Heirs of Farms Often Inherit a Fight
In North Carolina's hotbeds of suburban growth, heirs of large tracts of land often face tough choices -- keeping their family inheritance intact or selling to developers.
Sometimes, the decisions can tear families apart.
Steven Ray, 58, knows this well. He no longer speaks much to several siblings after they argued over the division of his father's estate, including farms in Wake and Granville counties. Ray said he had always been more attached to the land than his siblings were. "I've walked it, stepped it, farmed it. I've rolled every rock over on it," he said. "They didn't have any blood, sweat and tears in it."
Jimmy Narron, a Smithfield estate planning lawyer and Johnston County farmer, said he has dealt with similarly sticky situations in countless farm transfers across Eastern North Carolina.
Problems stem from people not writing wills or, worse yet, parents trying to "marry" their children together in land or business partnerships, Narron said. People cling to the notion that all their children will get along. They won't, he said, and even if they do, there's a good chance their spouses won't. "It did not work for Cain and Abel," Narron said he tells clients almost daily. "It didn't work in Shakespeare or the Bible, and it ain't going to work for you." The other problem with land transfers is this: Equal does not always mean fair.
Most people want to deal with their children equally. But same-sized tracts can hold wildly different values depending on such factors as how flood-prone, rocky or close to the road each piece is, said Tom Steele, real property chair of the N.C. Bar Association. In North Carolina, land is increasingly getting busted up.
"We're an older state," said Guido van der Hoeven, an N.C. State University agricultural economics specialist, who has seen farmers' deeds dating back to King George. "We've had land handed down more times. We've got smaller tracts of land." But the biggest trend making estate planning more necessary, especially in the Triangle, is the enormous upward pressure on land values. Many land-rich, cash-poor farmers may have spent their whole life scratching out a modest living, van der Hoeven said. When they find out they're suddenly millionaires -- at least on paper -- it's a lot to wrap their heads around, he said.
Hefty estate taxes incurred after a person dies, along with zooming property taxes, can push heirs to sell the land. Raised on the land
Ray has never wanted to let go of any part of his family's land. To him, the land represents everything his parents worked for. His grandfather died when his father was 14, leaving the family destitute. Years later, when Ray's great grandfather's estate went up for auction on the courthouse steps in Raleigh, Ray's father borrowed money from three different sources to buy the 140 acres.
Today, Ray still lives on a 22-acre portion of the family's original homestead, around the intersection of Old Creedmoor and Creedmoor roads in Wake County, just south of Falls Lake. Ray maintains a horse farm on it and tends a vegetable garden, with squash, okra, corn and beans. He's also trying to save the home his great-grandfather built there in 1875. Ray grew up in the home; his father lived in it until his death. It is dilapidated, but people still stop by at times to draw pictures of it, Ray said.
The baby in the family, Ray also helped his parents on the farm longest of any of the five children. "They almost had to chase me away," Ray joked.
Ray worked side by side with his father, plowing fields of cotton, tobacco and corn -- first with mules and, later, with tractors. Ray also milked cows, raised pigs and fed chickens. He farmed with them full time until he was 24 and continued part time while working as a welder until his father retired from farming in 1982. In addition to the family's 140-acre farm in Wake County, Ray helped his father farm a 155-acre tract about 11 miles away in Granville County. His mother had bought the land after the U.S. Army Corps of Engineers in the late 1970s condemned a separate 185-acre family farm in Wake County for the Falls Lake reservoir project.
Family quarrel erupts
For years after his father's 1997 death, Ray tried to stave off his four siblings from selling the Granville County farm. His father had once said he'd be willing to leave that tract to Ray to farm, but never changed his will. Ray's brother, Charles Ray of Raleigh, said the Granville farm held less sentimental value because by the time their parents had bought the tract, most of the children had already left for jobs in the city or started their own families. Income from renting the land to other farmers was tiny compared to property taxes. And most of the siblings didn't want to be responsible for its upkeep. "If you're not close to something you rent, it gets torn up," Charles Ray, 62, said. Steven Ray offered his siblings $50,000 for their share of the Granville farm, sister Brenda Barbee, 66, said. "That was an insult," said Barbee, who had felt shortchanged by previous property divisions.
