Creating An Entity to receive oil interest revenue

[TRISHEVERETT]

My family is currently receiving royalties through my late fathers Trust. There are 8 equal shares/beneficiaries of the royalty income. Over these last 18 months I have been able to obtain all unclaimed funds related to our minerals and we are have been receiving leased royalties from 3 of the 4 oil producers. Come to find out that, since contacting Hess Bakken back in Sept 2021, they have been paying us based on unleased mineral interest and unleased royalties interest. I realized this only because they suddenly started sending us JIB invoices back in April 2022 and indicated we owed them $10,000+ in back JIB charges. We recently paid all past JIB charges owed and have signed a lease with them to receive 20% leased royalties going forward.

My thought at this point is to ask each of the producers to suspend payments to the Trust at year end. I will inform them that the plan is to close the Trust and transfer ownership on the mineral rights to the beneficiaries. Doing so will eliminate any further income coming into the Trust.

6 of the 8 beneficiaries intend to form a family entity to manage the mineral rights going forward. We hope that doing so will ease the process of passing them on from one generation to the next. Am I right in assuming that we can all expect to receive royalties based on the current leases now in place?

I would appreciate it if anyone can give me some input on forming the new entity and perhaps a sample of what the agreement should look like so that our interests will easily pass on to our children. Is there someone or company I can reach out to to assist with this process. I live in Maryland so we would record the entity in this State.

Thanks in advance for any input or help you can offer!

[M_Barnes]

Get a qualified attorney to answer your questions. It is VERY important to get this done correctly and not a job for DIY. Many families have an LLC to handle their interests and enable them to pass to the next generation. LLCs have certain tax and documentation requirements which are necessary but not terribly onerous. Your accountant needs to understand oil and gas and be able to take the proper depletion credits off your taxes.

You can expect to receive royalties as long as there is production. I am assuming your acreage is in North Dakota since you are dealing with Hess Bakken. You might have to get your acreage appraised in order to put it into an LLC. Finding out the expected life cycle of your wells and any future drilling possibilities before you do all the legal work might be beneficial to see if it is worth putting it into an LLC. The appraisal fees could be paid by the trust. Investing a small amount in knowing what you have would be wise before investing a larger amount in setting up the legal structure.