Keeping Mineral Interests Out of Oklahoma Probate Courts
In Oklahoma probate courts can control mineral assets in two situations—Incapacity and Death. Anyone who owns minerals, including non-residents, can plan.
Incapacity of Mineral Owner and Need for Guardianship:
Incapacity can occur due to an injury (like head trauma) or illness (stroke, dementia, comatose). If a person becomes incapacitated and there is not a durable Power of Attorney in place, the family must obtain court permission to manage that person’s affairs. This could be needed in several situations:
– There is a lease offer to be accepted or rejected.
-There is a forced pooling order that requires action.
-A division order, W-9 or direct deposit needs to be signed. There is a lease offer to be accepted or rejected.
If there is not a solid Power of Attorney in place, a court appointed guardian will need to be appointed. This is a costly process. There is also a complicated procedure that is required prior to sale or leasing which requires publication, bidders and court approval.
Therefore, it is vital to have a Power of Attorney that permits land transactions including the sale of leasing of mineral interest. Also, when signing the Power of Attorney you have control over who will serve as an agent. In a guardianship, the Court makes a selection using a statute as guidance.
Death / Decedent’s Estate:
Upon the death of an individual real property and minerals owned by the decedent is subject to administration of the court, unless title can pass without court administration. A Will may give a property to a person or have it divided among persons. However, a Will requires a probate court judge to issue an order. A Will does not avoid probate. Examples of ways property can pass are
Trusts: If the property is properly deeded into a Trust, then the successor Trustee has authority according to the Trust agreement to manage or disburse (deed to beneficiaries) the interests. In Oklahoma there is no judicial oversight.
Transfer on Death Deed: A Transfer on Death Deed is a simple instrument filed with the County Clerk where the property is located. The TODD names a beneficiary who will “inherit” the property after the current owner dies. It does not change ownership until the death of the current owner. Until then, the current owner can lease, sell, gift, mortgage, revoke the TODD or do anything else with the property. The beneficiary has no right to income or stop any action of the current owner. Once the current owner dies, the beneficiary files an acceptance with a death certificate and the property becomes his or hers. The property will be subject to leases, mortgages, etc. Disadvantages include:
Unintended disinheritance if:
-The beneficiary predeceases the current owner.
-If the beneficiary fails to meet a 9 month deadline to file an acceptance the property must be probated.-
-Does not provide contingency planning causing unintended disinheritance’s (deceased beneficiaries’ children do not have rights).
Joint Tenancy: Typically, a husband and wife will own their home in joint tenancy. Once the one dies the survivor files an affidavit and the property is owned by him or her. Generally, using joint tenancy to pass property to children is a very poor substitute for a Trust or Will because:
-It gives the intended beneficiary a current interest in the property;
-If an intended heir dies his interest is not passed on to his or her heirs;
-Adverse consequences if the intended beneficiary divorces, files bankruptcy or has creditors;
Life Estate: A life estate allows the current owner to enjoy the income from the minerals. When the owner dies the remaindermen (persons who will inherit) receive the property. However, unless specifically allowed the minerals cannot be sold or leased unless the remaindermen also join in the lease.
Everyone should have a well drafted Power of Attorney to avoid the need for guardianship. A trust is the preferred vehicle to avoid probate. A Transfer on Death Deed is appropriate in some situations or a temporary fix until a Trust can be drafted.
This information is not legal advice and is intended for educational or discussion purposes only. A qualified attorney should be consulted prior to any estate planning.