Have you ever solved a Rubik’s Cube?
Of course not. They are scientifically impossible. Just a way to keep kids quiet on long road trips.
But you’ve definitely seen a Rubik’s Cube at some point. And although the concept seems simple enough—get the same colors on the same side of the cube—all the moving parts and three-dimensional reactions make your brain hurt.
Estate planning sometimes seems like a Rubik’s Cube.
You have all of these lengthy legal documents with strange words that do all sorts of different things that an attorney explained to you once but which you have now mostly forgotten.
Take trusts, for instance. You generally get a trust to avoid probate. But by itself, a trust is just some paper. It may be fancy paper—and it’s likely expensive paper—but it’s still just some paper. And paper alone usually does not avoid probate.
Funding Your Trust With Real Property
Real property (which I will use interchangeably with “real estate”) is often the most valuable type of asset a client owns. That makes it all the more important for those assets to avoid probate.
How do you do that? By funding your trust.
I have written before about the basics of funding trusts, but the process for transferring a particular asset depends on the type or character of that asset.
Generally speaking, you need to be able to describe an asset in order to transfer it. By “describing” an asset, I don’t mean what it looks like. I mean the legal description of the asset. For assets such as bank accounts and cars, describing the asset is easy: you can easily find bank account numbers or VINs.
For real estate, though, you need a formal legal description of the property. This information can sometimes be more difficult to find—especially if the real estate has been in your family for generations.
Let’s say you know that you own real estate in the Northwest Quarter of Section 11, Township 16 North, Range 3 West of the Indian Meridian. Consider these questions:
Do you know if you own all of the Northwest Quarter? or do you only own the Southwest Quarter of the Northwest Quarter? or the West Half of the Southwest Quarter of the Northwest Quarter?
Do you own the land and the underlying oil, gas, or mineral deposits? or just the land? or just the oil, gas, or mineral deposits?
Do you own a whole interest in the property? or only an undivided one-half interest? or an undivided three-eighths interest? or less?
Do you own the real estate at all? or do you merely have a royalty interest?
Transferring real estate to your trust can be a daunting proposition. For that reason, I wanted to write—in general terms, at least—about that process. Because mineral interests can be especially complex, this discussion is split into two parts: (1) land (what you might think of as “traditional” real estate), and (2) oil, gas, or mineral rights.
Part One: Transferring Land to Your Trust
First and foremost, it is important to understand what real property is. Property comes in two forms: real property and personal property. Real property consists of interests in land and minerals. (This is an overly simple definition, but it will do for this post.) Personal property is everything that is not real property.
When you hear “real estate” or “real property,” you probably think of land. That’s why I referred to land as “traditional” real estate above. But in reality, there is no “traditional” or “nontraditional” real estate. There is just real estate.
To transfer land in Oklahoma to your living trust, you should generally follow these steps:
Contact an attorney. You should always contact an attorney before transferring real estate or any type. Even if the transfer seems simple and straightforward, an attorney analyze might find something unique about your particular situation that requires additional steps to make the transfer effective.
Determine the legal description. A legal description of real estate should be on the deed giving you title to the property. If you can’t find your deed, or if you have split your lot, sold a tract of your property, or done anything else that changes the nature of your ownership, you should talk to an attorney to make sure you get the correct legal description. If you sign a deed transferring property to your trust, but the legal description is incorrect, the transfer is ineffective and the property may be subject to probate.
Get approval from necessary entities. Transferring real estate to a living trust usually does not affect mortgage companies, homeowner’s associations, or other entities that have a say over what happens to your property. Nevertheless, this is a situation where it is better to ask for permission rather than forgiveness. Clear the transaction with any relevant entities or associations before transferring the property to your trust.
Sign a deed. I recommend having an attorney prepare the deed. If the property is described incorrectly, or if the trust is listed incorrectly, or if you do not get signatures from the proper people, the deed may be ineffective to convey property to the trust.
Record the deed. After signing, the deed should be recorded with the proper county office in the county where the real estate is located. In Oklahoma, deeds are recorded with the County Clerk or Registrar of Deeds. You should also record a Memorandum of Trust (in some states called a “Certificate of Trust” or “Declaration of Trust”) with the County Clerk providing details about your trust. The deed says your trust now owns the property; the Memorandum of Trust says that your trust exists.
Although this is basic process for transferring land in Oklahoma to a living trust, not every case is the same. Sometimes transfers are more complicated, and sometimes transferring land can cause big problems for you or others. For that and many other reasons, I highly recommend consulting an attorney.
Additionally, keep in mind that other states may have other rules or requirements, so if you own property in another state be sure it is transferred according to the laws of that state. If the property is not transferred correctly, your heirs may be forced to go through an ancillary probate after your death.
Part Two: Transferring Mineral Rights to Your Trust
Many people in Oklahoma own some sort of oil, gas, or mineral interest. And like other types of real estate, those mineral interests should be transferred to your trust to avoid probate. However, the unique nature of mineral interests often makes the transfer more complex than transferring land.
To transfer oil, gas, or mineral rights in Oklahoma to your living trust, you should generally follow these steps:
Contact an attorney. Having legal assistance is even more important when transferring minerals than when transferring land, because ownership interests in oil, gas, or mineral deposits can be extremely complicated. An attorney can help make sure you get it right.
Determine the type of interest. Mineral interests come in a variety of forms. You may own the land and the underlying mineral deposits; you may simply own the underlying minerals; or you may not own the land or the minerals at all but simply have a right to royalties. The type of interest not only affects your rights, it affects how the interest should be transferred.
Determine the legal description. As with land, you need a proper legal description to transfer mineral rights. If you merely own a royalty interest, you may need a description of the producing well in addition to a description of the mineral estate itself.
Transfer the interest. As mentioned above, the type of interest affects how that interest is transferred. It is not always as simple as recording a deed, so you should consult an attorney to make sure the interest is transferred properly.
Record or report the transfer. As with transfers of land, transfers of mineral rights are usually recorded with the County Clerk. If your interest is being leased, or if you own royalty rights, you may need to inform the leasing/producing energy company of the transfer and provide them with additional information about your trust. Failing to report the transfer to the energy company does not necessary mean your interest will be subject to probate, but it will likely make things more difficult for your representatives after your death.
All in all, the main process for transferring minerals is essentially the same as transferring “land. However, complex legal descriptions, confusing ownership rights, leases, and other factors can make the transfer process much more complicated.
If you or your family have owned oil, gas, or mineral interests for many years (or generations), you may also want to hire a landman or title examiner to do a title search across Oklahoma to determine exactly what mineral interests you own. Doing so can help make sure you don’t leave any minerals out of your trust.
Talk to an Attorney About Trusts
Trusts are wonderful estate planning tools; however, they only avoid probate if you properly fund them with your assets. Let me repeat that: assets that are not transferred to your trust may still be subject to probate after your death. After spending all that time and money on a trust, do you really want to risk your assets going through probate anyway?
Transferring real estate to your trust is not always as simple as following the steps described above. That is why involving an attorney can be so vital to ensuring your assets avoid probate. To visit with an attorney about creating a trust or funding your existing trust, contact the experienced Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation appointment.
David M. Postic is an associate attorney at Postic & Bates, P.C. His practice includes estate planning, probate, real estate, adoption, business law, and litigation.
You can email David through our Contact Us page or by calling our office at (405) 691-5080.
[As with all our posts, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]