Renunciation Amendments-Session Law 2009-48

This legislation, House Bill 800, adopted on May 20, 2009, is a comprehensive rewriting of the law regulating renunciations. It makes conforming amendments to the Chapter 36C, North Carolina Uniform Trust Code, Chapter 32A governing powers of attorney and Chapter 28A governing estate administration. The changes answer many unanswered questions concerning the effect of a renunciation under various situations such as, the effect of a renunciation not timely made. It also will make more clear what it takes to make an effective renunciation and adds new provisions who can make an effective one under various fact patterns as well as who must join in the case of a married individual or a minor pour over distributee. Unchanged is the requirement for when real property or an interest therein is renounced. A copy of the renunciation must also be filed for recording in the office of the register of deeds of all counties where any renounced property is located. New Sections 31B-1.1 and 31B-1.2, deal extensively with the right of a fiduciary to renounce fiduciary powers and provide a procedural structure for doing so.

A common issue with renunciations of intestate property is the situation where the adult children of a surviving spouse wish for that parent to inherit the entire interest in certain property of the decedent (often the marital home), but for various reason may not wish to deed it. If the adult children have children of their own, such property would have gone to those children upon renunciation under the provisions of the prior statute. Rewritten G.S. 31B-1(d) offers a solution in that it provides that a "parent of a minor for whom no general guardian or guardian of the estate has been appointed may renounce, in whole or in part, an interest in or power over property (including a power of appointment) that would have passed to the minor as the result of that parent's renunciation. The parent may renounce the interest or power even if its creator imposed a spendthrift provision or similar restriction on transfer or a restriction or limitation on the right to renounce.

N.C.G.S. Section 31B-2 provides the time restrictions on renunciations. To be a qualified disclaimer for federal and state inheritance, estate, and gift tax purposes, a renunciation of a present interest of renunciation must be filed as required under the applicable federal statute for an effective disclaimer for federal estate and gift tax purposes. Absent any relevant federal statute, it must be filed no later than nine months after the date the transfer of the renounced interest for the purpose of such taxes. A renunciation of a future interest must be made within six months after it vests, and the recipient is entitled to possession even if the renunciation is not recognized as a disclaimer for federal estate tax purposes.

Another common concern is whether the spouse of a married renouncer must join in the renunciation. The bill provides that when a renunciation of any interest in real property is made within the time period required under subsection (a) of N.C.G.S. Section 31B-2, the spouse of the person whose property or interest is being renounced is not required to join in the execution of the instrument of renunciation, and as provided in N.C. Gen. Stat. § 31B-3(a)(1), the spouse has no statutory dower, inchoate marital rights, elective share, or any other marital interest in the real property or real property interest renounced.

The bill provides that failure to file or register the instrument of renunciation does not affect the effectiveness of the renunciation as between the person whose property or interest is being renounced and persons to whom the property interest or power passes by reason of the renunciation; however, record title to a renounced interest in real property does not pass to persons receiving the renounced interest by reason of the renunciation until the instrument of renunciation is properly registered.

There is a new N.C.G.S. Section 31B-2.1 setting forth certain requirements for delivery of the renunciation by the person renouncing to certain persons. The provisions are extensive and vary depending on the status of the renouncer and the nature of the interest. The failure to deliver a copy of the instrument of renunciation as required by this section does not affect the validity of the renunciation even though, the renunciation may, as a result, not be recognized as a valid disclaimer for federal estate tax purposes

The bill would add new N.C. Gen. Stat. § 31B-4.1 to provide that a renunciation is effective if it has the effect under the Internal Revenue Code of preventing the transfer of property to the renouncer, even if not in otherwise compliance with GS Chapter 31B, making it effective for inheritance or gift tax purposes.

N.C.G.S. Section 31B-3 dealing with the effect of renunciation on how the interest devolves has been extensively rewritten. Unless the instrument creating the interest provides otherwise, the property or interest renounced devolves as provided in this section. If the renunciation is filed within the time period for an effective tax disclaimer, the property devolves as if the renouncer had predeceased the date of the transfer of the renounced interest to the renouncer. If the renunciation is not filed within the time period described in G.S. 31B-2(a), the transfer of the property takes effect as if the renouncer had died on the date the renunciation is filed. Any future interest that takes effect after the termination of the estate renounced, takes effect as if the renouncer died on the date determined above and upon the filing of the renunciation, the persons in existence as of that date will immediately become entitled to possession.

