PS 01810.036 North Carolina
A. PS 09-054 Interest Held in a Limited Liability Company (LLC) Considered a Countable Resource for Supplemental Security Income (SSI) Eligibility Purposes - North Carolina Applicant - Ainsley G. B~, Minor
DATE: February 6, 2009
This decision covers the countability of a person's interest in a Limited Liability Corporation (LLC) in the state of North Carolina. The Regional Chief Counsel states that the ownership interest in a LLC is a countable resource under North Carolina law because a person can sell their share of interest.
You asked whether an interest held in two LLCs by the parents of an SSI applicant is considered a countable resource for the purposes of determining the applicant's eligibility for SSI.
We believe the Social Security Administration (SSA) could consider the interest held in the LLCs as a countable resource to the applicant's parents.
The parents of the minor child Ainsley G. B~ (Applicant), James M. S. B~, Jr., and his wife, Lisa C. B~, filed an application for SSI benefits on behalf of Applicant. SSA found Applicant was ineligible for SSI benefits, because the interest of Applicant's father in two LLCs exceeded the resource limit of $3000.00.
The operating agreement of B~ Properties, LLC, dated March 12, 1998, shows Applicant's father has a 25% undivided membership interest in a tract of land held by the LLC. Elizabeth G. B~ (Elizabeth) also holds a 25% undivided membership interest. The operating agreement also shows Applicant's grandfather, James M.S. B~, Sr., held a 50% membership interest and was designated the manager of the LLC. However, an amendment to the operating agreement was made on April 4, 2002, in which Applicant's grandfather father by gift transferred his membership interest in the LLC to Applicant's father and Elizabeth, resulting in Applicant's father having a 47% interest in the LLC and Elizabeth having a 53% interest.
Also, the operating agreement for a second company, B~ Properties II, LLC, dated February 3, 2005, shows Applicant's father and Elizabeth G. B~ O~ are members. Applicant's parents together own a 3% undivided interest. Elizabeth G. B~ O~ and her husband, Joseph J. O~, are the owners of 3% undivided interest. Applicant's grandfather is the manager of this LLC and he is owner of a 94% undivided interest. SSA considered the interest Applicant's father held in these LLCs as a countable resource for SSI eligibility purposes. Applicant's father has submitted a request for reconsideration of this decision.
Under the Social Security Act (Act), a disabled individual may receive SSI benefits if his or her income and resources do not exceed certain annual limits. See Act § 1611(a); 42 U.S.C. § 1382(a). The Act does not define “resources” and provides only a list of certain items excluded in determining the resources of an individual. See Act § 1613(a); 42 U.S.C. § 1382b(a). However, “the [Commissioner], pursuant to his authority under 42 U.S.C. § 1302 (1976), has promulgated regulations that further define resources.” Beatty v. Schweiker, 678 F.2d 359, 361 (3d. Cir. 1982). In particular, 20 C.F.R. § 416.1201(a) (2008) provides in pertinent part that resources include “any real or personal property interest that an individual . . . owns and could convert to cash to be used for his or her support and maintenance.” “If the individual has the right, authority or power to liquidate the property, or his or her share of the property, it is considered a resource. If the property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1). The regulations also define liquid and non-liquid resources. See 20 C.F.R. § 416.1201(b), (c). “Liquid resources are defined as cash or other property which can be converted to cash within 20 days. . . . Examples of resources that are ordinarily liquid are stocks, bonds, mutual fund shares, promissory notes . . . and similar items.” 20 C.F.R. § 416.1201(b)(1); see POMS § SI 01110.30 Resources Assumed to be Liquid. “Nonliquid resources are defined as property which is not cash and which cannot be converted to cash within 20 days. . . . Examples of resources that are ordinarily nonliquid are . . . buildings and land.” 20 C.F.R. § 416.1201(c)(1); see POMS § SI 01110.310 Resources Assumed to be Nonliquid.
In the case of a child who is under age 18, such child's resources shall be deemed to include any resources, not otherwise excluded under this subpart, of an ineligible parent of such child who is living in the same household with such child (as described in § 416.1851). 20 C.F.R. § 416.1202(b)(1). 20 C.F.R. § 416.1851(c) specifically states that “if you are under age 18 and live with their parent(s) who is not eligible for SSI benefits, [SSA] will consider (deem) part of his or her income and resources to be your own.” Here, Applicant resides with her father. Therefore, we look at the resources of Applicant's father in determining Applicant's SSI eligibility.
