There are 7 of us old timers that own several hundred acres of currently non producing minerals in California. Some of the minerals are in producing areas of Kern county.
Since some our family members are from the early boomer generation we would like to figure out how to hold the minerals together as they are inherited by newer generations. It would seem to me that as we add new family members to the list of owners it will become more difficult to negotiate leases as there will be as many ideas as there are members. Currently the leasing is entrusted to 2 of us who more or less understand the business.
Should we look at some sort of TRUST , LLC etc that would divided up the minerals by the % of ownership of all of the new members ,thus keeping title under one name with one contact.
What are the Pros and Cons of doing something like this. Im sure we need an Attorney and a tax consultant.
Perhaps some of the family members in the next generation are more interested in developing/holding the minerals than others. This was the case in my family and I bought some interests from my cousins to consolidate the fractional shares. I heard from a minerals manager on this board about a family mineral trust that might work for this situation, the most active and knowledgeable would be the trustee(s) and would have authority to sign into leases etc., and income would come into the trust to be divided out among the owners.
You are certainly wise in looking at this issue at this point. I recommend contacting an estate planning / tax lawyer to help in this regard as the tax implications are the driving force behind what sort of entity is best. A more broad consideration, however, is concern over those next generations who may be "stuck" together for the purposes of ownership, etc. Years down the road membership interests in an LLC, for example, could be held by cousins who've never met.
While leasing does become a difficult thing when the ownership becomes fractionated, consideration regarding who will conduct the business on behalf of numerous persons is key. There are certainly no right answers but thoughtful planning now will avoid some future issues. Thus, an estate planning lawyer who is knowledgeable in succession planning for such real estate holdings would be a big help. Good luck!
Yes you’ll need an attorney to setup any trust or LLC but that is a small worry. I think the bigger question is who runs either in the next generation. Basically the taxation of either is the same. A trust requires a president, board and shareholders. Which are good checks and balances if the wording of the trust is correct. For instance our trust has a simple majority vote to add, amend or change how we operate. That is expedient and most people like it until things aren’t going their way. It does mean in the long run that shareholders have to reach a consensus. Just one thing to think over but a good lawyer should be able to guide you.
Who runs your trust is the big question. Who gets trained to represent all shareholders, owners whatever they are called? Who can garner the trust of all the groups to run your family business? That is what makes the day. I feel that if the next generation is not brought into the business by the current generation to provide longevity then problems start. In the long term it is who is really interested and impartial that will run the business right.
So yes I think a trust our LLC is a smart choice because you do not want to dilute your negotiating power by dividing the mineral interest into smaller bundles.
Hope this helps.