There is a form of anti-lapse protection. If the property renounced was created by the will of a decedent, the devolution of the property is to be governed by N.C.G.S. Section 31-42(a). In the event that the decedent dies intestate or the title is to be determined as though a decedent had died intestate, and the renouncer has living issue who would have been entitled to the property if they had predeceased the decedent, then the property renounced shall be distributed to them per stirpes. Otherwise, the property is distributed as though the renouncer had predeceased the decedent.

If the interest renounced was created by an inter vivos trust, the devolution of the interest is governed by N.C.G.S. Section 36C-6-605(e). If a trustee files a timely renunciation, the interest does not become trust property. If a trustee's renunciation is not timely filed, the interest passes as if the trust had never existed as of the date of the renunciation.

N.C.G.S. Section 31B-3(g) is poorly drafted as it states: "Unless otherwise provided in the instrument of renunciation, the interest in property being renounced by a surviving tenant by the entireties upon the death of the other tenant is deemed to be a one-half interest in the former entirety property, and title to that one-half interest passes as if the deceased tenant survived the tenant renouncing." Presumably, the intent of the statute is to facilitate tax planning in estate administration. Since there is no such thing as a ½ interest in a tenancy by the entireties, we believe the effect that was intended is to renounce only a 1/2 undivided interest in the whole, leaving the renouncing survivor spouse with a ½ undivided interest. As the entire property may be renounced due to the unique nature of a tenancy by the entireties, attorneys drafting renunciations of entireties interest should take great care in drafting them in order to achieve the desired result.

N.C.G.S. Section 31B-3 (h) is much more straightforward, and provides "the interest in property being renounced by a surviving joint tenant with right of survivorship is deemed to be the fractional interest of the deceased joint tenant to which the surviving joint tenant would have been entitled by right of survivorship, and title to that fractional interest passes as if the tenant renouncing predeceased the deceased joint tenant" unless otherwise provided in the renunciation.

N.C.G.S. Section 31B-4 deals with acts that waive or bar the right to renounce.

These include:

"(1) An assignment, conveyance, encumbrance, pledge, or transfer of the property or interest, or a contract therefor by the person authorized to renounce,

(2) A written waiver of the right to renounce, or

(3) Repealed by Session Laws 1998-148, s. 4.

(4) A sale of the property or interest under judicial sale made before the renunciation is effected.

(b) The renunciation or the written waiver of an instrument waiving or barring the right to renounce is binding upon the renouncer or person waiving the right to renounce or the person barred from renouncing and all persons claiming through or under him that person.

(c) A fiduciary's application for appointment or assumption of duties as fiduciary does not waive or bar the fiduciary's right to renounce a right, power, privilege, or immunity.

(d) No person shall be liable for distributing or disposing of property in reliance upon the terms of a renunciation that is invalid for the reason that the right of renunciation has been waived or barred, if the distribution or disposition is otherwise proper, and the person has no actual knowledge or record notice of the facts that constitute a waiver or bar to the right of renunciation.

(e) The right to renounce property or an interest in property pursuant to this Chapter is not barred by an acceptance of the property, interest, or benefit thereunder; provided, however, an acceptance of the property, interest, or benefit thereunder may preclude such renunciation from being a qualified renunciation for federal and State inheritance, estate, and gift tax purposes.

(f) An instrument waiving or barring the right to renounce an interest in real property is not effective as to persons protected under G.S. 47-18 or G.S. 47-20 until either (i) registered as provided in those sections or (ii) registered pursuant to a judicial sale proceeding as described in subdivision (4) of subsection (a) of this section in which the person renouncing is a party.

The instrument of waiver or bar shall be indexed in the grantor's index under (i) the name of the transferor of the property or interest in the property or creator of the power or holder of the power and (ii) the name of the person whose renunciation is waived or barred."

