A Trust is only effective if it is properly funded. Funding means transferring ownership of assets to the Trustee of the Trust. For mineral interests, which are typically considered real property, this requires recording a deed or assignment of those interests in the land records of the county or counties where they are located.
The consequences of failing to fund a Trust can be significant, as illustrated by the case of Bing Crosby. Despite having a probate-avoidance Trust when he died in 1977, Bing’s mineral rights were not transferred into the Trust. In 2015, his grandson had to file a probate in Oklahoma to address the mineral rights, delaying royalty payments, which were placed in suspense until the probate was resolved.
This delay and expense could have been avoided if Bing had recorded a mineral deed transferring the rights to his Trust before his death. Properly funding a Trust ensures your estate plan works as intended and avoids unnecessary probate and costs.
Think of a Trust Like a Wagon, It Only Useful When it is Full
Understanding a Trust Through the Wagon Analogy
A Trust can be compared to a wagon, with each part representing a key element:
- The Handle: Represents the control of the Trustee, who manages the assets.
- The Bucket: Symbolizes the assets placed into the Trust. Only what is “in the wagon” is controlled by the Trust.
- The Wheels: Represent probate avoidance. A properly funded Trust keeps your assets moving smoothly, bypassing the delays and costs of probate.
When the original Trustee dies or becomes unable to serve, the handle drops. The Trust document, like a guidebook, names a Successor Trustee and outlines their duties. The Successor Trustee then picks up the wagon’s handle and continues managing the assets according to the Trust’s instructions.
However, the Successor Trustee can only manage the assets already placed in the wagon. If assets weren’t transferred into the Trust during the original Trustee’s lifetime, they may require probate or additional legal action to transfer them into the Trust.
Why is Funding a Trust with Minerals Important?
Most oil, gas and other mineral rights are an interest in real property. Therefore, these require a deed from the owner to the Trustee in order to properly fund the Trust. If a deed is not prepared, signed and filed with the county where minerals are located, then the Trust is not properly funded. The successor trustees and beneficiaries will not be able to rely upon the Trust to have property conveyed to themselves or to receive royalties and other monies they otherwise would receive.
Omitting Minerals Causes Title Issues Usually Resolved by Probate
If mineral rights or other assets are not deeded into a Trust, the Trust is considered unfunded for those assets. An unfunded Trust cannot control or manage property that hasn’t been transferred into it, which may lead to delays and additional legal procedures.
To address this issue, a Pour-Over Will is often created alongside a Trust. This document acts as a safety net, instructing the court to transfer any omitted property, including mineral rights, into the Trust after probate is completed.
While a Pour-Over Will ensures the property eventually makes its way into the Trust, it does not avoid probate. The process can be costly and time-consuming. Properly funding the Trust by recording a deed for mineral rights or transferring other assets directly can help avoid these complications.
Do I Need to Transfer Minerals if They Are Not Generating Income or Royalties?
Why You Should Always Fund Your Trust with Mineral Interests
Many people neglect to transfer mineral rights into their Trust because they are not currently producing royalties or appear to have little value. However, this can lead to significant problems down the line.
Oil and gas holdings that seem worthless today can suddenly become valuable due to market changes or new discoveries. If these mineral rights are not included in your Trust, your successor trustees and beneficiaries will face unnecessary complications.
Without the proper funding, your family may have to go through probate to transfer these mineral interests. This process can cost thousands of dollars, a hefty expense that could have been avoided with a simple transfer for just a few hundred dollars.
It’s crucial to properly fund your Trust with all assets, including minerals, to protect your loved ones from costly delays and complications in the future.
Call to Learn About Funding Trust with Oklahoma MineralsWhat Information is Needed to Deed Minerals into a Trust?
The information is relatively simple:
- The name and address of the Mineral Owner
- The name of the Trust, the date it was created, the Trustee’s name and
- The legal description of the minerals
If the legal description is not known, it often can be identified with review of online records.
What happens after the Mineral Deed is Prepared?
How to Properly File a Deed for Mineral Rights in a Trust
Once the deed transferring mineral rights into a Trust is prepared and signed, it must be filed of record in the county where the minerals are located. This step ensures the deed is legally recognized and the mineral interests are properly transferred.
In addition to the deed, a Memorandum of Trust (sometimes referred to as a Certification or Affidavit of Trust) should also be filed. This document verifies the Trustee’s authority to manage the mineral interests under the Trust.
Finally, a filing fee must be submitted to complete the process. These steps help ensure that the mineral interests are correctly and legally placed into the Trust, avoiding complications down the line.
What if I am Currently Receiving Royalties?
If you are currently receiving oil and gas royalties, then it is good practice to contact the operators or parties paying the royalties to inform them of the trust. They may request a W9 and other information to keep your payments coming in.
Can My Trust Attorney Prepare the Deed for Oklahoma?
If your attorney is licensed in Oklahoma, then he or she can prepare an Oklahoma deed. If not, then it would be the unauthorized practice of law in Oklahoma. The same is true for most states. However, your attorney should be able to provide information for the Trust and assist with the Memorandum of Trust.
What if I Don’t Have a Trust but Want to Avoid Probate?
If you don’t have a Trust, you may want to consider a “Transfer on Death Deed”. Click Here
