Most Utahans don’t need to think about where their water comes from. They turn on the tap, and their water is supplied by a utility company to which they pay a monthly bill.
There are, however, two other methods of water supply and ownership. Some Utahans (mostly in suburban and rural areas) own shares in the water companies that supply their water. Other Utahans (mostly in rural areas) own water rights directly.
Shares in water companies are generally owned separately – and transferred separately – from the real property to which the water is supplied. Simply buying a parcel of real estate does not necessarily result in a purchase of the associated water company shares. Thus, the buyer of a home should make sure that he or she acquires the appropriate water company shares.
Water rights (as opposed to water company shares) are essentially interests in real property, and they generally accompany the real property with which they are associated. For uses attached to land (such as domestic use, stock use or irrigation), water rights are said to be “appurtenant” to the real estate. A transfer of the real property automatically transfers appurtenant water rights. However, the water rights can be, and sometimes are, severed from the real property. When this occurs, the buyer of the real estate should make sure he or she is also acquiring the associated water rights. Indeed, even if the water rights have not been severed from the ownership of the real property, it is prudent to specifically identify and transfer the water rights in the deed that transfers the real property.
After the owner of water rights dies, problems can arise when real property is transferred from his or her estate if the estate is then closed without transferring the water rights. This can happen if the person administering the estate does not know that the water rights exist and does not think to address the issue. Title to the water rights then remains “stuck” in the name of the decedent. It is often years, or even decades, before anyone realizes that this has occurred. But when the owners of the land try to sell it, and the buyer enquires about the water rights, a headache can arise for everyone involved. (This problem is less likely to occur with water company shares because mail from the water company will usually continue to be sent to the decedent’s address, giving family members notice that the shares exist.)
Fixing the problem of “hung water rights” may require obtaining an order from the probate court transferring the water rights to the persons who are entitled to them. If a probate was previously opened for the decedent’s estate, the probate may need to be re-opened. If the decedent left a valid will that was admitted to probate, the water rights will pass under the terms of that will. If the decedent did not leave a will, the water rights will pass to the decedent’s closest living relatives under Utah’s rules of intestate succession.
If no probate was ever opened, and if more than three years has elapsed since the decedent’s death, a petition for determination of heirship will probably be needed, in which case the water rights will pass to the decedent’s closest living relatives under Utah’s rules of intestate succession, even if the decedent left a will. (Utah imposes a three-year limitations period on the admission of a will to probate. If no will is admitted to probate within three years of the decedent’s death, the decedent is conclusively presumed to have died intestate, i.e. without a will.)
Transfer of the water rights may be easier if the title to those rights was held in the decedent’s revocable trust. If the rights were held in the revocable trust, the successor trustee named in the trust should have the authority to distribute them to the appropriate beneficiaries, without court involvement.
Thus, from an estate administration perspective, it is important to make sure the executor of the estate or the successor trustee of the revocable trust knows that the water rights or water shares exist and distributes them along with the other estate or trust assets soon after death. This can be facilitated by directing the trustee’s attention to the water rights in documents that accompany the estate plan.
Rust Tippett is the author of this blog post.
Copyright 2014 UNLEPI, LLC, a Utah limited liability company. All Rights Reserved.
This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC. The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.