N.C.G.S. Section 32A-14.2 has been amended to govern a renunciation by an attorney-in-fact acting under power of attorney. If the power of attorney broadly authorizes the attorney-in-fact to handle the principal's affairs or deal with the principal's property, but does not expressly authorize the attorney-in-fact to renounce an interest in or power over property, the attorney-in-fact does not have authority to renounce the principal's interest under Chapter 31B. Even if there is an express grant of general authority to renounce in the power of attorney, the attorney-in-fact may not renounce in favor or for the benefit of the attorney-in-fact, unless the power of attorney expressly authorizes a renunciation that benefits the attorney-in-fact or the estate, creditors, or the creditors of the estate of the attorney-in-fact, or an individual to whom the attorney-in-fact owes a legal obligation of support or unless the attorney-in-fact is an ancestor, spouse, or descendant of the principal. There are new conforming provisions in the statutory Short Form Power Of Attorney to make provision for this limitation and also new conforming provisions in the list of N.C.G.S. Section 32A-2 powers.

The North Carolina Uniform Trust Code has been conformed by adding N.C.G.S. Section 36C-1-105(b)(12) which section reads as rewritten:

"(b) The terms of a trust prevail over any provision of this Chapter except:

...

(12) The power of a trustee to renounce an interest in or power over property under G.S. 36C-8-816(32)."

N.C.G.S. Section 36C-8-816 reads as rewritten:

"§ 36C-8-816. Specific powers of trustee.

Without limiting the authority conferred by G.S. 36C-8-815, a trustee may:

...

(30) Request an order from the court for the sale of real or personal property under Article 29A of Chapter 1 of the General Statutes, or for the exchange, partition, or other disposition or change in the character of, or for the grant of options or other rights in or to, such property; and property;

(31) Distribute the assets of an inoperative trust consistent with the authority granted under G.S. 28A-22-10.G.S. 28A-22-110; and

(32) Renounce, in accordance with Chapter 31B of the General Statutes, an interest in or power over property, including property that is or may be burdened with liability for violation of environmental law."

This act becomes effective October 1, 2009, and applies to renunciations and powers of attorney executed on or after that date. Full text of the bill can be found at:

http://www.ncga.state.nc.us/Sessions/2009/Bills/House/PDF/H800v3.pdf

Joint Tenancies-Session Law 2009-268

House Bill 799 amends N.C.G.S. Section 41-2 to clarify the ability of a grantor to convey disparate undivided interests as a joint tenancy with right of survivorship. Under the ancient common law, survivorship in joint tenants was presumed and they could only be created by complying with the four unities of time, title, possession and interest. The interests had to be equal, come from the same source at the same time and all had an equal right to possession.

Our Legislature did away with the presumption of survivorship in 1782, and our appellate courts did some serious damage to our ability to create a JTWROS over the next 200 years by assuming this meant that the legislature intended to do away with this form of ownership. Because landowners persevered in their desire to convey in this fashion, a fix for the artificial hurdles created by the appellate courts was necessary and between 1989 and 1991, the Legislature attempted to fix this problem by extensively amending N.C.G.S. Section 41-2. The amendments unequivocally eliminated the unities of time and title. Many consider the language "any interest" as used in the current statute as doing the same thing for the unity of interest leaving only the unity of possession. Others suggest that there is a question and that clearer language is required to settle the question.

Elder law practitioners have been implementing estate plans utilizing JTWROS deeds conveying disparate fractional interests for several years now. In the interest of avoiding the possibility of having an appellate court attempt to answer a question it may well not understand in a way that would have disastrous results for so many families, the statutory amendment is being proposed and it should settle the issue. Until there is a legislative or appellate resolution to the question, real property practitioners and title insurance counsel must make decisions on how to proceed on a case by case basis.

Survivorship in joint tenancy defined; proviso as to partnership.

