David, is an out-of-state owner simply receiving royalties from North Dakota considered "doing business?"
David Peterson said:
Is your LLC set up to do business in North Dakota?? We had to register our LLC in Montana so we were able to conduct business in Montana. Thus, we registered through a company called LAWCO for $100 a year. Both of our LLC's were required to do this...again...in order to do business as an LLC in Montana.
Greg Campbell said:
Here is what my siblings and me did with the mineral rights that we inherited and the reasons why.
Here are some facts: My brother and me live in Washington State. Our sister lives in California. The mineral rights are located in Williston and McKenzie counties in North Dakota.
Our mom lived in Washington State when she died. So the assets needed to be included in her estate for purposes of the Washington State estate tax and probate. Washington is not an expensive probate state so no living trust was in place. Washington’s estate tax starts at $2M. We knew that her estate would be well under that amount, so we did not get an appraisal of the rights. An amount needed to be reported for probate. I did some research and applied a per acre amount based on that research. Because I didn't want the risk of the state asserting that I estimated low to avoid the tax or reporting requirements, I estimated high. I included a letter and other documents in the estate filing to support the valuation.
You may be asking why if there is an up-step in basis, why not get the appraisal? Well, it does cost money. And in our case mom told us that granddad said to never sell the rights. He was right, we just complete a lease that paid us a bonus of over $50K. Additionally it appears that the common wisdom is not to sell Bakken mineral rights. If there will be no sale in the future, then no need for a good supportable basis number. But on the other hand things change and maybe one of use needs or wants to sell. Then what will I do? I will probably use the number I can up with during the administration of the estate, which is probably higher than what an appraisal would have given me. There is risk here. In the event that the IRS looks at this potential transaction, I may not be able to support the value to their liking and therefore pay tax on the entire sale price.
Because the property is located in North Dakota, we needed to do an auxiliary probate in that State. In short I hired an attorney that took care of this. I was never asked for a value of the assets. As part of the of the probate work in North Dakota, the attorney also handled the title transfer to my siblings and me.
After this transfer was completed, I sent up a LLC in Washington State that will be taxed as a partnership and all three of us quick claimed our rights into the LLC. Here are the reasons:
- To make it easier to transfer the rights from on generation to another.
- To be able to negotiate leasing of the rights as one.
- To make it easier for potential leasers to find us.
- To take advantage of a discount due to lack of marketability which should allow us to use lower valuations for the purposes gifting and or estate tax.
As I have said, often time residents of California set up revocable trust to bypass probate in that state and save some money. If my sister, who lives in California, chooses to, she could set-up a revocable trust and transfer her ownership interest in the LLC to the trust. Thus receiving the benefits of the LLC and the trust.
I must say it again. Tax issues are complex. You must get good advise. I, a CPA that prepares trust tax returns on a regular basis would not undertake a trust strategy without the advise of a well qualified attorney.
Christine...it's my sense that the answer is YES...you are "doing business" in another state...and thus are subject to the taxes and laws of that state. As mentioned, we are in Montana...and our LLC (which I agree with Greg is a great way to get this organized) pays taxes (composite taxes) to Montana on our behalf and our LLC needs to be registered in Montana in order to "do this business"!! Thus...it's my sense that the answer is "YES"!!
One additional quick note from Greg's post...I believe it's called an ancillary probate and not an auxiliary probate...if you want to ask your legal people about that.
Christine Putnam said:
David, is an out-of-state owner simply receiving royalties from North Dakota considered "doing business?"
David Peterson said:
Is your LLC set up to do business in North Dakota?? We had to register our LLC in Montana so we were able to conduct business in Montana. Thus, we registered through a company called LAWCO for $100 a year. Both of our LLC's were required to do this...again...in order to do business as an LLC in Montana.
Greg Campbell said:
Here is what my siblings and me did with the mineral rights that we inherited and the reasons why.
Here are some facts: My brother and me live in Washington State. Our sister lives in California. The mineral rights are located in Williston and McKenzie counties in North Dakota.
Our mom lived in Washington State when she died. So the assets needed to be included in her estate for purposes of the Washington State estate tax and probate. Washington is not an expensive probate state so no living trust was in place. Washington’s estate tax starts at $2M. We knew that her estate would be well under that amount, so we did not get an appraisal of the rights. An amount needed to be reported for probate. I did some research and applied a per acre amount based on that research. Because I didn't want the risk of the state asserting that I estimated low to avoid the tax or reporting requirements, I estimated high. I included a letter and other documents in the estate filing to support the valuation.
You may be asking why if there is an up-step in basis, why not get the appraisal? Well, it does cost money. And in our case mom told us that granddad said to never sell the rights. He was right, we just complete a lease that paid us a bonus of over $50K. Additionally it appears that the common wisdom is not to sell Bakken mineral rights. If there will be no sale in the future, then no need for a good supportable basis number. But on the other hand things change and maybe one of use needs or wants to sell. Then what will I do? I will probably use the number I can up with during the administration of the estate, which is probably higher than what an appraisal would have given me. There is risk here. In the event that the IRS looks at this potential transaction, I may not be able to support the value to their liking and therefore pay tax on the entire sale price.
Because the property is located in North Dakota, we needed to do an auxiliary probate in that State. In short I hired an attorney that took care of this. I was never asked for a value of the assets. As part of the of the probate work in North Dakota, the attorney also handled the title transfer to my siblings and me.
After this transfer was completed, I sent up a LLC in Washington State that will be taxed as a partnership and all three of us quick claimed our rights into the LLC. Here are the reasons:
- To make it easier to transfer the rights from on generation to another.
