Property law, life estates, and estate planning

One of the strengths of this country from its beginning has been its supply of natural resources, and a founding principle has been pride in land ownership. Keeping a piece of property in the family, and handing it down from one generation to the next, reflects this pride. However, complex issues revolving around land use can complicate matters, especially when that land is producing income, whether it’s the family farm or a tract generating royalty income from mineral rights. In such cases, it’s particularly important to have a firm understanding and good advice when planning and executing the terms for transferring a deed.

One tool sometimes used in estate planning is the life estate. The idea behind a life estate is to ensure that property goes to the intended heir, but that another person, perhaps the person granting the life estate or the surviving spouse, is entitled to the benefits and use of the property for life. These benefits might include farm income or royalty interest from mineral rights. A life estate can help the continuity of income-producing property by ensuring that it avoids probate and can ensure that property transfers quickly to the intended heir. It works similarly to a trust at a simpler level. For example, a life estate might involve property that has been in a family for many generations. This can ensure that the property remains in the family but still allows the surviving spouse to live on it and reap any benefits from it, but generally does not allow the right to sell the property.

A life estate offers the advantages of being a generally quick and inexpensive transfer. It allows you to ensure that the intended beneficiary gains the use of your property in a timely manner. However, it can get complex if mineral rights are involved. On oil- or gas-producing land, the rights to the minerals under the land have often been sold to a drilling company. In that case, it’s a good idea to get advice from experts in selling oil and gas royalties, who can help you with the ins and outs of royalty interests throughout the transfer of the life estate deed.

A life estate is not the right answer for everyone, and it needs to be applied carefully. However, it does offer one more option for estate planning that landowners can consider.