Mineral Interest Management for Families 101

Many families in the Oklahoma and Texasarea  have accumulated ownership of minerals over the years. Many of these families adhere to the old adage “never sell your minerals” resulting in mineral ownership in various amounts over several generations. As older family members die holding mineral interests, passing those minerals on to the next generation can present several issues and problems going forward. In today’s blog post, we’re addressing some of these issues and how to address them.

The first problem that can occur involving mineral interests is that it costs money to transfer minerals from the deceased to their beneficiaries, including the cost of legal fees for probate, preparing mineral deeds and assignments and recording fees in each county in every state that minerals are owned. Depending on the number of separate tracts of minerals and where they are located, the recording costs can be considerable.

The second problem that can occur  is the increased fractionalization of each mineral interest to multiple beneficiaries.  For example, if granddad owned fifteen mineral acres in Grady County and died with three children, each child would get five mineral acres. If each child has two kids then when each child dies his or her 5 mineral acres would then pass to their children in the amount of 2½ acres each. The original 15 acres owned by one person is now owned by six people – each grandchild now having a significantly smaller interest. Smaller interests have  less bargaining power when it comes to leasing or selling minerals. As mineral interests continue to get smaller and smaller with each passing generation, they become less and less valuable and the oil companies are less likely to consider those interests anything other than a nuisance.

There are different solutions to avoid these problems.

You can create a Trust that holds the mineral interest. By creating a Trust you will keep mineral interest in a larger proportion and avoid the fractionalization of mineral interest. Creating a Trust will avoid legal fees and mineral transfer costs for a couple generations. However, under Oklahoma law and the laws of most states, a trust (unlike a limited liability company) cannot last forever. While a trust may avoid one or maybe two generations of transfers, ultimately the trust will terminate and transfers will have to be made from the trust to the trust beneficiaries at the time of termination. There are only a handful of states that have what are called “dynasty trusts” and most of those require a bank or trust company to be the trustee of the trust rather than a family member.

Establishing a mineral company as a means of preserving values for the family and saving money by avoiding legal fees and recording costs as minerals are passed on from generation to generation. By using a limited liability company to hold minerals owned by a family, the family can avoid multiple rounds of fees and recording costs when a family member dies. Instead of passing different mineral interests to the next generation of beneficiaries, interests in the limited liability company are passed – avoiding deeds and transfer fees every time.

If creating a Trust or a mineral company is not of interest to you, consider selling  your mineral interest to a family member. This is a good option for someone who is not interested in managing a mineral interest. Selling it to a family member will keep it in the family and give that family member more bargaining power with a larger interest. y. 

If your interest is already a small fractionalized interest and the above solutions are not right for you, consider giving your interest to a charity or a foundation. Many charities, churches or foundations are bequeathed mineral interests. This is a good option for someone who does not desire to manage their small mineral interest and give back to their community.  

In conclusion, for many families it makes sense to look at using these tool to preserve value for minerals the family has accumulated over the years. Please give Robertson & Williams a call if you have further questions or are interested in pursuing the use of this important tool in family wealth planning and preservation.

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