Table of Contents
- What Is a Life Estate?
- Life Estate vs. Trust: What’s the Difference?
- What Are the Advantages of a Life Estate?
- How Do You Use a Mineral Rights Life Estate?
- How Can You Trust Flat River Minerals?
- Flat River Minerals Can Help You Get Value From Your Mineral Rights
If you own mineral rights to a property, it’s important to consider what will happen to those rights after your death. Will they go to your children? Will you sell them? How can you best ensure your property benefits your loved ones?
Life estate planning is one option that can help you and your family well into the future. In this article, we go over what a life estate is and what it means for mineral rights ownership.
What Is a Life Estate?
A life estate is a legal arrangement that allows you to give property to your chosen beneficiaries without having to give up ownership during your lifetime. It’s essentially a type of joint ownership that ensures the assets in question will pass to the other owner after your death.
Who Owns the Property in a Life Estate?
In a traditional life estate, two parties share ownership of the property:
- Life tenant: The life tenant, or life estate owner, maintains ownership of the property for the duration of their lifetime. Although they can use the property to generate income, they generally must first get the remainderman’s approval before signing any significant contracts, such as an oil and gas lease. The remainderman generally must also consent to the tenant selling or making substantial changes to the property.
- Remainderman: The remainderman’s life estate interest only vests — or takes effect — once the life tenant dies. Essentially, that means the remainderman is the beneficiary of the arrangement and will inherit the property at the end of the owner’s life.
For example, let’s say you want to set up a traditional life estate for your daughter to inherit your mineral rights. You still be able to use or lease those rights while you’re alive, but you first need to make sure your daughter consents to the lease.
What Is a Life Estate Deed?
As with deeds to many other types of property, a life estate deed is necessary to ensure your wishes with respect to the property are carried out. The life estate deed is the legal document that grants the original owner the right to transfer mineral rights directly to whoever they want to without having to include those rights in a will.
A Lady Bird deed, also called an enhanced life estate deed, shifts total control over the property to the life tenant. This arrangement enables them to sell or lease their mineral rights without needing the remainderman’s approval. Lady Bird deeds are only used in five states:
- Florida
- Michigan
- Texas
- Vermont
- West Virginia
Life Estate vs. Trust: What’s the Difference?
Life estates and trusts are similar in many ways. For example, both life estates and trusts remove assets from the probate process. You can use either of these arrangements to ensure your property goes to the right beneficiary without having to include them in a will.
However, they are completely different legal arrangements. Some key differences include:
Parties Involved
A life estate typically involves two distinct parties — the life tenant and the remainderman. A trust arrangement involves three roles:
- Grantor: This is the creator of the trust and the original owner of the assets, also known as a settlor or trustor.
- Trustee: This is the individual responsible for managing the assets within the trust, which can include mineral rights.
- Beneficiary: This is the person who will inherit the trust after the grantor’s death. In some cases, the beneficiary may be the same person as the trustee.
The role each person plays in a trust arrangement varies depending on the type of trust you establish.
Control Over Property
There are two main types of trusts — revocable and irrevocable. With a revocable or living trust, the grantor acts as the trustee until they are incapable of continuing trustee duties. This means they retain control over the assets in the trust and can revoke or update the terms of the trust as they see fit.
With an irrevocable trust, the grantor gives control over the assets in the trust to the trustee until the beneficiary’s interest vests. The trust cannot be modified or revoked.
A life estate is typically more flexible than an irrevocable trust in that the life tenant still has some control over the property, though they often need the beneficiary’s approval when making property-related decisions.
What Are the Advantages of a Life Estate?
Putting your mineral rights in a life estate over a trust or a will can be advantageous for several reasons, including:
- Keep minerals in the family: A life estate eliminates the need to go through the probate process after the life tenant’s death, ensuring the remainderman gains full, immediate access to the inherited mineral rights.
- Create consistent income: If the life tenant chooses to lease their mineral rights, they can create a reliable stream of income for the remainderman.
- Less complex: Life estates generally take less time and effort to set up than trusts, which can save you money on legal fees and related services. It can also save you valuable time when filing your taxes.
- Reducing taxes: Setting up a life estate can help you lower your taxable income and assets so you can get the most out of your retirement.
One of the biggest disadvantages of a life estate is gift tax. According to the Internal Revenue Service (IRS), when you create a life estate, a gift is automatically made to your beneficiary. The gift may be subject to gift tax if it exceeds certain tax exemptions.
How Do You Use a Mineral Rights Life Estate?
As the life tenant, you are the primary owner of the life estate. That means you can lease your mineral rights to generate income and make minor changes to the lease agreements. However, you typically cannot sell these rights without getting consent from the remainderman.
Instead, the arrangement mostly benefits the remainderman. When the life tenant dies, the remainderman inherits full ownership over the life estate’s mineral rights. They then have complete freedom to leave, lease or sell their mineral rights as they desire.
Whether you are the life tenant or the remainderman, though, it’s best to seek professional legal assistance before making any decisions regarding your assets. Each state has different laws regarding mineral rights ownership and life estates, so it’s important to look into your specific state’s laws.
How Can You Trust Flat River Minerals?
Estate planning is a complex process involving confusing jargon and potentially significant consequences, so how can you be sure we’re giving you the right information?
Simple — it’s because we rely on a strong code of cowboy ethics. We strive to provide all the information you need to make critical decisions, not just little tidbits that paint our company in the best light.
Additionally, our team of professionals has decades of combined experience in the oil and gas sector, specifically in Wyoming and the Appalachian region. This knowledge and expertise enables us to answer your questions honestly and accurately so you can rest easy.
Flat River Minerals Can Help You Get Value From Your Mineral Rights
Has a company approached you about leasing your mineral rights? Do you even know how much those mineral rights are worth? We can help you make the right decision. Flat River Minerals is a mineral rights valuation and acquisition company.
Whether you’re a life tenant or a beneficiary, selling your mineral rights to us at Flat River Minerals can help you get the most out of your property. Request a free technical evaluation of your mineral rights today to get started.
