Need some insight on preparing a mineral trust. We live in Louisiana and are about to meet with a firm on preparing a estate that includes surface ownership and mineral rights in Howard County. Looking for experienced suggestions please.
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I am intrested in your experience eanting to do the same in howard county
What do u want to know? I have setup trust for my daughters, where I conveyed all of my mineral interest to the trust.
I setup a trust so that all the mineral rights remain as 1 entity instead of going through probate and being split/divided between my daughter (no kids) and son (3) and then the grandchildren when he passes.
It’s easier to write a check than keep splitting ownership %'s as it passes from one generation to another.
I specified a line of trustees down through the grand kids - daughter, son, daugher-in-law, oldest grandkid.
I specified how the $'s are to be divided (50/50 to kids after I pass)
I specified what to do in case of divorce or death.
daughter - in case of death her husband get his % as long as they were not divorced at time of her
death. When he passes it goes to sons family. If divorced then it goes over to sons family
AKA: S-I-L gets nothing if divorced from daughter (keep it in the family)
They can’t sell the mineral rights (don’t care about surface rights)
I opened a separate bank account (trust is owner) to hold the $'s (direct deposit). No mixing of funds with personal $'s.
It’s pretty easy to do but before you go the lawyer think about what your trying to accomplish and have a plan. The lawyer can then apply the proper language in the trust for your state.
Hope it helps. Good Luck.
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One last thing. As part of the cost of the Trust it also included a new updated Will, POA, MPOA and Living Will so that all the documents were current and in sync with each other.
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Thank you for sharing your experience. JHab, that is pretty much exactly what we plan to do. My question is what type of lawyer do we need to acquire(Louisiana or Texas)? Do we need to have a evaluation of value done? Best practices… We know that there is new division orders coming soon. We are meeting with a Wealth Management firm soon and wanted to have some knowledge before that meeting.
I used a regular attorney that works mostly in real estate but was familiar with Trusts. I told him what I wanted and he just made sure all the legal wording/terms were proper. I did not use an oil & gas attorney. I have no idea if you need an attorney from a “specific state”. I would just ask whomever you are talking to.
I’m not sure about an evaluation. When they started to drill I formed the trust so that when the DO’s came they would be registered under the trust. The original DO’s were in my name and not the Trusts because XTO claimed they were so far behind in their paper work. It took about 4 months for them to catch up and get it all transferred to the Trust. Once that was done Energy Link combined the two (2) accounts for me so that it all showed under one (1) account.
I opened an account with TD Ameritrade so that as the bank $'s grow I can transfer some to it and start investing it. I see no reason to hire a wealth manager who charges 1-2% of assets annually unless you are not comfortable doing your own management or you just don’t want to mess with it. My daughter (lawyer) and son (accountant) are perfectly capable of taking over the job after I’m gone.
Make sure you reserve enough $'s out of each check to pay federal tax quarterly or at the end of the year. After your first 3-4 checks you should be able to determine what tax bracket you are in and reserve accordingly. You don’t want the IRS to come after you. There are no county mineral taxes the first year as they are based (in Texas) as of the value on Jan 1 of that year. The 2nd year you won’t know until you receive you tax assessment from the county(s). I looked up mineral tax %'s in my county(s) and started setting aside $'s as of the 1st check. After I got my 1st tax statement I made adjustments with a little extra to spare. Be conservative with any spending until you get a feel for federal and county tax. You don’t want to play catch up. I literally did nothing with the $'s for 6 months. I just let it accumulate in the bank until I got a feel for it. Some banks have a $250,000 protection limit and some (credit unions) have $500,000 so watch your balances. You could use several banks or open a brokerage account and transfer the money to it as needed.
One thing I would recommend is to find a firm that is familiar with your minerals area that will protest the mineral taxes for you. I had no clue about setting current and future valuations so it’s worth it to me for them to do all the work. They saved me 20% last year and charged 35% of what they saved.
If you are not familiar with oil/gas (I was not) you find that production drops off pretty dramatically over time the first few years. I heard 50% by the 3rd year and then starts to settle down. My first month oil was at $20. Last month it was $110. My checks have been pretty consistent because as production has dropped the price has gone up. I have no clue but, to me, $100 oil can’t last to long so the checks are going to start to go down at some time in the future.
After I set aside federal and county tax each month I also set aside a % for my kids and grand kids. I write them a check 2x a year. It makes a nice Christmas present.
I don’t know if the above is “best practices” but it works for me. I hope this helps and good luck with your property.
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Last year I set up an irrevocable trust for each of my two daughters. My primary objectives were to reduce estate taxes, avoid probate, and protect the assets from adverse future claims. My daughters are financially secure, and I want my grandchildren to receive the assets after my daughter’s death. The trust income is to be distributed to my daughters for life, and at their deaths, the assets will pass to my 7 grandchildren in trust. The two oldest granddaughters will be trustees until each grandchild reaches 30 years of age, then each grandchild will become his/her own trustee. The process was somewhat expensive, given that it involved the preparing and recording of deeds and appraising of producing and non-producing minerals in multiple states, but given my age of 82, it is important to me that I preserve as much of what I have for my heirs.
In my opinion, the main problem with this type of trust is that you give up control and income from the assets you convey to the trust. There are other types of trust, that depending on what you want to accomplish, may be more suitable. However, its my understanding that these other types of trust won’t avoid the payment estate taxes. If this information is helpful I would be happy to provide more details.
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Make sure you understand the difference between revocable and irrevocable trusts. Each has it’s own pros/cons
Sounds like a appraisal is required when setting up the trust. David what you did is pretty much the same thing we plan to do. What was the type of trust you created? Mineral specific or just a general Trust? Looking for the correct words when we sit down with the management firm. Thank you for the info
The trusts are irrevocable and can hold any type of asset. You may be able to avoid a formal appraisal. If you are conveying producing minerals, you may get by with some multiply of the monthly income. It’s my understanding that a multiple of 36 to 60 times the monthly income may be reasonable. However, the multiple may be less for a shale well that depletes at a faster rate than a conventional well, especially in the first year or two. I don’t know the value of properties you will convey to the trust, nor what you’re trying to accomplish, but I want to mention that currently, you can give away a lifetime gift of $11,000,000.00+ of property, tax-free of gift and estate taxes. Who knows how long you will be able to do that given the appetite for more revenue in Washington.
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I would use a oil/gas attorney in Texas because the minerals are located in Texas. Some states have different laws on real estate transactions.
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