Here, Applicant's father claims SSA improperly applied 20 C.F.R. § 1201 by considering his interest in B~ Properties, LLC, and B~ Properties II, LLC, as countable resources. He states these companies were not set up as sole proprietorships. He also states he cannot sell his share, individually. Furthermore, he states he cannot sell his share to the public.
We refer to state corporate law to determine the extent of the interest Applicant's father holds in the LLCs in question. See Cannuni v. Schweiker, 740 F.2d 260, 263 (3d Cir. 1984); POMS SI 01110.500 (C)(discussing significance of ownership interest in property and variance in state laws with respect to ownership). Here, the LLCs were incorporated in North Carolina; therefore, we look to North Carolina law to determine whether Applicant's father can sell his interest in the LLCs.
The North Carolina Limited Liability Company Act (NCLLC Act), N.C. GEN. STAT. 57C-1-01, provides for the formation of a business entity combining the limited liability of a corporation and the more simplified taxation model of a partnership. Hamby v. Profile Prods., L.L.C., 652 S.E. 2d 231, 235 (N.C. 2008) (citing Russell M. Robinson, II, Robinson on North Carolina Corporate Law § 34.01, at 34-2 to -3 (rev. 7th ed. 2006)). The NCLLC Act contains numerous “default” provisions or rules that govern an LLC only in the absence of an explicitly different arrangement in the LLC's articles of organization or written operating agreement. Crouse v. Mineo, 658 S.E. 2d 33, 36 (N.C. App. 2008) (citing Robinson, § 34.01, at 34-2 to 34-3)).
Here, Applicant's father provided written operating agreements for B~ Properties, LLC, and B~ Properties II, LLC, dated March 12, 1998, and February 3, 2005, respectively. Applicant's Father focuses on Article I, Section 1.7 of the operating agreements. This section defines the nature of a member's interest and, specifically, reads:
The interests of the Members in the Company shall be personal property for all purposes. Legal title to all Company assets shall be held in the name of the Company. Neither any Member, nor a successor, representative, or assign of any Member, shall have any right, title, or interest, in or to any Company property or the right to partition any Property owned by the Company.
Pursuant to this section, Applicant's father does not have a right to sell the property held by the LLC.
However, the question is not whether Applicant's father can sell LLC property, but rather it is whether Applicant's father has the right to sell his interest in the LLC. Article IX, Section 9.1 of the operating agreements describe Buy-Sell Events. Relevant to our opinion, Section 9.1(d) reads, “Any purported voluntary or involuntary Transfer or Encumbrance of all or any part of a Member's Membership Interest in a manner no expressly permitted by this Agreement” shall be considered a Buy-Sell Event. Section 9.2 reads, “Upon the occurrence of a Buy-Sell Event, the Member to whom such event has occurred (the “Withdrawing Member”) . . . shall give notice of the Buy-Sell Event . . . to the other Members. . . .” Section 9.3 reads, “Upon the occurrence of a Buy-Sell Event, each of the other Members, except the Withdrawing Member . . . shall have an option to purchase . . . the Withdrawing Member(s) Membership Interest. . . .” Under Section 9.9, when no Member exercises the purchase option, “the Withdrawing Member. . . may transfer its economic rights in the Membership Interest . . . to any person; PROVIDED, HOWEVER, that any transferee of the Withdrawing Member's Membership Interest [meets other stipulations provided in operating agreement]."
We conclude on the basis of the operating agreement language, above, that Applicant's father has the right to sell his membership interest (share) in the LLCs. Since he has the right, authority or power to liquidate his or her share of the property, it is considered a resource under 20 C.F.R. § 416.1201(a)(1).
For the foregoing reasons, we conclude SSA could find that the interest Applicant's father holds in B~ Properties, LLC, and B~ Properties II, LLC, is a countable resource in determining Applicant's SSI eligibility.
Mary Ann S~
Regional Chief Counsel
By: Simone D. P~
Assistant Regional Counsel
B. PS 03-093 SSI - Property Ownership in North Carolina Eugene R. S~, Jr. SSN: ~
DATE: February 11, 2003
The issue is whether a tract of land deeded to an individual by his mother is a resource. A General Warranty Deed was issued which listed only 2 encumbrances: (1) utility easements and enforceable restrictive covenants, and (2) a lien for property taxes. The mother then executed a second document that said the property is to stay in the family, to be passed down to grandchildren, and is not to be sold. The question is whether this notarized, but unrecorded, document is a valid restriction on the individual's right to sell the property.
Under North Carolina law, the notarized document is not legally binding on the individual. The recorded deed takes precedence and the individual can legally sell the property if he desires. When resolving ambiguities related to the transfer of property, North Carolina courts apply the principle that the instrument must be construed most favorably to the grantee, and all doubts and ambiguities are resolved in favor of the unrestricted use of property.