Steven Ray got an attorney. His siblings did, too. Both sides headed to court. "I got depressed about it," Ray said.
In 2004, Ray grew tired of the fighting, gave in, and the siblings sold the property. Now, Ray regrets it. He hopes similar disputes won't arise in the future. Fight on the horizon?
About five years ago, maternal aunt Geraldine C. Elliott, 85, who lives about a mile from Ray, began giving an interest in an 80-acre tract, which she had inherited, to her nieces and nephews as a gift. She didn't want to sell the wooded lot to developers, she said, not the way her youngest brother had sold a nearby 150-acre tract to developers for $3.5 million. The land sprouted Ethan's Glen, a subdivision that is selling homes in the $575,000 to $872,000 range. "I don't like it," Elliott said of the new subdivisions. "I want some trees, open space and wildlife. The first thing they do is strip the land of every tree." But she's not so sure what her nieces and nephews will do with the land she's giving them jointly -- if they'll amicably hold together one of the last vestiges of her family's farmland or let it stir up another family feud.
Charles Ray thinks it's sad he no longer speaks with his brother Steven. He wishes more people near death simply spelled out their wishes, leaving each person exactly what they wanted to give them, without leaving the ambiguity that can create lifelong rifts between siblings. Steven Ray thinks it's sad, too. His father loved the land, but he couldn't stand seeing his children bicker either. "He didn't like any conflicts at all," Ray said. ESTATE PLANNING TIPS WAYS TO AVOID BITTER FIGHTS OVER INHERITED PROPERTY
- Accept that it's not always possible to divide things equally. You could try to avoid disputes, for instance, by leaving one child cash and other assets and another child land, says estate planning lawyer Jimmy Narron of Smithfield.
- Leave specific instructions for how an executor should divide land. For instance, ask your executor to commission a survey after your death and give the northern half of a property to one child and the southern half to the other, Narron said. STRATEGIES FOR MINIMIZING TAXES ON INHERITED LAND
- Take advantage of all estate tax exemptions. Currently, estates worth $2 million or less are exempt from federal estate taxes of up to 45 percent (the exemption increases to $3.5 million in 2009). If both spouses take advantage of their exemptions, the family can double what can be passed on tax-free.
- Time your death wisely. Just kidding. Currently, the estate tax is scheduled to fall to zero percent in 2010, before rising to a maximum of 55 percent in 2011 with a $1-million exemption. But no one in the tax community thinks that will actually happen, Narron said. Last year, the Senate voted 97-1 to extend the 2009 estate tax levels through 2012.
- Minimize the appraised value of your property.
- Hire an appraiser to lower the valuation of your property.
- Consult a lawyer about putting your land into a trust.
- Put a conservation easement on your land. Congress recently re-approved tax incentives for this, but be sure you're willing to permanently restrict development on your land before you commit.
- Find ways to keep the land in the present-use value tax program, which levies significantly lower property taxes on farms and woodland. Otherwise, you could owe hefty taxes.
GIVING PROPERTY AWAY WHILE YOU'RE STILL ALIVE Under IRS rules, you can give away up to $12,000 a year per person without triggering up to 45 percent in gift taxes. With land, the donor can slowly deed an interest in a property to others.
PROS: The law favors donors with lots of beneficiaries. Keeping a single deed versus subdividing the property can also save on surveying and appraisal bills and help keep the lot large enough to qualify for present-use value property tax rates.
CONS: Any beneficiary has the right to pull his or her share out immediately after receiving the gift, says lawyer John K. Cook of Wake Forest. Some lawyers recommend family LLCs as an option to maintain more control over gifts to heirs. North Carolina is also one of only four states with its own gift tax. Rather than having a $1 million lifetime exemption beyond the $12,000 per person annual exemption as in the federal system, the state only allows a $100,000 lifetime exemption for ancestors and descendants. State lawmakers are considering a change to make the North Carolina gift tax more like the federal gift tax.