- To be able to negotiate leasing of the rights as one.
- To make it easier for potential leasers to find us.
- To take advantage of a discount due to lack of marketability which should allow us to use lower valuations for the purposes gifting and or estate tax.
As I have said, often time residents of California set up revocable trust to bypass probate in that state and save some money. If my sister, who lives in California, chooses to, she could set-up a revocable trust and transfer her ownership interest in the LLC to the trust. Thus receiving the benefits of the LLC and the trust.
I must say it again. Tax issues are complex. You must get good advise. I, a CPA that prepares trust tax returns on a regular basis would not undertake a trust strategy without the advise of a well qualified attorney.
David's quote below, is correct...but I will also add that it is "Quit Claim" not "Quick Claim"
"One additional quick note from Greg's post...I believe it's called an ancillary probate and not an auxiliary probate..."
A couple useful things to remember about "ancillary probate" 1) there needs to be an open probate somewhere to anchor the ancillary probate. (don't close a probate when you know or suspect there is property in another state that needs separate probating) 2) Ancillary probates should be vastly cheaper, quicker, and less hassle than opening a separate probate.
Why do people confuse "quit claim" with "quick claim"? besides sounding so similiar, they are a "quick" way to transfer ownership. It is called quit claim because that is in fact what you are doing. You are quiting any claim now and in the future for any rights you had or have in the property.
Important thing to remember......I can quit claim to any of you my interest in your homes or cars or anything I want. I have no interest in any of your stuff but that doesn't preclude me from quit claiming it.
That is what makes the difference between "quit" and "quick" so important. Many people think it is just a "quick" informal way of transferring ownership between trusting people, or people that don't want the hassle of Title searches or want to pay anyone to deal with the hassle........quit claiming to yourself is of course the safest and is in fact the most common use for transferring property to ones self into a different form of ownership...........don't accept quit claims from others for real property thinking it is just a "quick claim" of legitimate ownership....think "quick" way to legal nightmare
Quit claim: "if I have any interest in this property, I now transfer that entire interest to you." (I could write up a document quit claiming my interest in the Tower of London to Greg)
Quick claim: FOUR! (golf humor)
Andrew...and others:
Indeed...knowing about quit claims and their use is HUGE!! Note that we ran into an issue in Montana when a member of the generation before me stated on their quit claim deed (after specifying the portions they wanted to include in the LLC that they owned with others) "and any other mineral rights that we own in Montana"!!
This was a huge, broad statement (put in by their legal people several years ago) that made the ancillary probate incredibly difficult for the mineral rights that this person owned on their own as I found out when I tried to work through the ancillary probate.
In effect, while the intent had been to quit claim only those mineral rights that entered into the group LLC, by adding this phrase, they inadvertently added what they owned on their own into that LLC...and it took another quit claim deed to reverse the first...to the tune of many dollars and LOTS of extra time.
Thus, our experience is a word to be very careful and specific as to what you are including in the quit claim!! It can come back to haunt you (or the next generation) if you are not!!
Andrew Babcock said:
David's quote below, is correct...but I will also add that it is "Quit Claim" not "Quick Claim"
"One additional quick note from Greg's post...I believe it's called an ancillary probate and not an auxiliary probate..."
A couple useful things to remember about "ancillary probate" 1) there needs to be an open probate somewhere to anchor the ancillary probate. (don't close a probate when you know or suspect there is property in another state that needs separate probating) 2) Ancillary probates should be vastly cheaper, quicker, and less hassle than opening a separate probate.
Why do people confuse "quit claim" with "quick claim"? besides sounding so similiar, they are a "quick" way to transfer ownership. It is called quit claim because that is in fact what you are doing. You are quiting any claim now and in the future for any rights you had or have in the property.
Important thing to remember......I can quit claim to any of you my interest in your homes or cars or anything I want. I have no interest in any of your stuff but that doesn't preclude me from quit claiming it.
That is what makes the difference between "quit" and "quick" so important. Many people think it is just a "quick" informal way of transferring ownership between trusting people, or people that don't want the hassle of Title searches or want to pay anyone to deal with the hassle........quit claiming to yourself is of course the safest and is in fact the most common use for transferring property to ones self into a different form of ownership...........don't accept quit claims from others for real property thinking it is just a "quick claim" of legitimate ownership....think "quick" way to legal nightmare
Quit claim: "if I have any interest in this property, I now transfer that entire interest to you." (I could write up a document quit claiming my interest in the Tower of London to Greg)
Quick claim: FOUR! (golf humor)
Donald, You sound as if you know your business when it comes to value of mineral rights. I have spoken to a few folks about how to get some mineral rights that I inherited in 2009 from my mother valued for tax purposes. I sold 25% of them this year and am trying to see if there is any way I can get them valued as of 2009 for tax purposes (capital gain) They have been leased at least two times and then an offer was turned down as late as 2007 to lease them, but no one has actually drilled on the property.... I am so confused as to whether to just give up and report the entire amount as capital gain or try and get a break somehow. My mothers estate (in Texas) was very minimal. The land is in Parker County and the land itself was sold many years ago, but our family kept the rights. If you can help me will you email me at patandpaula@sbcglobal.net? or call 214 703-0406 thank you
Mr. Skotty,
I'm Richard Spann with land in Reeves County. I may sell it, and need a inherited value from 2011 when I got it. Do you do these? If so - reply and we can swap info- my email is rkspann@yahoo.com