Oil, gas, and mineral rights are real property in Colorado, because of that real property distinction when the same are owned solely in a decedent’s name, they are subject to probate to update that title. Many hours and legal fees are devoted to updating title in Colorado when family members pass, especially when multiple generations have passed without an update to the title. While Colorado offers abbreviated and informal probate processes, such processes can be frustrating to oil, gas, and mineral owners, especially when the value of the rights are nominal or non-producing relative to the costs to update title. After completing a probate, an owner shouldn’t forget the important follow up step to update their own estate plan, especially a plan to avoid probate of their newly acquired oil, gas, and mineral right.
Joint tenancy
The easiest, most basic update one can make is to add a spouse or other family member to the ownership of the oil, gas, and mineral right via a conveyance of the interest to themselves and another as joint tenant. Specific language is required for creation of a joint tenancy interest in Colorado. The creation of a joint tenancy interest converts the ownership to the last person standing by merely recording a death certificate at the death of the other joint tenants. A joint tenancy deed is a common approach between spouses as oil, gas, and mineral rights are often inherited from parents and initially are titled solely in one person’s name. A joint tenancy deed does have its limitations in that upon the death of the last surviving joint tenant, then probate will be needed, and additionally, objectives to keep oil, gas, and minerals in the family lines can be thwarted if the non-family spouse is the last survivor and subsequently deeds to a new spouse or to children solely of that non-family spouse.
Beneficiary deed
Colorado is the among the states that permit the use of beneficiary deeds. Beneficiary deeds are deeds similar to the pay on death designee of a life insurance policy or bank account. Ownership stays with the grantor, but upon death, ownership is transferred to the designated beneficiary. The beneficiary does need to record a death certificate, but probate is otherwise avoided. Beneficiary deeds should be executed and recorded during the life of the owner, but there are certain limitations relative to Medicaid that should be considered by an owner if this is the desired estate plan. Additionally, if multiple children or family members are intended as beneficiaries, one should consider the impact of a child or heir predeceasing as beneficiary deeds have inherent limitations that differ from that typically included in a Will, Trust or related estate plan.
Trust or Entity
Another option for many is create a trust or entity such as a LLC and deed the interest to the trust or LLC. Such approach is commonly seen with out of state owners or owners that desire to consolidate an interest and provide additional protections for keeping an interest in the family. Ownership by a trust typically directs that the trust continues to hold ownership within the trust until the grantor or creator’s death, and then subsequently a distribution of the interest might be made, or in some instances the beneficiary merely changes and the trust continues. A similar structure might be employed with a LLC or other entity. In either structure, the trustee or agent for the entity has the authority to convey the interest thereby avoiding probate.
If you have recently inherited oil, gas and mineral rights, or perhaps been the owner for a long time and need to update your estate plan, be sure you discuss the same with your estate planning attorney, and if you own minerals in a different state then you reside, make sure you home state counsel consults with counsel in the state of ownership of the oil, gas, and mineral rights to ensure a sold plan for your estate. The costs associated with planning are typically far less than the costs associated with probate in multiple states.
Jenna H. Keller, Esq.
Attorney at Keller Law, LLC. (www.kellerlawllc.com)
The information is for general information purposes only. This should not be substituted for legal advice and should not be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or reading does not constitute, an attorney-client relationship. You are encouraged to contact an attorney for legal advice concerning the information provided.