partnerships (merger, conversion, asset transfer, etc.)

Land LLC

Deed Land interest to the LLC (never a corporation)
Restrict membership
Strip partition rights inherent to real property interest
Structured exit of equity in land (title substitute)
Conversion of existing Limited Partnership (w/o retitle property) (SOS filing)

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The Operating Agreement

A Contract between contributors of assets
Restricts who can be members

Member vs. Assignee

Dictates voting requirements for decisions

Manager
Voting and Non-voting Units

Dictates triggers for buy-sell

Option to Purchase
Who may buy and when
Appraisal procedure
Price and payment terms (seller finance option)

For existing S Corps, use Stock Purchase Agreement
Farm Law Articles

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Buy-Sell Agreement

Restrictions on transfer

New shareholder must get 75% approval
Any other transfer (voluntary or otherwise) triggers buy-sell

Triggers

Voluntary withdrawal
Death, disability, personal bankruptcy, try sell to ”outsider”

Options

First Company (to hold or reissue)
Second other Shareholders
Then mandatory Company redemption (if fails, then stock becomes non-voting)

Valuation of Company (V): V ÷ #S = value of share
Terms of Payment

Basically forced seller finance
Mandatory discount applied

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Transfer of LLC Interests

Gift of Interest (measured in “units”)

Calculate value of company
Divide value by number of units to determine price per unit
Transfer total units < $16,000 annual gift tax exclusion

Sale

Purchase from Other Members or Trust

Purchase with insurance proceeds under Buy-Sell Agreement (Designate beneficiary and agreement between all participants + spouses)

Spread capital gain over term note
Discounting of interest value
Some relief from Self Employment taxes

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Ownership of Land by LLC

Corleone Land Co, LLC

Key Features:

Michael is Manager
Distributions of income to other members
Only lineal descendants of Vito and Carmela may become members
Buy sell provision established appraisal and payment terms

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