Seeking Clarity in the Distribution of Mineral Interests from a Decedent’s Estate
by Andy Lemieux, Elizabeth Meck, and Jessica Schmidt
As any practitioner who has dealt with the distribution of mineral interests from a decedent’s estate knows, dealing with these interests can be tricky and the process is not always clear. This is particularly true when old interests have not been distributed properly at the time of death. Thankfully, recent decisions in Colorado, as well as updates to certain provisions of the Colorado Probate Code, provide some clarity to this process. A recent decision in Utah also provides clarity about who is entitled to the proceeds of production from oil and gas operations when life tenants and remaindermen are involved.
Specifically, Colorado just updated its statutes governing the process for the determination of heirship, found in the Colorado Probate Code at Colo. Rev. Stat. § 15-12-1301, et. seq. A sub-committee of the Trust and Estate section of the Colorado Bar Association carefully reviewed the existing statutes, coordinated efforts with other sections of the bar, and with the approval of the Trust and Estate section, presented revisions to these statute sections as part of the omnibus bill, SB 16-133, in February 2016. The committee’s goal was to address the issues Colorado practitioners have experienced in trying to distribute these interests from dormant or previously-unopened probate estates and to make the process to distribute previously undistributed property, including mineral interests, more clear. SB 16-133 was signed by Governor Hickenlooper on May 4, 2016, thereby adopting the revisions recommended by the committee. A copy of the Bill as enacted can be found here.
Additionally, two recent Weld County district court cases, In re Woodward and In re Cable,[1] provide guidance for the probate of wills outside the applicable statute of limitations period. In general, the statute of limitations to initiate an action to probate a will, whether formally or informally, is three years after the death of the testator.[2] Based upon this, petitioners in both Woodward and Cable claimed that the statute of limitations barred the late probate of wills where the decedents had passed away several decades ago. The courts disagreed and held that an exception set forth in Colo. Rev. Stat. § 15-12-108(2)(c) applied such that probating the wills, which otherwise may be outside the three-year limitations period, was not barred.[3] These holdings are generally consistent with previous interpretations of other provisions of the Colorado Probate Code.[4]
The application of this exception may be helpful in the context of inherited oil and gas interests where it is often the case that a probate estate was not opened for a decedent who owned mineral interests, and as a result those interests were never transferred to the decedent’s heirs or devisees. When this has happened, a practitioner may receive a call from the decedent’s heirs inquiring how to properly transfer the mineral interests even though the decedent died several decades ago. Frequently, the heirs find out about their potential interests from an oil and gas company that approaches them wishing to lease the mineral interests, but requiring an order from a probate court confirming the rightful owners of the interests. Alternatively, a practitioner may receive a call from the oil and gas company requesting assistance with potential litigation. The oil and gas company may also need assistance defending an interest it has leased. If a decedent died owning mineral interests that were never transferred through a probate process, however, the process is more difficult and frequently occurs well beyond the permissible three-year statute of limitations. This is where the recent holdings by the Weld County district courts are instructive.
In the situation where a devisee or beneficiary of a life estate in mineral interests has been identified in a dispositive instrument, it is important to clearly specify who is entitled to the proceeds of oil and gas production—the life tenant or the remainderman. A recent Utah Court of Appeals case illustrates this point. In re Estate of Womack involved a man who left mineral interests to his three children for their lifetimes, remainder to his grandchildren.[5] The Will was probated in Utah. More than twenty years later, an oil and gas company leased the minerals, but a question arose as to who was entitled to the proceeds of production. One of the life tenants claimed that he and the other life tenants were entitled to the income. The life tenant produced an affidavit from the drafting attorney, which indicated that the decedent wanted the life tenants to receive all of the proceeds of production during their lifetimes. Even so, the remaindermen won at the district court and on appeal.
In deciding Womack, the Utah Court of Appeals applied the open mines doctrine, which generally provides that “[i]f a mine [or an oil or gas well] has been opened before the creation of a life estate and a future interest in land, the life tenant may be entitled to continue to operate the opened mine and retain the proceeds of such operation . . . [.]”[6] In this case, there was no existing mine (or well) when the life estates were created, so all of the proceeds of production went to the grandchildren. The moral of the story is that careful drafting is needed if the testator wants a life tenant to enjoy the income from future oil and gas operations. Otherwise, the life tenant may not receive any economic benefit from owning the mineral rights.
The recent revisions to Colo. Rev. Stat. sections 15-12-1301, et. seq. regarding the process to determine heirs, the Weld County holdings in Woodward and Cable, and the recent holding in Womack applying the open mines doctrine in Utah, each provide guidance regarding the current law applicable to mineral interests left behind by a decedent. Practicing in states such as Colorado and Utah frequently involves the distribution of these types of interests, which are not always straightforward. Therefore, this guidance may be helpful to practitioners when drafting estate planning documents or when faced with distributing or determining rightful ownership of oil and gas interests.
[1] In re Woodward, No. 2014 PR 30028 (Weld County Dist. Ct. July 22, 2014) (unpublished); In re Cable, No. 2014 PR 30424 (Weld County Dist. Ct. Oct. 17, 2014) (unpublished).
[2] Colo. Rev. Stat. § 15-12-108(1); see also Estate of Kubby, 929 P.2d 55, 56 (Colo. App. 1996) (establishing that Colo. Rev. Stat. § 15-12-108 sets the statute of limitations); see Fiduciary Law Blog, Statutes of Limitations in Probate Litigation: Friend or Foe, November 23, 2015.
[3] See In re Woodward, No. 2014 PR 30028 (Weld County Dist. Ct. July 22, 2014) (unpublished) (denying petitioner’s motion for summary judgment on statute of limitations grounds); In re Cable, No. 2014 PR 30424 (Weld County Dist. Ct. Oct. 17, 2014) (unpublished) (adopting the reasoning from Woodward and applying the exception to the three-year limitations period in order to probate a decedent’s estate 54 years after the date of death).
[4] For practitioners outside of Colorado, it is important to note that these holdings, while consistent with Colorado law, vary slightly from the Uniform Probate Code sections 3-102 and 3-108, which provide that the limitations periods are strictly enforced.
[5] 2016 UT App 83, 2016 WL 1729528.
[6] 2-5 Williams & Meyers, Oil and Gas Law, § 513.