Transfer of ownership

Ownership and Title
1

Hello,

I am new to this group, but have read many of the discussions, and don't see our particular situation addressed.

My father recently died. The estate is not complex, but he owned surface and mineral rights in 5-6 properties in Reeves county, Texas.

We have a will, not notarized, and the titles will be divided equally to his 3 children, with no spouse, other heirs or complications, and he always said this division was mandated by Texas law. This will make 7 property owners among the extended family, up from 5.

We also have an unrecorded, un-notarized bill of sale, documenting the legal land descriptions, with the same disposition of title, equally to his named children.

So, my questions are :

1. Should we pursue transfer of title with an Affadavit of Death and Heirship, Death Certificate and the will, or just record the bill of sale with the county? pros and cons?

What are the steps to accomplish this?

2. Are there legal or practical restrictions on the number of owners?

I know that the companies, Lessees, etc don't want to deal with a gaggle of small owners, but we always have , and will continue, to have one contact person, who then polls and negotiates with the group, presenting a unified front to the companies. We have considered, but have not formed, one or more LLC's among the sibling family group(s).

Thank you, Mick

2

Mick,

You and your extended family should get an idea of the mineral production potential of the parcels. Many parts of Reeves County can hope to generate in excess of $80,000 per net mineral acre in royalties over time. If the potential is significant as a whole, seriously consider having a lawyer consolidate the mineral rights into an efficient entity like an LLC. The shared cost could be a one time expense if done properly. If the stake holders prefer to continue on as individual owners a larger and continuing legal cost will continue for all parties until the expense is no longer worth the revenue potential. It is true that the smaller the interest, the less effort will be spent on negotiating leases resulting in a two edged sword problem for the individual owners through higher ownership expenses and less revenue.

Eventually the repeated leasing options may end with HBP (held by production) leases and lease negotiations will end along with all mineral rights control. If you all are willing to be limited to take it or leave it lease terms vs the combined strength of protecting production revenue, the future individual owners will be the ones to suffer. With oil development, the loss of revenue from splitting up ownership is not linear, it is exponential.

If you are in need of a West Texas lawyer, I will be happy to give you the names of a few.

3

Gary is 1,000% right. I'm seeing a very, very, very large ranch get raped since the family minerals are split by multiple generations. They are land rich and have no money. I have already recommended this to the family that is in distress.

What's that old saying? We either hang together or hang separately.

Bob Malone, Malone Petroleum Consulting

4

There are several options, but I would recommend creating a trust, a family limited partnership or an llc to house the interest and make family members. It will be much more efficient and will be easier to keep the interest together for purposes of lease negotiations etc.

5

Thank you Brandon, I'll pass your good advice on to the land-rich, no-money family.

Bob Malone, Malone Petroleum Consulting

6

Mick-

Usually, you probate the will and then have the executor do deeds deeding the interest out to the heirs. The Affidavit of Heirship is what you do when there is no probated will. There is a four year time limit on probating the will, so your minerals can get caught in limbo if the operator knows there is a will that has not been probated and it is still within four years.

The comments you have gotten about everyone agreeing to convey this into an LLC, trust, or LP are good ones. Beside management issues, what if an heir moves and fails to give their new address to the appraisal district or pledges it on a bank loan and then defaults? The minerals can be foreclosed and sold off, and suddenly you are dealing with a co-owner who is not a family member. As Robert says, hang together.

7

Wade, it is always soooo comforting when you are there to keep us on the right track. Thank you Sir!

Bob Malone, Malone Petroleum Consulting

8

Thank you gentlemen for your quick and detailed responses. This forum is amazing.

I do think that we will eventually go down the road to a family corporation of some sort, but it was my father's wish at this point to give these properties to us individually , and , as executor, I think I should follow his wishes for now. His will has not been probated, and we may elect not to, as beside from the title transfer, it is very straightforward. When his sister passed a few years ago, they did quit claim deeds to her 3 children,and that was it.

So, is it easiest to just record the sale of the land to my father's 3 children, do quit claims, or the AoD and Heirship? I think we want to do one of these soon as a first step, so please advise.

We have not had any legal expenses for these properties as of yet, and we do present a unified front, basically as one entity, with one person as contact, so in terms of negotiating and managing the leases, etc, I don't foresee any major difference between what we do and what an LLC might do. Am I missing something? There have been some recent negotiations, and I did not sense a problem from the landmen we have dealt with.

How would having an LLC protect production revenue or mitigate the problems of HBP? How can you deal with HBP, if the well is still producing?

Are there not yearly cost for audits and tax prep with an LLC, and would that expose us to double taxation?

And yes Gary, I would like the names of 2 or 3 West Texas lawyers that we can trust. Thank you

Mick

9

Mick, There is no yearly audit fee unless you are required to do audits. There are annual CPA fees for doing the tax return and the franchise return. There should be no double taxation if you set it up correctly and distribute out the profit every year.

10

Mick, You may be able to do a small estate probate, muniment of title, which I believe is less costly than a full probate. You may not be able to record the bill of sale if it is not notarized, and depending on how its written, it may not pass title. The operators in many states are trending toward not accepting affidavits of heirship because of so many issues that may arise, and instead will require a probate or decree of heirship in order to put you in pay status, and not suspend your royalty payments. While I’ve seen most operators in Texas accept AOHs now, 20 years from now the title standards may change, they get a new title opinion that does not accept the AOH. I’ve seen that happen in other states. They accepted AOHs for years and then changed course, suspended royalties on new wells, and required probates. If you ever plan on being a working interest owner and participating in a well, as opposed to being lessors and leasing your interest, then I would do an LLC. You’re exposed to more liability if participating. And it depends on how large of an interest we are talking about. Otherwise, it may just be more paperwork. There’s no annual accounting required per se, but someone will have to deposit checks then distribute the revenue and tax forms to the members, and an annual reporting to the SOS. I’d rather own my interest individually and not be tied to any other owner, even if it is family. You or your kids or grandkids may want to sell one day. Like you said, you can still act together as one front in negotiations without being bound to the other. Just my two cents. All of the suggestions may be good options. Its really fact specific to your situation. If it were me, I’d go ahead and go through probate and get it out of the way. Btw, most wills I’ve seen are not notarized but are usually attested to by two or three people. I believe holographic wills, handwritten, have even different requirements. You can still go through probate if the will is not accepted for some reason, and have heirship determined by the court as opposed to an affidavit. A determination from the court will hold more water than an affidavit 50 years from now. Sorry for your loss. Take care.