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Present Use Value: Maintaining the Individual Ownership Requirement in Transfer Planning

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[Farm Law editor’s note: the following piece is in draft pending academic peer review, and written as part of the series Farm Law: Owning, Managing and Transferring Farm Interests, sponsored by the North Carolina Tobacco Trust Fund Project # #583400-10363. Comments to are welcome.]


Among the requirements for enrollment in the Present Use Value (PUV) property tax program, the requirement of individual ownership is a particular challenge to maintain when transferring land. 

As further explored in the narrative An Overview of Present Use Value, a parcel must meet four requirements. To determine whether land qualifies for continued enrollment, a tax office must ask four questions: 1) is the parcel owned by individuals?; 2) is the parcel under sound management?; 3) is the parcel of requisite size according to its classification?’ and 4) does the parcel produce sufficient income? Only the first three questions apply to land in forestry use classification.

This paper explores individual ownership of land passing through estates, transfer by gift or sale, or transferred to an entity for liability, management, and future disposition (estate planning) purposes. This paper describes several forms of ownership, and how each is viewed through the lens of PUV’s individual ownership requirement.

Individual Ownership

The requirement that the tract of land be owned – or traced to the ownership of – an individual person or persons applies to all categories of PUV (forest, agriculture, and horticulture), as well as the tax-deferred wildlife classification. In the event of co-tenancy, each co-tenant must be an individual person, or if a non-human entity is the record owner, owners and beneficiaries of such entities must be individual people. The ownership requirement must be strictly adhered to when transferring land to other persons or transferring to entities serving as instruments of transfer and succession, such as trusts and limited liability companies. Likewise, dispositions of real property to the outright individual ownership of trust beneficiaries or members of a limited liability company will trigger scrutiny to the county tax office at the time of filing a continued use application (AV-4, see below). Trustees and LLC managers should ensure that property held within their entities presently qualifies prior to distribution, because one cannot transfer unqualified land (though enrolled and undiscovered) for continued use in PUV.

For land to qualify for PUV enrollment in the hands of an individual, it must be that person’s place of residence, or, if not, the land must have been acquired by the individual or relative of the individual a full four (4) years prior to January 1 of the year the land is to be enrolled in PUV (regardless of the county’s listing period for enrollment). For land transferred to an individual by an entity (e.g. trust or LLC), the land must have been enrolled under ownership of a qualified entity (the transferor) and the new individual owner (the transferee) must have been a member or owner of the transferring entity or a beneficiary of the transferring trust. For example:

Nick and Jay are members of East Egg Land Co, LLC, which owns several tracts of land enrolled in PUV. Nick and Jay decide to sell one of the tracts to Daisy, who resides in an apartment in the town of West Egg, and not on the property, and who is not a member of the LLC. Later in the year (about 70 days after purchase), Daisy receives notice that the land has been removed from the PUV program, and that she must pay a rollback by the next tax bill due date. Upon inquiry she finds that she does not qualify as an individual because she does not live on the property, has not owned it for 4 years, and was not a member of the transferring LLC.

However, by way of exception, a transferee – Daisy in the above example – may continue the land in PUV if she timely files a “continued use application” – the Form AV-4 – and agrees to accept liability for the deferred tax liability of the previous owner. The new owner must agree to continue use in the same use classification. For example, Daisy could not decide to change the use classification upon her AV-4 filing, she would presumably have to wait until the next listing period.

Land enrolled in PUV that is transferred to another under reservation of a life estate does not lose qualification, as the life tenant is considered to be the owner of the property.


Land owned by tenants-in-common may qualify for PUV enrollment, so long as all of the co-tenants are identifiable individuals and all are actively engaged in the classification purpose or otherwise related. A tenancy-in-common ownership that qualifies only under that combination of owners, it is considered a single owner combination, and is not fluid; if any of the co-tenants transfers their interest, a new co-tenancy combination, or “listing,” is created, and an AV-4 continued use application must be filed to continue the land in PUV. Consider the following example:

John, Paul, George, and Ringo inherited a tract of land from their father, Brian. Assume the land in their co-tenancy qualifies for PUV. John transfers his interest to his girlfriend, Yoko. Within 60 days after the transfer, the new co-tenancy must file an AV-4, listing the new co-tenancy combination – Paul, George, Ringo, and Yoko – as the tract’s listed owner. [Note: the transfer of the land from Brian to his sons did not require a new filing; once John transferred the interest to Yoko, he introduced an unrelated party. Had Yoko been John’s spouse, she would have qualified as a relative of Paul, George, and Ringo (as spouse of a sibling).

