Protecting Mineral and Royalty Rights Through Estate Planning in Texas and Arkansas

Key Takeaways:

• Mineral rights can be owned separately from the surface property and require specific attention in an estate plan.
• Properly drafted deeds and funded trusts may help mineral interests pass to beneficiaries without Probate.
• Royalty payments and the value of mineral interests can affect Medicaid eligibility under rules that differ between Texas and Arkansas.
• Estate Planning can reduce fragmented ownership and establish who will manage leasing, royalty payments, and other decisions after the owner’s death.

East Texas and Southwest Arkansas include significant oil- and gas-producing areas where families may have owned mineral interests for generations. Some receive modest annual royalty checks, while others collect substantial income from active leases. Despite the financial value these interests may represent, many families have not addressed specifically how their mineral rights and royalty income should pass at death.

The East Texas Estate Planning Lawyers at Ross & Shoalmire, P.L.L.C. regularly help clients untangle the ownership questions that surface when mineral rights change hands — and help families get ahead of those questions before they become problems.

Why Mineral Rights Require Their Own Estate Planning Strategy

Mineral rights are a separate legal estate from surface rights. In Texas and Arkansas, it is entirely possible to own the oil and gas beneath land that someone else owns on top. That separation makes mineral interests easy to overlook during Estate Planning conversations, but it also makes them vulnerable to fragmented ownership, delays in establishing title after death, and ownership disputes if no plan is in place.

A few realities drive the urgency:

• When mineral interests are owned individually at death, Probate or other title-establishing procedures may be necessary before heirs or beneficiaries can document their ownership and receive future royalty payments.
• Mineral interests co-owned with siblings, cousins, or other family members often become harder to manage with each passing generation as ownership fractions multiply, and confirming each owner’s interest can become a significant title challenge.
• A deed conveying land may also convey the minerals unless the mineral estate was previously severed or the deed clearly reserves or excepts the mineral rights, making careful review of the title history essential.

How to Title Mineral Rights to Protect Your Family

How a mineral interest is owned, together with the owner’s deeds, trust documents, will, and other estate-planning arrangements, affects how the interest passes at death. Each of the most common titling approaches carries different Estate Planning implications.

Holding Mineral Rights in Your Own Name

Mineral rights held solely in your individual name generally require Probate or another title-clearing procedure at death unless you have established an effective nonprobate transfer. If Probate is required, a Texas or Arkansas court will oversee the transfer, which may take time, involve legal and administrative costs, and create a public court record.

Using a Revocable Living Trust

A properly structured Revocable Living Trust generally allows the owner to retain control during life and amend the trust as circumstances change — adding new royalty interests, adjusting beneficiary shares, or coordinating the trust with other Estate Planning documents. Creating the trust alone is not enough; the mineral interest must be transferred into it with an appropriately drafted and recorded instrument.

You retain control during your lifetime and can amend the trust as circumstances change — adding new royalty interests, adjusting beneficiary shares, or coordinating the trust with other Estate Planning documents.

Using an Enhanced Life Estate Deed 

In Texas, an enhanced life estate deed (Lady Bird Deed) may be drafted to transfer a specifically identified mineral interest at death while allowing the owner to retain broad control during life, including the ability to modify or revoke the transfer. The deed must accurately describe the interest being conveyed and account for any prior severance of the mineral estate.

Since the owner generally retains the power to revoke the transfer and dispose of the property during life, a properly drafted Texas Lady Bird Deed may avoid treatment as a completed transfer for Medicaid eligibility purposes and may allow the covered interest to pass outside Probate. Its effect should be reviewed in light of the owner’s complete Medicaid and estate-recovery plan.

Because the effectiveness of this strategy depends heavily on the deed language, title history, and nature of the mineral interest, it should be prepared and reviewed by a Texas attorney.

Using an Irrevocable Trust for Larger Mineral Estates

An Irrevocable Trust may be appropriate for some families seeking long-term management, controlled distributions, tax planning, or protection for later generations. 

Whether the mineral interests are excluded from the grantor’s taxable estate or protected from creditor claims depends on the trust terms, the rights the grantor retains, and applicable law. Transferring the interests may also affect future Medicaid eligibility.

Do Royalties Count as Income for Medicaid Purposes?

Oil and gas royalties are generally treated as unearned income under SSI-based eligibility rules and may be counted when determining financial eligibility for nursing home Medicaid. The amount counted can depend on payment frequency, allowable exclusions, expenses, ownership, and the particular Medicaid eligibility category.

The mineral interest itself may also be evaluated as a resource separate from the royalty income it generates. Texas generally treats the value of mineral rights as a resource, although qualifying income-producing mineral interests may fall within a limited resource exclusion; Arkansas treatment must be evaluated under the Medicaid category and resource rules applicable to the applicant.

The rules are not uniform across Texas and Arkansas, and the interaction between mineral ownership and Medicaid eligibility is genuinely complex. 

Families facing a long-term care situation should obtain advice from an experienced Medicaid Planning Attorney before selling, gifting, deeding, or placing mineral interests in a trust because a transfer for less than fair market value during the applicable five-year look-back period may result in a Medicaid penalty unless an exception applies.

Special Considerations for Families With Fractional Mineral Interests

Many East Texas and Arkansas families own only a fractional share of a mineral interest — a situation that arises naturally over time as mineral rights are divided among children, grandchildren, and sometimes distant relatives. Fractional interests are fully inheritable and can be placed in trust or conveyed by deed just like whole interests, but a few additional considerations apply:

• A fractional mineral owner may generally lease that owner’s undivided share without obtaining every co-owner’s consent, but the lease does not ordinarily bind the other owners’ shares. Arkansas integration proceedings and other state-specific oil-and-gas rules may nevertheless affect how an unleased interest is developed and compensated.
• Division orders issued by oil and gas operators generally state the decimal interest used to calculate each recipient’s share of production revenue. After a mineral interest changes ownership, the successor should notify the operator and provide the title, Probate, trust, or conveyance documents the operator requires. The operator may issue a new division order and may withhold payments while ownership or payment instructions are being verified.
• Mineral rights properly transferred into a trust are managed by the acting trustee under the trust terms and applicable law. The document should expressly address authority to lease, collect royalties, negotiate amendments, participate in pooling or unitization arrangements that combine mineral interests for development, retain professionals, and distribute income among beneficiaries.

The Importance of Coordinating Your Mineral Rights With Your Broader Estate Plan

Mineral interests and royalty income rarely exist in a vacuum. They interact with your will, your trust, your Medicaid plan, your Asset Protection strategy, and — in some families — the interests of siblings, cousins, and other co-owners who may have conflicting priorities. 

Ross & Shoalmire, P.L.L.C. works with clients across East Texas and Southwest Arkansas to build plans that account for the full picture — not just the obvious assets, but the underground ones too. If your family owns mineral rights and you do not have a current estate plan that addresses them specifically, that gap deserves attention.