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Thursday, August 19, 2010

When there are mines and minerals in an estate, what does the executor need to know?

An individual may own a mines and minerals (M&M) title, particularly if that individual lives in a rural area. I often find that the procedures for dealing with the M&M title are less well known than those for transferring land. They can be tricky for executors to handle. In this post I want to give some basic information about M&Ms so that executors at least have a starting point.

M&M titles may be separate from ownership of the land from which the M&Ms are taken. An executor should search both the land and the M&M title to make sure he or she confirms the owners, and the form of ownership. If the M&M title is jointly held with a right of survivorship, it will go to the surviving joint owner as with any joint asset.

The transfer of ownership of M&M titles is done through the Land Titles Office (or provincial/territorial equivalent) in procedures that are very similar to the transfer of land.

When the M&M title is transferred out of the name of the deceased to a beneficiary or purchaser, there are tax consequences to the deceased. If it was land that was transferred, it would be a capital gain that was added to the deceased's last income tax return, but with a M&M title, it is not. The value has to be set differently. Usually the amount added to the deceased's income is somewhere between two and five times the annual income from the M&Ms.

The executor will have to check whether the deceased was involved in a Royalty Agreement or Lease Agreement for a development company or oil company to extract the M&Ms. Under an agreement, the deceased could be entitled to either royalty payments or annual lease payments, depending on the terms of the contract. The executor must determine whether there are any amounts outstanding that belong to the deceased, and must notify the development company of the change of ownership. Usually the companies are pretty good about providing the executor with the paperwork they need completed to make the change. The rights under the agreement are usually transferrable to the new owner of the M&Ms.

The executor may find that the deceased has a Gross Royalty Certificate for a share in a Gross Royalty Trust, though those are (fortunately) becoming more and more scarce. If there is a Gross Royalty Trust in existence, the executor should see a caveat on the title filed by a trust company. The executor will most likely want the help of a lawyer or trust company if there is a Gross Royalty Trust because the wording of the agreements is really critical in understanding the rights of the deceased. Generally speaking though, entitlements under Gross Royalty Trusts can be passed down to new owners.

To deal with any of these agreements or trusts, you will be required to go through the probate process first.

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