My Grandfather’s mineral interests are managed by a very large US Bank. As beneficiaries (10 income/8 remaindermen), we own 10 unique section-township-range combinations. When you add in the 16ths and quarters, we own 27 unique combinations. We are paid Royalty income on Oil and Gas. North Dakota, McKenzie county.
The wording in the bank’s “Natural Resources Asset Management Fee Schedule” states we will pay 6% of Gross Revenue on Royalty Interests, and $50 annual “Per Property” fee.
How should “Property” be defined by the bank for determining our fees? It appears we are being charged for 80 wells. We don’t own the wells, they aren’t “property”. Asset maybe, but not property. The bank doesn’t define the term “property” anywhere. I feel $50 per year is excessive, since some wells produce less oil/gas than $50 per year. What is a property?
It appears that all the bank does is collect the royalty checks and print a statement for us. Seems like an awfully large fee for the benefit we get (none LOL). I would appreciate some insight on how other mineral beneficiaries manage their ownership of mineral interests owned by multiple beneficiaries in an irrevocable trust. Is this a reasonable fee? Are there better managers? We have received exactly 1 lease bonus in 13 years, so it’s not like they are negotiating leases for us.
Banks are in the business of charging fees to act as trustee to cover overhead and make a profit. Some families have members who manage a trust and may or may not charge fees. It can be a lot of time-consuming work to manage the data, including preparing it for CPA to file the trust return, pay any property taxes, etc. it as just as time consuming to track and account for revenues from a small well as it is for a large well. Is all the net income distributed or is some portion held by bank for investment? The question is what is written in the trust document. Does it specify that Bank A is the trustee until termination? Do the beneficiaries have any right to change the trustee and under what circumstances. Are the beneficiaries close-knit so they can discuss and agree on a replacement trustee? Do beneficiaries have a right to r]ask questions and review the records? A lawyer can help guide you by reviewing the terms of the trust. One suggestion is that you consider that banks do not hold on to the paperwork in files. Records may be only partially scanned or only retained for a short time. The beneficiaries should consider asking for original records be sent to one family member or full scans forwarded for your records. Ask for the entire tax returns, not just a beneficiary’s individual K-1. Perhaps you will want to take the lead in gathering, scanning and retaining records.
Often, statutes allow for the replacement of a trustee. Laws vary state by state. Unless there is a special needs situation (Mediciad Recipient, minor beneficiary). It seems like the trustee deed the income beneficiaries a life estate for them to receive income with the property reverting back to the remainderman. However, there are also problems with that, namely the ability to enter into new leases. Visit with an attorney in ND
This post is not legal, tax or investment advice. Reading or responding to this post does not create an attorney/client relationship.
Thank you so much for all the thoughtful questions!
The major US Bank trustee has made it clear that they are the primary “beneficiary” of this 1.5 million trust, extracting $30,000 in fees per year, which is more than the total of the actual beneficiaries. The “estimated current yield” is a whopping 1.98%.
The original trust document was written in 1972, and was 2 pages long. The local bank was to administer the trust, but has changed hands 4 different times since the grantor’s death in 1982. We have the trust document, but it doesn’t give any clear direction, so the bank does what they want. State law allows us to request a new trustee via the courts.
100% of the income is supposed to be distributed. The beneficiaries are not close-knit. 5 cousins do NOT want to make any changes, 3 of us do. I want to prove to them that we could get better returns by replacing the trustee.
We do have the right to ask questions. They refuse to give us tax returns as it is “against their policy”.
Your suggestion to retain the records is a good idea. Thanks for that!
Any ideas about the definition of “property”? Does that refer to the land, the minerals, the wells, or what? The bank seems to define it as “wells”. I would argue that each of the 10 properties defined on the mineral deeds are “properties”. If we could at least redefine property, we could save money just on the $50 per year property"property".
Also, how do other families manage these kinds of inherited assets?
The original trust was intended to provide income. However it is providing more income to the bank than any of us. 3 of us would like to change trustees, but the other 5 are not agreeable to that. I would like to try to pare the expenses that do exist as much as possible. Like the $50 per “property” fee.
