South Dakota Allows “Transfer on Death” for Mineral Rights

Most states have adopted transfer on death deeds. In South Dakota, this option was established in 2014. South Dakota’s transfer on death deed form is a useful tool. It allows deed holders to give children or other beneficiaries a specific property without the complications of making them current owners.

Real estate includes both surface rights and mineral rights. Mineral rights refer to the legal right to extract minerals from below ground. Notably, the transfer on death deed can be used to pass on a deed holder’s mineral rights. This is important to many South Dakota residents.

In South Dakota, mineral rights cover underground resources: minerals, oil, and gas.

Why Use a Transfer on Death Deed for Mineral Rights?

Some owners use it for tax considerations. The “TOD deed” can ease the capital gains tax burden down the road. Unless the estate is overwhelmed with debt, a TOD deed will bypass probate. In other words, it passes assets outside a will. If there is a will, the TOD deed will take effect regardless of the will’s provisions.

A plan to legally transfer mineral rights can address specific problems:  

• Delays in estate administration after death, which can cause heirs to miss out on royalties.

• Family disputes over mineral rights after the owner passes on.  

• The possibility of mineral rights reverting to the state.

Some families don’t know that a deceased loved one owned mineral rights—especially if the rights were not actively bringing in royalties. When mineral rights are transferred on death via a TOD deed (as allowed by state law), the beneficiary will have a document recorded with the county to show that they are entitled to the rights.

By “severing” the surface from the mineral rights, a landowner can deal with these rights as separate assets. Then, different owners can hold the mineral rights and the surface rights. Severed mineral rights can also be leased to companies.

Transfer on Death Means Exactly That

A transfer on death gives away nothing during the owner’s lifetime. The named beneficiary cannot use or profit from the deeded land or resources before the current owner’s death. The named beneficiary has no say whatsoever in the owner’s use or sale of the property. During the owner’s lifetime, the owner can revoke the TOD deed, transfer the property to someone else, or borrow against it.

So, with the TOD deed, also called a beneficiary deed, an owner may now make plans to transfer real estate after death—including interests in mineral rights. With this tool, there’s no need to use a will or create a trust. A transfer on death deed is effective even if there’s no payment involved, and even if there is no formal acceptance by the designated beneficiary during the owner’s lifetime. The owner need not announce the intended transfer to the named beneficiary.

Of course, this doesn’t mean the beneficiary is forced to accept the deed. The beneficiary may disclaim all or part of the ownership interest. This involves filing a disclaimer of interest with the office of the recorder of deeds in the county where the interest exists.

Keep in mind that a transfer on death deed carries no warranty of title. Remember to research the limitations of transfer on death deeds.

How Would a Married Couple Use a Transfer on Death Deed?

Co-owners complete and sign the TOD deed form together in front of a notary public.

If they are joint owners, the transfer to the beneficiary named in the deed does not occur until both partners have died. The county will require a short affidavit from the surviving beneficiary along with the death certificate. Then, ownership will officially pass to the beneficiary.

A surviving co-signer (or even a person who holds power of attorney for the survivor) could revoke the TOD deed once the first co-owner has passed.  

Sometimes a married couple owns a home together, and each spouse signs a TOD deed to convey the ownership to the other.   

What if they hold ownership rights as tenants in common? Each co-owner may pass their own specific share of ownership by a TOD deed.

In South Dakota or any other state, speak with an estate planning lawyer for guidance on a TOD conveyance. An attorney might recommend that the co-owner sign a waiver of their rights in writing if the other co-owner decides to record a TOD deed.

What Goes Into a Valid TOD Deed in South Dakota

The deed must be completed correctly and recorded with the county to be valid.

To transfer surface or mineral rights after death, the owner will need to provide the name and address of at least one beneficiary on the form. Also provide the name and address of a contingent beneficiary after language such as: “If no primary beneficiary survives me, I name the following contingent beneficiary(ies) to receive the property.” Multiple beneficiaries who survive the owner will receive the interest in equal shares as tenants in common, unless the owner specifies a different form of vesting the property interest. The owner or owners then sign the completed TOD deed and have a notary complete the acknowledgment section.

Under the South Dakota Real Property Transfer on Death Act:

• Property may be transferred to one or more beneficiaries by a transfer on death deed. Mineral rights are examples of such property.

• If the owner has the capacity to make a will, then the owner has the capacity to complete a transfer on death deed.

• The TOD deed must say the transfer to the designated beneficiary or beneficiaries will occur upon the transferor’s death.

• The transfer formally occurs when any named beneficiary executes an affidavit of confirmation of survivorship accompanied by a certified copy of the death certificate for the deceased owner who executed the TOD deed. Any designated or contingent (backup) beneficiaries who survive the owner must have the paperwork notarized.

• The affidavit of confirmation includes: (1) the names and addresses of the beneficiaries; (2) the date of the owner’s death; (3) the legal description of the surface or mineral rights; (4) the names of any designated beneficiaries who died before the owner; and (5) a statement that notice of the death was submitted to the South Dakota Department of Social Services (to satisfy any government welfare liens).

• The beneficiary will be responsible for any loans, credit lines, liens, restrictions, or agreements that the owner leaves behind.

A TOD deed is like any other property deed. Under the law, it must contain the essential elements and formalities of a traditional property transfer. But its language specifies that the transfer only takes effect upon death. In an interesting twist, a South Dakota transfer on death deed is a public document once filed with the county and is legally treated as recorded upon the owner’s death.

A TOD Deed Can Be Revoked Before Death

Before death, an owner who wants to reverse the decision may revoke the TOD deed.

To revoke a TOD deed covering rights to oil, gas, or a mineral lease, the grantor (owner) may fill out the revocation form. Each South Dakota county has an official TOD revocation form for owners to use. The owner should record the revocation in the same public records system where the TOD deed was recorded.

Or they can take an action that conflicts with the TOD deed—namely, sell their interest. The seller, through language on the new deed, may revoke the transfer on death deed in part or in full.

This is possible because a TOD deed does not transfer anything before the owner’s death.

A TOD Deed Is Easy to Use, but Estate Planning Still Matters

Mineral rights are real property rights. They can be left through an owner’s will. They may be owned jointly, with rights of survivorship. Some owners establish trusts for real estate, including the mineral rights. But these rights can easily be passed on with a TOD deed.

Before using a TOD deed for land, mineral rights, or both, landowners should first consult an attorney in the state where the property is located. Local laws and rules apply. Remember that the paperwork must be recorded in the county where the property is located.

 For tax questions, consult a professional accountant for personalized guidance.