My husband and I are co-owners of mineral rights in Williams County, ND. We would like to gift these mineral rights to a sibling over time, keeping below the IRS gift tax annual exclusion amount. The minerals are a bunch of tiny sections. What is the process for gifting these rights? Should I get an appraisal on a few tiny sections until they add up to the exclusion amount? Is this something where I need to work with a lawyer or accountant or ?? Assistance will be greatly appreciated.
You definitely need to get an attorney and an accountant involved. Depending upon where you are in Williams, tiny acres can add up to big dollars. You need to know where your rights are located and get them appraised so you know what you are dealing with. The attorney can help you with how to gift and if there are other ways to do so that may be more advantageous to both both you and the sibling. This transfer may have significant tax consequences (or not), so get professional help. If you know the sections, townships and ranges, we can help with whether or not there are wells on the tracts, but get legal help for the transfers.
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Thank you for this information. I already know all the sections, townships, ranges, and wells on the tracts. I already know approximately how much my few mineral rights are worth. I really want to know how to gift less than $15,000 worth of mineral rights to a sibling without spending $5,000 to do it.
google= annual gift tax exclusion 2021- $15,000.00 per person per year is tax free
I am not an attorney so could not help you with the gifting part. Professional help is a good idea in that case. Your accountant may be able to help you with the documentation.
I guess I need to get an appraisal to find out exact worth so I know how many acres I can gift to stay below $15,000.
The few hundred dollars you would spend on an accountant’s advice and the attorney to draft the deed are good investments. If you make this a do it yourself project you are likely to cause major headaches for your heirs (and subject them to the need for litigation costing many thousands of dollars).
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Aimee has given some sage advise. A few dollars spent now will save your sibling a lot of headaches in the future
You are looking at the FMV today but, what is your basis of minerals you are gifting? Have you taken the time to figure out your basis in the various interests? That would be the first step I would recommend.
The IRS rules about gift giving is not as simple as just determining today’s FMV and then keeping the gift under $15,000.
For purposes of determining future gain, your sibling (the donee) will generally take a transferred basis which means that their basis in the property is the same as your (the donor’s basis) in the property which may be more or less the current FMV.
For example, you give your sibling mineral rights today with a FMV of $14,500. Your adjusted basis in the interest is what you paid for it or, the value when you inherited it. As an example at the time you inherited it years ago, the value was $1,500. Your basis in the mineral interest ($1,500) will be the basis your sibling will need to know for purposes of determining any gain in the future should he/she decide to sell the MI. It will be the $1,500 (transferred basis), and not the FMV ($14,500) at the time of your transfer.
Currently, if you leave it to them in a will, your sibling’s basis will be the FMV at the time of death. It is called the step up basis and the gain is not taxed to them. Trusts can also achieve what you are trying to accomplish.
This is why you need legal/financial help.
Great point made here. I’m only licensed in Oklahoma so offer no legal advice for North Dakota. However, there are many pitfalls to gifting. Among these would be potential impact your your or your sibling’s eligibility for various programs such as Medicaid, VA and Social Security. Have a ND elder law attorney review.
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