I am 80 years old and want to give my ranch in west Texas to my daughter now while she is young enough to enjoy it. I want to keep the mineral rights until I die-there are producing oil wells now. My lawyer asked if I want to keep the surface rights too? then went on vacation during which time I am to think about it. So…thinking…if i keep the surface rights too, what am I gifting her? (It will be a cattle ranch for her.) Thank you very much for enlightenment.
Ask your lawyer to write the options out for you to really understand his questions and to understand the legal effects of your decision. Based on your description of the minerals, it seems that you want to give the minerals to your daughter while retaining a life estate in the royalty income. That way she will inherit the minerals at the time of your death. This can be done through a living trust. The lawyer likely wants to know whether you want to do the same thing with the surface or whether you want to give the surface to your daughter out-right. If you give the surface to your daughter, then she will receive any income from right-of-ways (such as pipelines, electric lines, roads) or grazing rent or sale of water. If you put both the surface and the minerals into a living trust (or other entity), then your daughter will not have any rights or income until after your death. One more thought, be sure that the living trust or other other documentation specifies who can sign any future leases and be binding. You might consider allowing your daughter to sign the leases so that good decisions can be made when you are 95. It is wonderful that you are planning now for the future.
If your attorney has not addressed tax issues as part of the planning options he should do so. Please keep in mind that if you give away property during your lifetime, the donee( the person receiving the gift) receives a carryover basis in the property for income tax purposes, while if the property is inherited under a revocable trust or a Will, the beneficiary receives a new basis in the property equal to its fair market value on the date of your death. The income tax basis in your range is likely very low so this is a very important planning point. The current federal estate tax exemption is $11,580,000 so you need a very large estate to be concerned about federal estate taxes. There is no Texas inheritance tax. Planning options for your daughter would include creating a lifetime trust for her benefit under your revocable trust or Will, which can be useful for asset protection purposes as well as divorce protection. Your current planning should also include up to date disability planning documents such a durable power of attorney, a medical power of attorney, and a general HIPAA authorization.
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