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Texas Life Estates
Follow Steptoe & Johnson on Twitter:@Steptoe_Johnson
ALSO FIND US ON http://www.linkedin.com/companies/216795 http://www.facebook.com/Steptoe.Johnson
This webcast will begin promptly at 12:00 PM EST
© 2016 Steptoe & Johnson PLLC . All Rights Reserved.
Today’s Presenter
Zachary W. GaverThe Woodlands, TX
zachary.gaver@steptoe‐johnson.com(281) 203‐5735
Overview
• Introduction• Creation of a life estate• Who can execute a lease?• Who receives payments?
– Open Mines Doctrine
• Hypotheticals
Introduction to Life Estates
Introduction to Life Estates
• Freely transferable, BUT no more than a life estate can be transferred
• Terminology: Holder of the life estate is referred to as the “life tenant,” the “remainderman” will acquire the interest after the life tenant dies (life estates cannot be “inherited”)
• Transfer on death deeds – a slightly different result than a life estate
Creation of a Life Estate
• By “pre‐testamentary” conveyance, including reservations
• Conveyance to a trust • Testate succession• Intestate succession • Legally created life estates (homestead)
Granting Language –Pre‐Testamentary Conveyance
• O conveys “to John for life.” – John: life estate; O: reversion (future interest)
• O conveys “to John for life, and then to Jim.”– John: life estate; Jim: remainder (future interest)
• O conveys “to John, for the life of Jim.” – John: life estate pur autre vie (“for the life of another”); O: reversion
• O conveys “to John, reserving unto Grantor O a life estate.” – O: life estate during his life; John: remainder
Homestead
• Legally created life estate• Upon the death of the spouse, a surviving spouse will retain a life estate as long as he or she continues to use the homestead
• Homestead rights extend to minerals not already severed
• Any severed minerals (owned not by the surface owner) cannot be in the homestead
Who can execute a lease?
• Right to occupy and use the property
• Cannot commit waste (cannot devalue property)
Life tenant
•No current possessory rights• Cannot authorize production of oil and gas alone
Remainderman
Who can execute a lease?
• General rule: – Neither the life tenant nor the remainderman can enter into a lease alone; both are required
• Exceptions – instances where the life tenant may have the authority to execute a lease:– Authority designated elsewhere
• By devise, trusts – Relinquishment Act – Prevent drainage (voluntary waste exception)
Who receives payments?
•Only delay rentals• Interest generated from funds escrowed on behalf of Remainderman
Life tenant (“net income”)
• Royalties• Bonus• But, will not receive until the death of the LT
Remainderman (“principal”)
Absent an agreement or other modification:
Who receives payments?
• General Rule:– Life tenant receives only delay rentals and interest – Remainderman receives royalties and bonus (but not until the death of the Life Tenant)
• Exceptions to the above rule:– Modification by grant– Modification by division order– Modification by any contractual agreement –Trusts
– Open Mine Doctrine
Who receives payments?
• Open Mine Doctrine– Exception to the general rule: Life Tenant receives all bonuses, delay rentals, and royalties.
• For the OMD to apply, the “mine” must be open at the time the life estate is created. Either: 1. A well is producing when the LE is created, or2. The land is subject to a lease when the LE is
created, upon which a producing well is later drilled.
Who receives payments?
• Open Mine Doctrine– Doctrine will not apply to subsequently executed leases after the original lease expires
– Applies to all life estates (created by grant, reservation, devise, intestacy, operation of law)
– Can be overridden by devise (the intent of the testator)
Hypothetical 1
O conveys “to A, reserving unto himself a life estate.” There is no“open mine” or contractual agreement to alter payments.
O:A:
Delay rentals, interest
Royalties, bonus (uponthe death of LT)
O A
Who needs to execute a lease? Who is entitled to payments?
Both A and O need to executea lease.
O: Life estateA: Remainder
Hypothetical 2
O conveys “to A, reserving unto himself a life estate, but all mineralroyalties and bonuses shall be paid outright to O during his life.”There is no “open mine.”
O: All payments
O A
Who needs to execute a lease? Who is entitled to payments?
Both A and O need to executea lease.
O: Life estateA: Remainder
Hypothetical 3
O conveys “to A, reserving unto himself a life estate.” There is aproducing well on the property (which is leased) as of the date of theconveyance.
O: All payments
O A
Who is entitled to payments?
O: Life estateA: Remainder
Hypothetical 4
O conveys “to A, reserving unto himself a life estate.” There are noproducing wells on the property as of the date of the conveyance. Asof the date of the conveyance, the property is subject to a lease. Sixmonths after the conveyance, and within the primary term of thelease, Lessee drills a well that produces.
O: All payments
O A
Who is entitled to payments?
O: Life estateA: Remainder
Hypothetical 5
O conveys “to A, reserving unto himself a life estate.” As of the date ofthe conveyance, the property is subject to a lease (“L1”). Six monthsafter the conveyance, L1 expires, with Lessee never drilling aproducing well. O then leases the land (“L2”) to Lessee, and Lesseedrills a well that produces.
O A
O: Life estateA: Remainder
O:A:
Delay rentals, interest
Royalties, bonus (upon thedeath of LT)
Who is entitled to payments?Note: Lessee should obtain aratification from A.
QUESTIONS?
Thank You!
Zachary W. GaverThe Woodlands, TX
zachary.gaver@steptoe‐johnson.com
(281) 203‐5735Cell: (937)‐597‐5066
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