Note that land, where not all individual owners can be identified, cannot qualify for PUV. For timberland, this poses a particular problem for qualification and timber management on “heir property” land, a term that generally describes a tract with multiple owners of different generations, some of whom may theoretically exist based on the laws of intestacy, but are unknown due to missing information about known but un-located heirs. An owner may be unknown if the living or marital status of a known heir is unknown, whereby other heirs may have inherited from that known heir under intestacy or a will. Though it is unknown the extent to which county tax offices investigate the family trees of owners to determine qualification, they have the legal authority to inquire.


A trust may qualify as owner for PUV purposes depending on how it is set up and funded. For trusts to qualify as an owner for PUV enrollment purposes, the trust must be created by 1) an individual who owns the land prior to transferring said land to the trust, and 2) all beneficiaries of the trust must be individuals who are “directly or indirectly” related to the trust creator. Indirect relationship refers to an individual who holds a beneficial interest in a secondary trust (or a business entity, see below) that is somehow a beneficiary of the primary landowning trust. A “relative” (to the trust creator) is defined as the trust creator’s spouse or spouse’s lineal descendants or ancestors; lineal descendants or ancestors of the trust creator; siblings and their lineal descendants (nieces and nephews); aunts and uncles (but not their lineal descendants, so no cousins); and spouses of all the foregoing. The statute and Program Guide is silent as to whether a successor trustee must be an individual or a relative of the trust creator. Likewise, both are silent as to whether the beneficiary must have a present income interest, or an asset distribution interest that springs in the future (i.e. upon the death of the settlor).

In trust drafting, the settlor (one who creates the trust) must be careful to follow these relational definitions in designating beneficiaries, and may wish to include a disqualification for any future beneficiary falling outside the PUV definition (if the settlor’s concern is to keep the land in PUV in the hands of his or her trust beneficiaries).

Unless the landholdings in a trust are identified by parcel(s) to specific beneficiaries, the beneficiaries of the trust have some beneficial interest in all of the property in the trust. If just one beneficiary is found to not qualify as an individual, in theory all of the land in the trust would be disqualified. Such qualification could easily happen if the trust names a charity or other entity with owners not all of relation to the settlor as a beneficiary (e.g. a friend’s child, an uncle’s child, a trusted employee, etc.), without specifying that their beneficial interest excludes PUV real property. 

As noted above, when a trust is created, the creator (settlor) must own the land prior to creation of the trust and funding it with the parcel enrolled in PUV. The land must have been owned by the creator or by the trust for four years preceding January 1 of the year of enrollment. For example:

Othello purchased a tract of land not enrolled in PUV in 2020. In 2021, he does some estate planning and forms a trust, and deeds the land to the trust. The tract of land will not be eligible for enrollment in PUV until January 1, 2025.

However, if Othello purchased the tract enrolled in PUV and filed an AV-4 within 60-days of recording his deed of purchase, Othello may immediately transfer the land to his trust. After the second transfer, Othello will need to file another AV-4, signing it as Trustee of his trust to continue in PUV, assuming the trust beneficiaries are all individuals related to Othello. (It follows that Othello must pledge continued use prior to transferring to Trust)

As to funding land to a trust, the form of transfer will be by deed from the individual owner (as Grantor) to the Trustee of the new trust (as Grantee). The PUV statute (as well as the Program Guide) is silent whether the Grantor must also serve as the Trustee, though the Program Guide in another context suggests this is not required. The Grantor/Grantee (often the same person[s]) must ensure that – within 60 days of recording the deed of transfer – an AV-4 continued use application is filed and signed by the Trustee (the Grantee) of the trust. (Such transfers are not limited to the traditional enrollment period of January). However, the Trustee should be prepared for the event that the tax office requests review of the trust to confirm beneficiary relationships to the settlor (the prior owner of the land). Again, like any disposition (sale or gift) or real property, it is best to prepare the AV-4 alongside the deed of transfer, and file the former immediately after recording the latter. Trustee may consider creating a one-page summary of the Trust, noting the date of purchase of the land by the trust creator, and a list of beneficiaries and their relationship to the trust creator.

Limited Liability Companies

The beneficiary considerations of trusts generally apply to membership (ownership) of limited liability companies, in that all owners of an interest in the entity must be an individual. If an interest owner is an entity, all members must be individuals; and explained above, all of a trust’s beneficiaries must be a traceable relation (within the statutory definition) to the trust creator. With LLCs, a main goal is to ensure an ownership interest is not transferred to a “non-individual,” such as a charity, through an interest owners estate plan or act of donation.