The property can be sold and, therefore, is a resource for SSI purposes.
You requested a legal opinion as to whether a tract of land owned by the NH and his wife, which was deeded to them in 1998 by his mother, should count as a “resource” affecting NH's eligibility for Supplemental Security Income (SSI). After reviewing the facts as presented, and researching North Carolina law, we conclude that the mother's notarized statement prohibiting the sale of the property is not valid, and that the NH is therefore free to sell this property.
On January 6, 1998, NH's mother transferred a parcel of land to NH and his wife, and a General Warranty Deed was issued and recorded in Brunswick County, N.C. The General Warranty Deed listed only two encumbrances on the property: (1) utility easements and enforceable restrictive covenants; and (2) a lien for 1998 property taxes. NH's mother executed a second document, also dated January 6, 1998, which was notarized but not recorded at the courthouse. This second document states, in pertinent part, that NH's mother was deeding the property in question to her son (NH), and that the property “is to stay in the family, to be passed down to my grandchildren, it is not to be sold.” The question, therefore, is whether this notarized but unrecorded document is a valid restriction on NH's legal right to sell the property in question. Based on the common-law principles regarding the transfer of real property, as well as North Carolina law, the notarized document is not legally binding on NH. The recorded deed takes precedence, and he can legally sell the property if he desires.
By definition, a “general warranty deed” expressly guarantees the grantor's good, clear title and contains covenants concerning the quality of title, including warranties of seisin, quiet enjoyment, right to convey, freedom from encumbrances, and defense of title against all claims. Black's Law Dictionary (7th ed. 1999). The deed which was recorded at the Brunswick County courthouse complies with this definition. Because the purpose of recording a document is to provide legally sufficient notice to all subsequent parties, Williams v. Town of Grifton, 199 S.E.2d 288 (N.C. App. 1973), a document which is properly recorded, as this deed was, will take precedence over an unrecorded document. Therefore, as a threshold matter, the deed would take precedence over the unrecorded document.
In construing a deed and determining the intention of the parties, ordinarily the intention must be gathered from the language of the deed itself when its terms are unambiguous. However, there are instances in which consideration should be given to the instruments made contemporaneously therewith, the circumstances attending the execution of the deed, and to the situation of the parties at the time. Smith v. Smith, 107 S.E.2d 530 (N.C. 1959). See Beveridge v. Howland, 271 S.E.2d 910 (N.C. 1980). However, where the language of the deed is clear and unambiguous, as is the case here, courts will not go outside the document itself to interpret its meaning. Strickland v. Jackson, 130 S.E.2d 22 (N.C. 1963). Consequently, the recorded General Warranty Deed, which is unambiguous on its face, gives NH the right to sell the property.
Even if a reviewing court were to look at the notarized statement from NH's mother, the limitation on selling the property would not be enforceable. When resolving purported ambiguities related to the transfer of property, North Carolina courts apply the principle that the “instrument must be construed most favorably to the grantee, and all doubts and ambiguities are resolved in favor of the unrestricted use of the property.” Amerson v. Lancaster, 415 S.E.2d 93 (N.C. App. 1992), quoting Stegall v. Housing Authority of the City of Charlotte, 178 S.E.2d 824 (N.C. 1971). Where a deed unambiguously grants title to property, language which seeks to limit the terms of the conveyance are “mere surplusage without force or effect.” Jeffries v. Parker, 73 S.E.2d 783 (N.C. 1953). Such language will be rejected as “repugnant to the estate and interest conveyed.” Whetsell v. Jernigan, 229 S.E.2d 183 (N.C. 1976). Therefore, on its face, the limitation on NH's ability to sell the property would not be upheld. In addition, this limitation, as written, contains several legal inadequacies which would lead to its invalidation by a court. For example, there is no indication that NH had any children at the time of the conveyance, nor is there any indication that NH's mother has any other grandchildren to whom the property would pass. Furthermore, there is nothing in the document which indicates what would happen to the property in the event that NH dies and there are no grandchildren to inherit the property. The absence of language to deal with these contingencies constitute an additional bar to any enforcement of the limitation sought to be imposed by NH's mother.
As was noted by the Claims Representative in Sanford, N.C., there are “moral issues” which NH must resolve in deciding whether to sell the property at issue. However, from a legal standpoint, the notarized statement does not prevent him from selling the property.
Mary Ann S~
Regional Chief Counsel
By: Michael S. F~
Assistant Regional Counsel