Inheritance on oil and gas royalties

Hi my elderly mother inherited mineral rights on 12.5 acres in Texas. She receives royalties each month. We are not clear and cannot get answers to a few questions regarding filing taxes. I appreciate your help in advance.

  1. Trying to understand if this is ordinary income or unearned income?
  2. How does she receive the information about severance taxes if any to deduct from her expenses?
  3. Does a depletion allowance apply here? How do you get that allowance?
  4. She cannot have income because she is in elderly HUD housing. How can she avoid this “income” and not get kicked out?
  5. She does not need the royalties and would like to pass down to her grandchildren. If she opened a trust for them would she pay taxes on the money each year as it flowed thru her and would the children pay taxes when the money is taken out of the trust? In other words, are the royalties taxed 2x? Is there a way to avoid double taxation for her to leave to her Grandchildren and/or avoid it as income at the start?

I know this is for an accountant; however, I cannot find one who has info about this or a financial advisor who understands the oil and gas rights.

You should visit with a Texas elder law attorney.

Thanks Richard! That is what my accountant said. We are in California. Do you think you could help her?

Charles. Make that a California elder law attorney. I’m not licensed in California.