Need advise on how to present to my father what needs to be done to pass on his estate.
Dad is 83, Mom is 81. Dad has always been an ornery SOB that most people were scared of. Especially us kids (three sisters) (one brother plus one post mortem that took care of his own life). Dad has serious health issues that will (at the best give us 3 to 5 years). Prescribed medicine will be 2K a month and most likely will not be covered by Medicaid.
Being on the verge of Dad's first royalty payment (probably mid Sept) in the family trust history dating back to 1955ish.
I personally have a very comfortable life with four great kids, two grand babies with one on the way! For what is's worth, I am the Executor of Will and Trustie. My siblings are way too passive and will not help direct Dad to make decisions that will ultimately benefit his kin.
Dad wants to pay his own way, which is VERY respectable. But how do I get him to accept the fact that if he deeds his house (not me) to one of the kids, he can benefit his kids rather than willing his small (50K equity) to the state.
Love this site and appreciate any comments......good, bad, left, right, or on the fence.
KJ,
Sounds like Dad has a well ready to produce revenue. Assuming the well is completed and tested, you could buy the minerals from him at an established fair market value based on his expectations at the time of transfer and reserving a lifetime estate to him from all revenue. An official appraisal confirming expectations he may have at the time of the sale may be necessary for medicaid documentation. You could make distributions as owner to siblings at cost later or whatever you are inclined to do as you would own the property after his death.
If the well has not been completed and tested, expectations and fair market value may be far less in a transaction. Again an independent appraisal would be wise to have. And quick action will be necessary.
There are several other alternatives I know about but they take too long to put into place, like LLC's and Family Trusts. You have a definite time constraint. Once the well is tested and made public record and a Division order signed, the chance of the value going to the State and not the heirs is very high if he wants his medical costs covered by medicaid. He may have to "donate" his life estate income but not the future income of what might be a valuable asset to his kin in the future.
KJ-
These are tough issues. Your post is not clear on the effect of this trust. Does your dad have the pwer to gift these minerals if they are owned by the trust? If not, you need to deal with the trustee also.
Assuming dad can make the decision, the most compelling arguments for either gifting or setting up a family partnership are: 1) the current estate tax caps are $5 million individual, $10 million per couple - they are unlikely to stay this high due to budget pressures; 2) a single big well can put you at risk for exceeding the estate caps - $2 million in royalty revenue per year = $6 million is estate tax value; 3) does he really want his family legacy to go, in part, to the government; 4) there are ways to structure the gift where he retains all or most of the income, but you get the asset; 5) putting minerals in a family limited partnership reduces the number of signatures you need on a lease, allows you to discount the minerals an additional 30%+ for estate tax purposes; 6) the partnership reduces the risk that someone moves and loses their minerals to a property tax foreclosure, or pledges the minerals on a loan and loses them to foreclosure; 7) the kids need to start learning how to manage these assets; 8) the partnership stops the continuig split of minerals through inheritance - most companies will not cut royalty checks until at least $100 is accumulated; 9) if he is looking at doing a living trust to qualify for nursing home benefits, these minerals will put him over the $ threshold.
Hope this helps.
Gary / Wade,
Thank you for the responses. That is a lot to think about.
Wade, my Dad is the current trustee and I am legally documented to follow him. One of the uncomfortable issues I will need to deal with is that the current trust is equally shared by my father and two cousins. One cousin has a wife and will not have any children, the other cousin is single and also will not have any children. In my interpretation of the trust, I read that the trust shares are to be handed down to decendents not heirs or spouses which I believe would go to myself and siblings. We will consult with our O & G attorney on that issue within the next few months.
I found a federal publication that has interpretations of many of the issues you have listed. I will definately start studying to better educate myself prior to consulting with our attorney. By the way, the attorney I am refering to set up the family trust, did the probate, prepared my grandparents and fathers will.
Thanks again for your comments. Have a great day!
Wade,
Your outline is absolutely awesome!! I'm gong to have every private client read and understand it. It breaks my heart to see companies take such risks to find and extract mineral resources for the benefit of all the risk takers, including mineral owners, who can least afford to loose the gains reserved by their ancestors for greed or complacency. I hope all members who plan on inheriting minerals read this. Thank you.
Wade Caldwell said:
KJ-
These are tough issues. Your post is not clear on the effect of this trust. Does your dad have the pwer to gift these minerals if they are owned by the trust? If not, you need to deal with the trustee also.
Assuming dad can make the decision, the most compelling arguments for either gifting or setting up a family partnership are: 1) the current estate tax caps are $5 million individual, $10 million per couple - they are unlikely to stay this high due to budget pressures; 2) a single big well can put you at risk for exceeding the estate caps - $2 million in royalty revenue per year = $6 million is estate tax value; 3) does he really want his family legacy to go, in part, to the government; 4) there are ways to structure the gift where he retains all or most of the income, but you get the asset; 5) putting minerals in a family limited partnership reduces the number of signatures you need on a lease, allows you to discount the minerals an additional 30%+ for estate tax purposes; 6) the partnership reduces the risk that someone moves and loses their minerals to a property tax foreclosure, or pledges the minerals on a loan and loses them to foreclosure; 7) the kids need to start learning how to manage these assets; 8) the partnership stops the continuig split of minerals through inheritance - most companies will not cut royalty checks until at least $100 is accumulated; 9) if he is looking at doing a living trust to qualify for nursing home benefits, these minerals will put him over the $ threshold.
Hope this helps.
KJ, Would you please share the reference to the federal publication?
Gary H
K J Ktytor said:
Gary / Wade,
Thank you for the responses. That is a lot to think about.
Wade, my Dad is the current trustee and I am legally documented to follow him. One of the uncomfortable issues I will need to deal with is that the current trust is equally shared by my father and two cousins. One cousin has a wife and will not have any children, the other cousin is single and also will not have any children. In my interpretation of the trust, I read that the trust shares are to be handed down to decendents not heirs or spouses which I believe would go to myself and siblings. We will consult with our O & G attorney on that issue within the next few months.
I found a federal publication that has interpretations of many of the issues you have listed. I will definately start studying to better educate myself prior to consulting with our attorney. By the way, the attorney I am refering to set up the family trust, did the probate, prepared my grandparents and fathers will.
Thanks again for your comments. Have a great day!
Gary,
I have it at home and will get you the info tonight.