(a) Except as otherwise provided herein, in all estates, real or personal, held in joint tenancy, the part or share of any tenant dying shall not descend or go to the surviving tenant, but shall descend or be vested in the heirs, executors, or administrators, respectively, of the tenant so dying, in the same manner as estates held by tenancy in common: Provided, that estates held in joint tenancy for the purpose of carrying on and promoting trade and commerce, or any useful work or manufacture, established and pursued with a view of profit to the parties therein concerned, are vested in the surviving partner, in order to enable the surviving partner to settle and adjust the partnership business, or pay off the debts which may have been contracted in pursuit of the joint business; but as soon as the same is effected, the survivor shall account with, and pay, and deliver to the heirs, executors and administrators respectively of such deceased partner all such part, share, and sums of money as he the deceased partner may be entitled to by virtue of the original agreement, if any, or according to the deceased partner's share or part in the joint concern, in the same manner as partnership stock is usually settled between joint merchants and the representatives of their deceased partners. Nothing in this section prevents the creation of a joint tenancy with right of survivorship in real or personal property if the instrument creating the joint tenancy expressly provides for a right of survivorship, and no other document shall be necessary to establish said right of survivorship. Upon conveyance to a third party by less than all of three or more joint tenants holding property in joint tenancy with right of survivorship, a tenancy in common is created among the third party and the remaining joint tenants, who remain joint tenants with right of survivorship as between themselves. Upon conveyance to a third party by one of two joint tenants holding property in joint tenancy with right of survivorship, a tenancy in common is created between the third party and the remaining joint tenant. A conveyance of any interest in real property by a party to one or more other parties, whether or not jointly with the grantor-party, as joint tenants with right of survivorship, creates in the parties that interest, if the instrument of conveyance expressly provides for a joint tenancy with right of survivorship.

(b) The interests of the grantees holding property in joint tenancy with right of survivorship shall be deemed to be equal unless otherwise specified in the conveyance. Any joint tenancy interest held by a husband and wife, unless otherwise specified, shall be deemed to be held as a single tenancy by the entirety, which shall be treated as a single party when determining interests in the joint tenancy with right of survivorship. If joint tenancy interests among three or more joint tenants holding property in joint tenancy with right of survivorship are held in unequal shares, upon the death of one joint tenant, the share of the deceased joint tenant shall be divided among the surviving joint tenants according to their respective pro rata interest and not equally, unless the creating instrument provides otherwise.

This subsection shall apply to any conveyance of an interest in property created at any time that explicitly sought to create unequal ownership interests in a joint tenancy with right of survivorship. Distributions made prior to the enactment of this subsection that were made in equal amounts from a joint tenancy with the right of survivorship that sought to create unequal ownership shares shall remain valid and shall not be subject to modification on the basis of this act."

This act became effective July 10, 2009.

Appointment of Trustee-Session Law 2009-176

Deeds of trust are recorded with increasing frequency without the closing office or the lender generating the documents inserting the name of a trustee. At common law, a trust will not fail solely because of failure to name the trustee. However, the Uniform Trust Code specifically does not apply to deeds of trust, so this House Bill 794 insures that the deed of trust should not fail to be effective or have priority over subsequent matters solely because of the missing name of a trustee. It provides a procedure to do so by clearly authorizing a holder of the debt to include a trustee by executing and recording a "substitution" even if no trustee was originally named in any instrument in which the holder could otherwise substitute a trustee.

N.C.G.S. Section 45-10 reads as rewritten:

"§ 45-10. Substitution of trustees in mortgages and deeds of trust.

(a) In addition to the rights and remedies now provided by law, the holders or owners of a majority in amount of the indebtedness, notes, bonds, or other instruments evidencing a promise or promises to pay money and secured by mortgages, deeds of trust, or other instruments conveying real property, or creating a lien thereon, may, in their discretion, substitute a trustee whether the trustee then named in the instrument is the original or a substituted trustee, by the execution of a written document properly recorded pursuant to Chapter 47 of the North Carolina General Statutes.