Do you know if the current charges by the bank are reasonable? Are wells considered “Property”? I would think that the mineral deed that defines 10 mineral properties would be considered a “property” but the bank seems to think the wells are my property. Thoughts?
In Texas it is possible, with a judges order, to revoke the Trust & Trustee in an Irrevocable Trust as well as a revocable trust. Your interest and the others that think like you can get this done. I would almost bet that the trust has been miss managed! When I was young about 100 year’s ago an older man told me that he did not like dealing with trust! He said “To Trust Is To Bust”. It all depends upon how the trust was written plus the state laws. Why would the other members not want to change it?
You are focusing on the wrong end here. You might be able to reduce expenses by finding a low-cost trustee. However, as with everything in life, you are less likely to get the same quality of service by taking the lowest bid. The question here is whether the bank trustee is maximizing the oil and gas revenues by making sure that all the wells are being paid correctly. Is this a bank with an oil and gas department which understands leases, DOI (decimal) and watches to see if royalties are being paid properly on all the wells? Or is it a generic trust department with people who do not understand oil and gas? Other families do the following - just leave it up to a 3rd party manager or trustee OR one or more family members put in the time and effort to learn about the assets and bird-dog everything, often by a trust or a partnership or corporation for ease of management. They preserve records, watch title and wells and revenues. There can be a lot of resentment if one family member takes on the management burden, benefiting everyone, and does not get any compensation. So some families have everyone own individually and each person goes his separate way. It is not possible to act together if people do not get along. Your grandfather undoubtedly wanted to preserve the assets and income for a future generation. Mineral owners who act together with a larger combined interest have more negotiating power. But maybe your grandfather did not think that this was possible for your family and the best alternative was 3rd party management. Not that he anticipated that the small local bank would get absorbed into a huge bank with offices elsewhere. The fact is that if the income is low and there are a lot of wells to track, then the costs will be a large percentage of the income. I would suggest discussing with an attorney to simply terminate the trust and distribute the assets and then you can all do your own thing. However, given that you state that there are 10 income beneficiaries and only 8 remaindermen, it is unlikely that the any income beneficiaries who are not also remaindermen would have any interest in walking away. Finally, I do not understand your distinction between the minerals and the wells - both are assets and the wells are the producing minerals. In Texas, mineral owners pay property taxes on the value of the wells. Some states only tax the operator and the operator charges the property tax proportionately to all the owners (working interests and mineral owners) and some operators do not pass on the property taxes.
As an estate planning attorney my bias is toward distribution of the minerals free of the trust for the very issues raised above. Namely, avoiding administrative costs of a professional trustee or trust department. That being said there are times when it is not wise to distribute at the death of the last surviving grantor (the person who set up the trust). These may include immature, young or disabled beneficiaries needing special needs trust protection.
There is also the desires of a the grantor. There may good reasons why there are restrictions placed on the assets held in the trust. It may be a sense of preserving the assets, preventing selling to third parties, or in worst cases the desire to rule from the grave.
Thanks, TennisDaze, for your reply!! The Trust is in MN, the oil is in ND. I should have added that earlier.
I don’t think we will be able to move the Trust, because only 3 of us are “engaged” enough to understand that this is a terribly managed Trust. To answer your questions:
My grandfather’s trust was 2 pages that basically said “the Bank of MyHomeCity will manage all my assets after my demise”. So there’s really no direction, other than to maximize income for the original income beneficiaries (one of which is deceased).
The bank that manages the Trust subcontracts with a bank in Oklahoma to manage the mineral assets. We are not allowed to talk to Oklahoma, and no one in the Trust department knows anything about the minerals other than, “this is how much the trust was paid for minerals”. Are they negotiating leases? No, because we have gotten one lease bonus. Total income from oil last year was about $60,000.
The other beneficiaries are, let’s say, less financially savvy than we are. They get money every month, so the trust MUST be doing well!!! Because they are getting checks, they don’t want us to change anything. Can we make a legal case to override the majority’s wishes? I doubt it.
