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I Inherited Mineral Rights, Now What?

Updated: Dec 17, 2023

The main way most mineral owners acquire their mineral rights is through inheritance. Sometimes land fractionation (the issue of property rights getting subdivided every generation) can result in individuals only having a tiny slice of the original pie. In other cases, the death of relatives that have no inheritors results in one family member accumulating a sizable mineral interest on the land. Whether you have a small or large number of mineral acres, there are a few things that are important to know regarding your inherited mineral rights.

Put Your Mineral Rights in the Form of a Trust

Because mineral rights tend to change hands every time someone passes away, it is best to have them in an entity that can make the transfer and benefits of property rights easily. A trust is made up of a grantor, who is an individual that establishes the trust and determines what assets will go into it. Then there are the trustees, who are individuals who manage the trust assets. Finally, there are the beneficiaries, who are the people who benefit from the trust. A trust has the capability of keeping lots of relatives focused on the same goal: the best management of their mineral rights. It also avoids expensive and lengthy probate court procedures, which happen when someone passes away without a will or if there are complications regarding who inherits what. Most family lawyers can establish a living trust pretty easily. Setting up a trust is a two-step process that involves creating a trust agreement and then funding the trust. In the case of mineral rights, the trust agreement can have language that describes how trustees vote on issues (such as, when to sell mineral rights or what to do with royalty revenue). In the case of mineral rights, the funding of the trust typically happens through royalty payments from oil and gas wells.

Value Your Mineral Rights Soon After Inheriting Them

If you inherited a precious family ring, you might be interested in knowing how much it is worth, right? It is the same with mineral rights. Knowing their value soon after inheriting them gives you two key advantages. First, it lets you make better financial decisions on whether to keep the mineral rights or sell them, if you could potentially borrow against them using the mineral rights as collateral, what type of monthly royalty checks you can expect into the future, and just to have peace of mind regarding what it is you now own. Second, it facilitates the payment of long-term capital gains if you were to ever sell the mineral rights in the future. If you sell your mineral rights, you will have to pay 15% to 20% in Federal capital gains tax. You will likely also have to pay a much smaller percentage (1% to 3%) in State capital gains tax. This tax is only applied to any value your mineral rights may have gained since the day you inherited them. If you did not get a mineral appraisal soon after inheriting them, you will still need to establish this value if you were to sell the mineral rights in the future. When these valuations are done retrospectively, they are called retrospective mineral appraisals. A mineral appraiser will always struggle a little more to value your minerals when looking into the past, as opposed to only considering the present. As such, we generally recommend that mineral owners request a mineral appraisal soon after inheriting their mineral rights as opposed to getting this work completed only if they plan to sell their mineral rights.

Consider Selling or Donating Your Mineral Rights

One of the advantages of valuing your mineral rights soon after inheriting them is that you can decide whether to sell them, keep them, or donate them. There is never a bad time to sell your mineral rights, there are just bad prices at which to sell. At some level, if an offer is high enough, you are better off selling your mineral rights and investing that money somewhere that has less risk than the oil and gas industry. If you donate your mineral rights, for example to a church or university, then you are not only doing a good deed but are also able to claim a tax deduction equivalent to the value of your mineral rights. This would involve a mineral appraisal in order to establish the fair market value of your donation.

Whatever You Do, Get Help from An Expert

There are numerous oil and gas attorneys, accountants, land professionals, and mineral appraisers that can help. Spending some money up-front to get their advice may seem expensive, but it can be much more costly to make a poor decision regarding your mineral rights. Take some time to build a team of professionals that are there to support you and help you make good decisions.

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Unknown member
Dec 28, 2021

Regarding the value of the mineral rights both my mother and I have put down that they are of unknown value. After she passed I used the same wording. Was that the right thing to do. I notice that your page isn't very active in 2021. Is it time to get out of oil? oh no?

Alex Branda
Alex Branda
Dec 29, 2021
Replying to

Dear Alex. No, it is not necessarily wrong to do that but if you ever sell your mineral rights you may want to get a retrospective mineral appraisal to establish the value of the mineral rights when you inherited them (your basis). This may help reduce what you have to pay in capital gains tax. Regarding the page activity, we have actually been too busy to write new blog articles, but it is always great to get feedback from visitors to our page and we will try and upload some new content soon.

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