(b) If the name of a trustee is omitted from an instrument that appears on its face to be intended to be a deed of trust, the instrument shall be deemed to be a deed of trust, the owner or owners executing the deed of trust and granting an interest in the real property shall be deemed to be the constructive trustee or trustees of record for the secured party or parties named in the instrument, and a substitution of trustee may be undertaken under subsection (a) of this section. However, no such constructive trustee shall have the authority or power to take any of the following actions without the consent and joinder of the holders or owners of a majority in amount of the obligations secured by the deed of trust: (i) effect a substitution of trustee, (ii) effect the satisfaction of the deed of trust, (iii) release any property or any interest therein from the lien of the deed of trust, or (iv) modify or amend the terms of the deed of trust. Any substitute trustee named under the authority of subsection (a) of this section shall succeed to all the rights, titles, authority, and duties of the trustee under the terms of the deed of trust without regard to the limitations imposed by this subsection on the authority of a constructive trustee."

This act became effective June16, 2009 and applies to all instruments recorded before, on, or after that date.

Business Trusts-Session Law 2009-174

Conveyances into and out of business trusts, such as Massachusetts business trusts are governed in North Carolina under Article 8 of Chapter 39 of the general Statutes. Illinois land trusts, Delaware Statutory Trusts and real estate investment trusts (REITs) are implicitly provided for, but the statute could stand to be a bit more explicit. This act is also somewhat out of step with changes in the law regarding other entities such as corporations and LLC's. It also was not brought into accord when the requirement for a "seal" on conveyances was eliminated. This can create confusion because of the inexplicable difference in requirements among entities.

This legislation brings the statutory business trust provisions more in line with those of other business entities. The provisions will afford protection of third parties reasonably relying upon authority documents in the public records as is provided in N.C.G.S. Section 47-18.3 in the case of corporate conveyances.

The definition of business trusts would be expanded to include Illinois land trusts and Delaware Statutory Trusts. The requirement for seals on conveyances would be eliminated, it will allow an authorized agent to sign on behalf of the business trust, provided that the appropriate resolution is filed with the document or recorded separately that gives appropriate authority to the authorized agent.

SECTION 1.  G.S. 39-44 reads as rewritten:

"§ 39-44. Definition.

The term "business trust" whenever used or referred to in this Article shall mean any unincorporated association, including an Illinois land trust, a Delaware statutory trust, or a Massachusetts business trust, engaged in any business or trade under a written instrument or declaration of trust under which the beneficial interest therein is divided into shares represented by certificates or shares of beneficial interest."

SECTION 2. G.S. 39-46 reads as rewritten:

"§ 39-46. Title vested; conveyance; probate.

(a) Where real estate has been or may be hereafter conveyed to a business trust in its trust name or in the names of its trustees in their capacity as trustees of such business trust, the said title shall vest in said business trust, and the said real estate and interests therein may be conveyed, encumbered or otherwise disposed of by said business trust in its trust name by an instrument signed by at least one of its trustees, its president, a vice-president or other duly authorized officer, the said conveyance to be proven and probated in the same manner as provided by law for conveyances by corporations. Any conveyance, encumbrance or other disposition thus made by any such business trust shall convey good and sufficient title to said real estate and interests therein in accordance with the provisions of said conveyance; provided, however, that with respect to any such conveyance, encumbrance or other disposition effected after June 28, 1977, there must be recorded in the county where the land lies a memorandum of the written instrument or declaration of trust referred to in G.S. 39-44. As a minimum such memorandum shall set forth the name, date and place of filing, if any, of such written instrument or declaration of trust, and the place where the written instrument or declaration of trust, and all amendments thereto, is kept and may be examined upon reasonable notice, which place need not be a public office. Such memorandum may include designation of trustees and duly authorized officers and the authority granted to them with regard to real estate matters, pursuant to subsection (b) of this section.

(b) Any business trust may convey or encumber an interest in real property that is transferable by either (i) an instrument duly executed by either an officer of the business trust other than one of its trustees, its president, a vice president, or other authorized agent identified in the recorded memorandum, or (ii) a declaration of trust described in subsection (a) of this section, if the conveyance has attached to it a signed resolution adopted by the board of trustees, as certified by an officer authorized to make such certifications of the business trust, authorizing the officer to execute, sign, seal, and deliver deeds, conveyances, or other instruments. This section is deemed to have been complied with if a resolution required by this subsection is recorded separately in the office of the register of deeds in the county where the land lies. Such a resolution shall be applicable to all instruments executed subsequently to the recording of the resolution and pursuant to its authority.