While owning land in the limited liability company has potential liability protection benefit, the entity is often used for land succession purposes. Such closely-held entities are ideal for restricting the universe of potential owners of an interest in the entity – and thus the real property within – by creating an internal and preferential market for purchase of a departing interest. An LLC used for this purpose should have a good operating agreement, which both defines who may be an equity owner in the LLC, and how an interest transferred to an unqualified owner is “called in” (via a buy-sell agreement). In defining a qualified member, the operating agreement should contain the following clause:

Who May Become a Member. The Members of the Company pursuant to this Operating Agreement agree that Membership in the Company is restricted to the lineal descendants of [insert name of parental or ancestral couple].

The Operating Agreement should restrict transfer to that small universe of people, and insert a process for admitting individuals who do not meet that description. When a non-qualified person is the recipient of transfer or pending transfer, a buy-sell agreement with option exercise instructions, interest valuation method and purchase price, and payment terms should be spelled out. Managers and members of an entity should make sure that, as members dispose of interests at death or by gift, that the recipients of such interests are monitored for qualification as relatives, and if they do not qualify, interest buy-back provisions within the operation agreement should be exercised. Consider this example:

Abacab Land Company, LLC has three members, Phil, Mike and Tony, who inherited PUV land from their father Peter. They transferred the land to Abacab, timely filed the AV-4, and drafted an operating agreement which limited membership in Abacab to Phil, Mike and Tony and their lineal descendants, and which contained a buy-sell agreement. The buy-sell option on transferred interests to unqualified recipients expired at six months after the transfer. Phil dies, leaving – via his will – all of his property interests (including his ⅓ interest in Abacab) to his church. Mike and Tony neglect to exercise the option and purchase (call in) the interest within the expiration, and the church now owns Phil’s ⅓ interest in Abacab.

In the event of a county compliance audit, or upon sale of some of the land in Abacab to a third party, the county may discover that not all of the owners of the entity are individuals.

Limited liability company qualification as a PUV owner also depends on the purpose of the entity. When forming the LLC – ie. filing its Articles of Organization with the NC Secretary of State – the organizer (filer) of the entity should ensure that both the Articles of Organization and the Operating Agreement state a purpose that qualifies the entity as principally engaged in agriculture or forestry according to statute. Such purpose is attached to the NC Secretary of State’s form Articles of Organization (per Item 7) as an option, and can be placed in the early paragraphs of an operating agreement. Such purpose statement might read – for a farmland or forestland entity – as:

The purpose of the Company is to operate and manage a farm for commercial production of growing crops, plants and animals under a sound management plan, and to do any and all other acts and things which may be necessary, incidental or convenient to carry on the business of the Company.

For a forestland entity:

The purpose of the Company is to operate and manage forestland for commercial production of timber under a sound management plan, and to do any and all other acts and things which may be necessary, incidental or convenient to carry on the business of the Company.

Though the term “principally engaged” is not defined in the statute, the Program Guide suggests a minimum 50% of business revenues come from the qualified activity (farming, horticulture or forestry). The tax assessor may challenge whether the entity is principally engaged in production, but if the entity owns land enrolled in PUV in another county, a presumption is established that the entity’s principal purpose is production of agricultural, horticultural or forest products. Consider this example:

Pete and Roger own Bargain, LLC that owns a number of residential rental properties, none of which qualify or are otherwise enrolled in PUV. Bargain, LLC buys a 23 acre tract of forestland that was enrolled in PUV at the time of transfer. Though Bargain LLC timely files an AV-4, the tax assessor requests to see Bargain LLC’s financials, and finds that the majority of their income to date comes from residential rentals. Bargain, LLC is not principally engaged in commercial forestry.

Interest ownership of the entity – and the activity or relationship of the owners – is a critical matter. All members of the entity must be “actively engaged in farming;” however, a relative of one of the members actively engaged in farming need not be. Only an entity owned entirely by individuals related to one another (under the statutory definition of “relative”) may lease the land out to a farmer to generate the required income. [Stated differently: leasing land for farming qualifies as an entity’s principal business in agriculture only if all of the LLC members are related.] 

The phrase “actively engaged” as applied to members is not defined by statute. However, the Program Guide follows an NCDOR position expressed in a reported court case to suggest that such activities qualify:  operating farming equipment, caring for animals, and cultivating crops, participation in cropping and other management activities, including supervision of labor and capital investment decisions. An entity of unrelated members should take care to document such activities.

As with trusts, transferring land to an LLC requires filing of the AV-4 within 60 days of recording. Again, completion, recording, and filing of the deed of transfer AV-4 and should be immediately sequential.


Content loaded to Agricultural and Natural Resource Law portal, including narratives, workbooks, and presentations, is supported by The North Carolina Tobacco Trust Fund Commission (TTFC) (Grant award 2019-001-16), titled “An Heirs Guide to Farmland”).

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