We own mineral rights in 12 states. Some are producing and most are not. We need to know what valuation to put on them so we/they won’t have to incur gift taxes.
I had always heard that the value of producing mineral rights is the payments X 7. Is this still true? Also, is there no value for non-producing properties?
This is not a do-it-yourself process. Producing properties should be valued by a qualified reservoir appraiser engineer as that is a function of decline curves, pricing and economic life. Tracy Lenz of Pecan Tree Oil and Gas is one appraiser who can do this. Nonproducing minerals definitely have a value as they can be sold, depending on location and area activity and mineral sales. You would not give them to a stranger for free. Tracy or other qualified appraiser can help you with this or refer someone else to do this. Current federal estate tax exemptions will mean you will not pay gift tax. However, your state of residence may be a problem. So you should be working with an estate lawyer or CPA for proper gift filings.
It is great you are trying to be thoughtful in this process. @TennisDaze provides you with solid advice as always. I have worked with many families that have received similar distribution of properties. A word of caution prior to the distribution, please consider that each of your children will have at least the same admin cost as you currently have for the properties; however, their property income will only be a portion of your current income.
I just worked with a family that had interests in over 300 properties and their Father’s income was less than $500/Mo. Now each child has a half interest in the properties with the same admin cost. On top of that the children were not interested in the industry. Good luck to you in your efforts.
You’ve gotten some great advice from both @TennisDaze and @James_Garner1. You didn’t ask; but let me suggest that you also consider ownership in addition to valuation as you think about the next generation.
IANAL
If you hold all these minerals / royalties in your name; then they will have to go through probate in all 12 states. This will be very costly and take a considerable amount of time. You should consider putting your interests in something like an LLC or perhaps a trust; so as to avoid this ‘probate in every state’ predicament.
Good thoughts @David_Meinert. Consult with a qualified estate attorney prior to any decisions for the best tax treatment if you want to transfer to a trust or LLC. You will have to deed all properties to the new entity and get the new entity on pay with all purchasers. This can be a very time consuming task. If you go through this process incorrectly, then probate is the probable outcome. Good luck.