NEW LEGISLATION FAVORABLY AFFECTS MINERAL INTEREST OWNERS
Sometimes it actually happens. Sometimes new laws actually make things better. No law is perfect and most are problematic. Some however work to their purpose. A better method of transferring mineral interests upon death would be good. North Dakota now provides such a law. And the same legislation is pending in South Dakota which I anticipate will pass this year. The underlying purpose of the Real Property Transfer on Death Act is to simplify a transfer of real property on the death of the owner. It is done not by probate and not by a will but by the drafting of a deed. The law as written has a second important benefit in the area of oil and gas interests. Real property rights include mineral rights (oil and gas rights). Such property rights may be split or “severed” into surface estate rights and mineral estate rights. Surface rights and mineral rights to one property parcel may be owned by two separate parties. These different ownership rights may be independently transferred or developed. The new law creates a workable method of transferring mineral interests without the use of a will or without having to go into probate court. Transfer on Death deeds are a practical way to transfer property to a beneficiary upon death without probate. Mineral interests and mineral deeds are sometimes mishandled in the context of planning for future use of property and are often overlooked in an estate planning review. This new transfer law makes these issues easier to address. The law allows for the nonprobate transfer of both real estate and mineral interests by the proper writing and recording of a transfer deed.
This law allows an owner of real property, and importantly an owner of mineral interests which are real property in the eyes of the law, to “will” the property or mineral interests to a designated beneficiary. The transfer takes effect upon the owner’s death without probate. The property passes at the grantor’s death to the beneficiary by drafting and recording a special deed. This action does not require the writing of a will or the creating of an estate trust. During the owner’s lifetime, the named beneficiary in the deed has no interest in the property. A property owner during his life still keeps the power to transfer the property or mineral interests to other parties or to deal with it for other purposes. After recording such a transfer deed an owner may during his life also revoke the recorded transfer on death deed. On the owner’s death, the property passes to the named beneficiary. The process is similar to but more comprehensive than a traditional joint tenancy ownership of property.
Unlike joint tenancy the transfer deed does not convey immediate ownership to the beneficiary. While the grantor is alive the named beneficiary has no ownership interest in the property. The grantor may also ‘change his mind’ at any time during his life by in effect changing the terms of the deed. A named beneficiary receives the deeded property subject to any conveyances, oil and gas leases and other contracts that the grantor may have done during his lifetime. The transfer of such a deed is deemed to have occurred at the time of the grantor’s death, so it is subject to those acts that the grantor took during his life even though he had previously drafted and recorded such a transfer deed. The transfer law allows the grantor to fully manage the mineral interests, enter into deals regarding the mineral interests during his or her lifetime, and still have a deed recorded which allows the nonprobate transfer of those rights on his death.
David Ganje of Ganje Law Offices practices natural resources, environmental and commercial law in North Dakota and South Dakota and has offices in Rapid City.