I contend that we are overcharged fees by this major US Bank. The fee schedule for mineral states that we are charged $50 “per Property”. They don’t define “Property” anywhere. I am contending we own minerals in 10 different section of land located in (152N 97W, 152N 96W, 151N 97W), which contains 80 wells. If we are being charges “per property” do we pay per well or per physical piece of contiguous land? I’m trying to make an argument to reduce the fees we pay. At this point, the only way i can improve the trust is to try to reduce the fees.
Thank you for the info regarding how families manage mineral ownership. I will be passing my own person holdings to my children and I am trying to figure out how to structure it.
You might try calling to other large banks that handle minerals. Northern Trust, Austin Trust Company, Well Fargo, and Frost Bank are several that come to mind for TX. Austin Trust has their fee schedule for minerals online. Ask them to define “property”. Northern Trust in Dallas also handles large mineral estates. You can do an online search or call several banks in OK and in ND and ask them if they handle trusts that include minerals and ask for their sheet of their “Mineral Interest fees” or “Trust fee schedule”. The phrase may change with the group. Ask them to define the word “property” and if they charge by the tract or by the aliquot or by the well. A tract might have one to several aliquots in it. Those are the smaller acreage such as NW NW and SW SW SW. Every time there is an “and”, that is a new aliquot description. That will get you started on a survey of normal practice.
Great Post! To Trust is to bust! Maybe the trust will be hard to “break” and get it out of the bank’s management! I would bet that this has been mismanaged and over charged.
Yes that one is a real issue, It was determined that a large bank chose to ignore some beneficiaries in a trust I was part of. For almost 25 years they did not send any statements to my self or siblings, all along that time, it was being mishandled and we had no clue. We also did not know that we were entitled to said statements. Unfortunately, attorneys after the fact, were afraid to go after said large bank without major cash upfront that we did not have. So beware the double edged sword. Our only option has been S.E.C. and F.I.N.R.A. File complaints and see what they do? Nothing so far for us.
MK
Visit with a Minnesota attorney about your options. Have the “trust” document reviewed. It is possible that if it was a DIY document that it violated the rule against perpetuities. This is a provision that requires that an interest either vest or fail within a period of time. Under common law this period was “a life in being plus 21 years”. The question would be whether this would be under Minnesota law where the document was formed or North Dakota law where the property is located
. What I’m saying is that a there might not be a valid trust and the property may subject to distribution which would take it out of the trustee’s hands.
This post is not legal, tax or investment advice. Reading or responding to this post does not create an attorney/client relationship.
Thank you Richard! Back in 1972, I don’t think trust planning was as advanced as it is now. I believe the banker, who was grandpa’s friend, said, you should have a trust! And he said OKAY! And they wrote it up. Lots has probably changed since then. I’m going to look into finding a MN trust attorney to see if s/he can answer some questions. Thanks for taking the time to respond!
They have not given us reasons. They just say “no thank you” or don’t respond. I believe they probably think the entire trust will be eaten up by attorney’s fees.
Thank you so much! I was wondering what word is used for the directional attributes of my holdings (“aliquot”). I will research those companies, and see if they can provide me with a definition of “Property”. It just doesn’t seem to me that if they charge by the property, they can justify charging me by the well. Thanks for your help, I love reading all your answers M_Barnes!
Thank you, that’s good information. They “communicate” by sending us reams of meaningless (to us) accounting documents. But when we ask for a copy of the trust’s US Tax Return, we are told it’s “against the bank’s policy”. Maybe this is additional fuel for removal.
Overcharged for sure, mismanaged undoubtedly. It’s hard to believe that in 41 years, we have only accrued less that 1M in that trust. Our projected return for this year is only 1.98% and that includes our oil income! Like, what are they doing to get so little return?? I could get 3% if I ONLY invested in CDs and charged no fees to the beneficiaries!! Are they handing money out to THEIR relatives or what??? Watch out for large, US Banks.
How did your trust situation turn out? Are you just out of luck or did they finally include you in the beneficiary communications? Thanks for your input!!
MK