TRANSFERRING YOUR MINERAL AND ROYALTY INTERESTS INTO A TRUST
To facilitate management, limit fractionalization, or for the purpose of avoiding probate, there is an increased frequency in mineral and royalty interests being transferred into family or intervivos trusts. For those familiar with oil and gas transactions, the process of transferring interests into a trust may seem simple. For those who do not deal with oil and gas interests regularly, some suggestions are offered to assist in this process.
Starting with the presumption that a valid trust has been created and it is the intent to transfer all of a grantors interests to a trust, the following information is offered to assist in preparing Deeds and Conveyances to accomplish that goal.
- When developing an exhibit of the descriptions of property to be used in the conveyance document (usually a deed), do not rely solely on descriptions contained in division orders or oil and gas leases you may have received. They may not describe all of the lands in which you own interests, or may contain limits as to depth, which are not applicable to your interests. If a limited descriptions are included in a deed, it may result in only part and not all of your interests being transferred to the trust.
- Be cautious in specifying the amount or quantum of interest in each property being transferred to the trust. The only information concerning the interests owned, which you may have available, is the statement of a decimal interest on a division order. That may not identify all the interests you own. If you (or your predecessors) own mineral interests on which an oil and gas lease has been granted, the division order may only describe the decimal royalty interest and not describe the underlying mineral interest.
- Consider using a deed containing quit claim language (all rights, title, and interests), rather than expressing a warranty. If the intent is to convey all interests, and complete land and interest descriptions are not available, a quit claim deed can convey all interests not specifically described.
- Consider giving the grantee the right to execute further assurances, division and transfer orders, and any other documents necessary or advisable to give effect to the intended transaction.
- To complete the transfer to a trust, the deed must be recorded in the county where the lands in which the interests are located.
- If the interests to be transferred generates income, you may not want payments interrupted while the company that makes payments effect the changes in ownership on its records and begins making payments to the trust. It is not uncommon for interruptions in payments of 30-90 days to occur, while this change in the companys records is being made and new division orders are submitted for signature.
Two suggestions are offered to avoid an interruption in payments.
- Before notifying the company making payments of the change in ownership, record the deed or deeds. Then, send copies of the deeds to the company: (1) notifying it of the change in ownership; and, (2) requesting that payments continue to the grantor, without interruption (i.e., request the interests not be placed in suspense) until new division or transfer orders are signed and returned, at which time payments can then be made to the trust.
- With the copies of the recorded deeds and letter requesting the change in the companys records, also send the company a Letter in Lieu of Division and Transfer Orders, signed by both the grantor and the grantee (the trustee) of the trust). This will authorize the company to make the change in its records without interrupting payments and eliminate the need to circulate new division or transfer orders for signature.
Remember, just creating a trust with the intention of the trust becoming the owner of all your interests is not sufficient to have the trust recognized as the owner of the interests. The interests must be transferred to the trust by a deed or other instrument of conveyance, like any other real property interest.
© 2000 Mineral Management Consultants
Site design by Stateless Graphix