Why do I need a transfer on death deed?

Congratulations! You purchased a house with your spouse. Now what?

Most people think that if you purchased a home with your spouse, and both of you are on the deed, then if one spouse dies the other spouse automatically inherits the whole house.

THIS IS NOT CORRECT.

If the deceased spouse passes away without a will then we have to look at the laws of intestacy. Depending on the family structure, the surviving spouse MIGHT inherit the other half of the house. However, if the deceased spouse had children from a previous relationship, Texas law says that the children will inherit, not a surviving spouse. As a result, I get to tell clients on a regular basis that the house that they bought with their late husband/late wife suddenly is co-owned by my client's step-children. As you can imagine, this can cause a lot of stress and strain on the family, especially when it is unexpected.

Even if your family situation is such that the laws of intestacy say the surviving spouse shall inherit the house, the transfer is not automatic. The laws in Texas require some kind of proof to show that the surviving spouse is the rightful heir, which might require some kind of probate or heirship to determine who the rightful heirs are. Again, this can be costly, time consuming and frustrating. See our blog post: What Happens if I Die Without a Will?

One solution for real estate specifically is a Transfer on Death Deed. Transfer on death deeds are deeds that name a beneficiary prior to death, and get filed in the County Clerk's records prior to death. They do not change how the home is owned while someone is alive. The transfer on death deed does not affect a mortgage, and any transfer is subject to the mortgage. Additionally, Transfer on Death Deeds are cancellable at any time, and are automatically cancelled when the property is sold. The benefit is that the Transfer on Death Deed will transfer the ownership of property without the need of of probate, and it can override the laws of intestacy.

The one caveat is that you need to tell your estate planning attorney if you already have a Transfer on Death Deed for your house because the Transfer on Death Deed can override any intentions you have in the Will, so the attorney needs to make sure your plan works with your Transfer on Death Deed. If the plan doesn't work with the old deed, the great news is that the attorney can cancel the Transfer on Death Deed and then figure out what the right strategy will be going forward.

I actually prefer Transfer on Death Deeds to create a non-probate estate over transferring a home to the trust. For one, because it doesn't transfer the ownership of a house to the trust, there will be no ownership change per the County Appraisal District. As such, clients will not need to refile for their homestead exemptions. Also, because the clients still own their home in their personal names, they will not need to transfer a home out of a trust to refinance in the future.

For a lot of my families, Transfer on Death Deeds are an important way to make sure that a surviving spouse gets to stay in the home, claim 100% of all the exemptions they are entitled to on the value of the home, as well as allow a spouse to refinance or sell a home in the future without having to get consent from other owners. It is also a convenient way to transfer the house to the second generation through a contingent beneficiary directly to the children, or transfer through a trust. Once the family home gets transferred through Transfer on Death Deed, very few families will need to go through a formal probate process, especially if they worked on naming Transfer on Death Beneficiaries on all their financial accounts prior to death. It helps create the much-desired non-probate estate without the need of a Revocable Living Trust. See our blog post: The Benefits of a Non-Probate Estate.

If you or someone you love needs a Transfer on Death Deed, please reach out Chiang Law Firm and set up a consultation today!

Happy Independence Day!

In observance of Independence Day, Chiang Law Firm, PLLC will be closed to the public on Monday, July 3, 2023 and completely closed on Tuesday, July 4, 2023. We will re-open to normal business hours on Wednesday, July 5, 2023.

Wishing you a happy and safe Independence Day!

Oil, Gas and Mineral Ownership Issues in Texas

Congratulations! You inherited a part of your grandparents' ranch in Texas. As part of your inheritance, you received a part of the mineral production and are being paid royalties for the production. But do you really know how to manage your minerals that you inherited?

Many of you know that I spent some time working in the oil and gas industry as a Landman, or a person responsible for researching mineral ownership, leasing those minerals, and managing the contracts for those minerals. Owning minerals in Texas is unlike any other asset, and from an estate planner perspective, they are one of the most difficult assets to manage and pass to your heirs. There are multiple issues with minerals. You might have inherited these minerals or you might have bought the ownership interest recently. Without proper understanding of those minerals and the rights owned by those minerals, it makes it difficult to sell or manage those minerals in the future.

First and most importantly, what do you own? i.e. Do you have a mineral interest or a royalty interest?

Second, do you know where you own it? i.e. Do you have a property description of the asset?

Lastly, do you know how much you own, i.e. do you have a 1/4 mineral interest?

What you own might be easy. Mineral interests are an interest in the actual minerals in the ground. Royalty interests are an interest in the eventual money that is produced from the sale of minerals. Mineral interests vs. Royalty interests are usually found in the granting document, typically a deed. It saves a lot of work if you have the original granting document. The challenge is if the interests are inherited and the will or trust just says "all my interest" because typically the language in a will or a trust will usually not say if it is a mineral or royalty interests. That's where you will have to hire a Landman to do research on the interests to identify what kind of interests you might have.

Where you own the minerals is a different question. The best indication of where you own something is if you have a property description of the assets, especially from a deed that's been filed in the county where the minerals are located. Unfortunately, a lot of things might LOOK like property descriptions, but they might be incomplete for purposes of passing ownership or really understanding what is owned. For example, you might have an existing division order from a production company that might have something that looks like a property description on it. However, that property description is sufficient to identify a project internally for an oil company, but it is typically incomplete for transferring ownership of minerals. The biggest issue is if you own mineral interests in several different counties or states. They’re not all organized in one place. You’re basically doing searches in lots of local counties and a lot of the work can be manual and must be done in person in certain places.

The last issue once you have a property description is how MUCH you own. For example, you and your sister inherited minerals from your Mom. Mom’s estate deeds each ½ of what she has to her children (you and your sister). However, mom could have owned the whole mineral estate, she could have only owned 1/8 if she inherited it from her parents and they split it up among their 4 children. This is where the extremely tedious part of the research starts. Its relatively easy to find the property description as long as you know where the minerals came from and who the original owners are. However, it takes a lot of historical research if you need to know exactly what quantity of minerals is owned because you have to do a title search all the way back to the initial land grant back in the 1800’s or earlier.

A lot of my clients when they’re transferring mineral rights will do the first step to research and identify a mineral interest and property description, but not the second step of doing the historical research to figure out exactly what the mineral interest percentage is because the first step might cost a few hundred dollars to have a landman do the research and find a good relatively recent lease and/or property description that you can use to draft a deed. The second step could take weeks of research and thousands of dollars to do, PER TRACT. So even if your client has three tracts in Houston County, Texas, you can’t really do one set of research and be done. You basically have to research each tract individually and pay for all the tracts to be researched.

You need the first two steps to convey “all their interest” to a trust or individual by deed, which is legally sufficient at least in Texas to convey title. The third step you could leave to an oil and gas company to do the research and figure it out when they lease the property. However, you won’t be able to verify independently what they do so their calculations might be off. For example, the deed will probably show you own something that’s a fraction, like 1/16th of the mineral estate in 160 acres. However, your sign a production agreement, your interest will not be reflected in a fraction, but will be a very long decimal (.00829321) that is a small part of a much larger unit (1000+ mineral acres) and there’s no way to double check the math on that unless you know how many mineral acres you own that’s a part of that lease.

This is one of the reasons why it is extremely important to work with an attorney that is familiar with with oil and gas and mineral ownership when researching attorneys who do estate planning. It is usually not enough to just do a will or a trust and hope that everything works itself out. Oil and gas minerals are very unique assets to own, manage and transfer. If you own oil and gas minerals and are interested in setting up an estate plan, reach out to Chiang Law Firm for a consultation today!