Hello All, I am in the process of consolidating my siblings leases to just one of us for purposes of equity among us. What do I need to do to make this happen? I would assume to start with, a bill of sale or transfer to that effect. Then what? Do I contact the operator and also file with the county? Do I need an attorney to accomplish this? What fees may I encounter?
All in Midland County Texas if that helps. Any help with direction in this matter is greatly appreciated. Mike
You MUST do this properly! There are several attorneys listed in the Directories list above. You don’t have to have an attorney in Midland county, but you do need one licensed in Texas if the minerals are in Texas. The deed must be filed in the county courthouse. Keep your tax accounting in mind as the value on the date of transfer may be important if one ever sells. (capital gains tax may apply)
@M_Barnes Thank you for your reply. Yes everything is in Texas so the best way to handle this is to get with someone as you suggested and make sure it is all correct. I figured this would be the case, but just making sure. Again, many thanks for your reply. Sincerely, Mike
Royalty income or working interest income will be reported to the legal owner on 1099 for income taxes. If the recipient is distributing the funds to the other family members, then you need to consider how to handle the income taxes. The recipient could send out 1099’s to the other family members, allocating them the income based on the 1099 from the oil company. Will they all need the check stub detail? You should also consult your accountant for advice.
More facts are necessary to determine the best course of actin. Depending on facts, the creation of a limited liability company to hold the minerals interests may simplify the management issues and can avoid fractionalization based on the death of an owner. You may want to work with an experienced estate planning attorney with a strong tax background who can obtain the assistance of an oil and gas attorney to extent needed.
Thank you for that information. This is more of an exchange for hard assets (Art) of a specific determined value for the leases to be consolidated by one owner in exchange to maximize its return potential and possible resale at another time as a whole vs diluting the % of value.
It is more about process to change ownership of leases and costs involved to make the exchange as equitable for each party as possible at the time of exchange with the understanding the final lease holder will harbor the greatest risk or possible better investment opportunity.
Sincerely, Mike
It appears that you are exchanging art works, eg paintings, for oil and gas leases and there are tax issues which you must consider. It seems that art no longer qualifies for 1031 tax free exchanges. Are these this owned minerals under lease or working interests? These are vastly different assets for many tax purposes. You need to consult your CPA or attorney to find out if the exchange will trigger capital gains or can be done tax-free under 1031 or other IRS code provision. Such an exchange must be done carefully in accordance with the rules and forms filed with IRS. You need a valuation of the various types of assets by qualified appraisers. Your attorney can prepare the appropriate legal documents. Costs will depend on the number of assets (number of leases, wells, art works, etc) and how much time to prepare documents and tax forms. Are the parties going to be represented by the same appraisers and lawyers and accountants, splitting the costs? A lot of variables and your attorney would be best able to answer your questions about the process and cost estimates.
@TennisDaze, Thank you for that info as well. It is very much appreciated and we will look into all of what you have suggested with our attorney as well as our CPAs. We already have the appraisals for all of the assets, all done by certified professionals that were prepared for tax purposes. Again many thanks for your sound advice. Sincerely, Mike
I’m not clear on the transaction. It sounds as though you are wanting to consolidate the management of the lease interests into one entity. Your CPA or attorney might suggest a LLC. That creates another level of complexity for tax purposes. If your siblings signed individual leases, their interests would be governed by the leases they signed. So if one signed with a 1/8th royalty and another signed with a 3/16 royalty, the royalty that the new entity receives would by an average of those. There are so many moving parts here that it is difficult to answer in a forum format. The intended transaction may also complicate estate planning. As always my posts are not legal advice. You should visit with a Texas attorney regarding the family goals and the intended transaction. There may be a better solution.
Thank you Richard,
I think we have enough info to move forward with this. It is now in the hands of an Attorney and our CPA is also involved. We will let them sort out the correct way in order to make any exchanges be above board for all. I just wanted to know the correct direction to minimize costs. Again Many thanks.
Mike
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