Notwithstanding the foregoing, this section does not require a signed resolution adopted by the board of directors, as certified by an officer authorized to make such certifications, to be attached to an instrument or separately recorded in the case of an instrument duly executed by one of its trustees, its president, or a vice president of the business trust. All deeds, conveyances, or other instruments so executed shall, if otherwise sufficient, be valid and shall have the effect to pass the title to the real or personal property described in the instrument. Notwithstanding anything to the contrary in the trust agreement, and absent any provision otherwise in the recorded memorandum or declaration of trust required under subsection (a) of this section, when it appears on the face of an instrument registered in the office of the register of deeds that the instrument was signed in the ordinary course of business on behalf of a business trust by at least one of its trustees, its president, a vice president, or an assistant vice president, such an instrument shall be as valid with respect to the rights of innocent third parties for value without notice of a defect or breach of fiduciary duty as if executed pursuant to authorization from the board of trustees, unless the instrument reveals on its face a breach of fiduciary obligation. The provisions of this subsection shall not apply to parties who had actual knowledge of lack of authority or of a breach of fiduciary obligation.

(c) Nothing in this section shall be deemed to exclude the power of any representatives of a business trust to bind the business trust pursuant to express, implied, inherent, or apparent authority, ratification, estoppel, or otherwise.

(d) Nothing in this section shall relieve trustees or officers of a business trust from liability to the business trust or from any other liability that they may have incurred from any violation of their actual authority."

This act becomes effective October 1, 2009, and applies to all instruments recorded on or after that date.

Future Advances-Session Law 2009-197

House Bill 1368 encompasses Amendments to Article 7 of Chapter 45 which has previously posed two significant problems for real property practitioners, lenders, and title insurers. The former statute used the terms; "future advances" and "future obligations" bur did not define or distinguishing those terms. This ambiguity made the statute's application uncertain and made compliance uncertain. To comply with the current statute a future advance deed of trust must state "the amount of present obligations secured." It was presumed to mean the sum amount actually advanced on the note at closing, but obviously no sums were advanced until recording so there has been inconsistency in the form of meeting this requirement. As all advances under a qualifying loan are secured and have priority, the requirement to state the amount of present obligations secured has no real function and simply provides an opportunity to litigate what should be a settled matter.

This Bill simplifies and clarifies Article 7. It would modify G.S. 45-67 by defining the term "advance" and by drawing a clear distinction between an "obligation" (e.g., a note) and an "advance" (e.g., loan proceeds actually disbursed under a note).

Section 2 amends G.S. 45-68 to make it clear that a future advance deed of trust may secure a pre-existing note and future advances made under it as well as a note to be executed in the future with its advances. It eliminates the requirement to state the amount of present obligations in the deed of trust. It will be sufficient to state that it is given wholly or partly to secure future advances/obligations, the maximum principal amount that may be secured at any one time, and the period within which future obligations may be incurred and future advances made (Increased to a maximum of 30 years from the current 15 years).

Section 3 amends G.S. 45-69 confirming that a future advance deed of trust may secure revolving credit in addition to closed-end credit. It resolves the issue of the aggregate outstanding principal balance exceeding the stated maximum principal amount by providing that only the excess is not secured by the deed of trust. It might have been better in this Section to have provided that excess amounts would be secured and in the Section 4, dealing with priority, to provide that the excess amounts would not have priority over junior liens as was the result in Dalton Moran Shook, Inc. v. Pitt Development Company, 113 NC App 707 (1994) dealing with priority of construction advances versus purchase money under the doctrine of instantaneous seisin.

Section 4 deals with priority and amends G.S. 45-70 to make it clear that the lien priority of advances and subsequent obligations relate back to the date of recording the future advance deed of Trust, not to when it was executed.

Section 5 is a curative provision for existing deeds of trust and it provides that a deed of trust filed before the effective date of the act will be sufficient if it either satisfies the new or old requirements of the Article. The effective date is October 1, 2009.