Our family is currently nearing the end of Ancillary Probate in Grady County for mineral deeds inherited from a sibling. There are several active wells. Should we record the deeds with a transfer on death provision or create and use an Limited Liability Company and place the LLC in a Living trust? Any help or experience would be greatly appreciated.
John:
You have broached several questions and options into one. The question is what do you want to accomplish, joint ownership, separate ownership, etc? Once you decide what you want to do, I would suggest you consult with the attorney that is handling your probate or have him recommend someone that can handle your requested desires. Good Luck.
I second the recommendation to work with an attorney to make that decision. It is very fact dependent.
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@John_Tennison of course it makes sense to do things in as cost effective a manner as possible - prudence calls for such in all things. In a case where âthere are several active wellsâ and the inference you make of establishing one or more new legal entities (which of course require ongoing accounting expenses), Iâd highly recommend a qualified oil and gas atty who practices routinely in OK. Way better to pay a bit on the front end for high quality counsel and direction.
Youâve had several replies suggesting you consult an attorney, and thatâs good advice. I suspect, though, that youâre looking for a discussion of the issues, and Iâll offer my perspective. Iâve been managing my own oil & gas properties for about 35 years, and I now manage a family minerals LLC that we formed 11 years ago. It was certainly the right solution for our situation. We own mineral rights in about 100 properties in 13 Oklahoma counties. Advantages of the LLC are centralized management, cessation of the division of the ownership into more and more tiny holdings in successive generations, etc. On the down side, it does require an attorney, setup charges and an annual tax return. Certainly, the number of properties involved and the annual royalty income of the combined set will be a factor in your decision.
I manage the books and have trained one of our sons who will eventually take over. And thatâs one of the advantages. The other two sons would be much less equipped by background and personality for this particular job. And if they owned the properties individually, each of them would have to manage all the same leases, etc. And when one of the owners dies, it has no impact on the oil & gas property, since thatâs owned by the LLC. This advantage was recently brought home to me as Iâm dealing with a property owned by six members of my wifeâs family (and not in our LLC). One of the owners died in another state, and in order to transfer the Oklahoma real property to his wife and heir, a separate Oklahoma (Summary) probate will be required. That doesnât happen with property in an LLC.
Just food for thought.
Rudy
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Great comments every solution has its advantages and disadvantages. Rudy has outlined several pros and cons. Also consider a simple mineral trust to hold the properties if the idea is to avoid probate.
Youâll notice qualified oil and gas attorneys listed in our Directory under Mineral Service Providers.
John,
Obviously, I donât know all the particulars of your situation, including the number of properties, their values, and the number of beneficiaries.
That said, for simpler deals, itâs hard to beat a Transfer on Death Deed as a method to keep mineral interests out of Oklahoma Probate.
You can designate both a primary and a secondary beneficiary (or beneficiaries), I believe.
But remember â A beneficiary must file a written Beneficiaryâs Affidavit to accept a Transfer-on-Death Deed within 9 months of the mineral interest ownerâs death or the property will revert to the deceased ownerâs estate.
Good luck. Sometimes simpler is better ⌠sometimes itâs not. A good attorney is sometimes more than worth his money.
One downside of an LLC or a family owned corporation is that sometimes, it breeds resentment among the family members. Since somebody has to run the LLC or corporation, other heirs may think he/she is not doing a good job. Further, the person doing the job may resent having to track the royalties and deal with the companies in exchange for little or no pay. And if that manager is getting paid anything, other heirs, especially cross-generations, may believe he/she is getting paid for doing nothing or very little.
Have to add to this discussion â there is lots to do to run a portfolio of minerals. There is the usual Lease(hopefully again someday) and bonus; negotiate for Royalty terms. Then battle with the Companies to get paid on your lease terms ( havenât had a company yet - pay without taking deductions initially-Have to recognize what is happening and request adjustments ) takes a lot of my time.). Then of course ask for the interest on late payments. And in my case have lawyers resolve deeds not transferred or placed in Wills/probate. The most important is to set lease terms to your advantage. May be easier to place in Trust. At least then if a Trustee expense charge is made it will certainly be less than a Trust arrangement with a Bank would charge for some type of Management.
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There is a financial advantage to consolidating mineral management, whether as a single entity or all related parties acting in concert. Whatever entity you may use (LLC, Trust, LP), be sure that the partners/beneficiaries have the right to see all related information, including the leases, bank statements, tax returns, etc. And that the trustee or manager has an obligation to provide this information and that the property cannot be sold without consent of the non-managing parties. This website has quite a few stories of trustees who refuse to give out information, have sold the minerals at below-market rates and have pocketed the royalties and revenues. Information needs to be open and available. Unfortunately, not everyone is trustworthy and some lose their abilities due to health or age. This is also a problem where an individual owner manages properties and does not maintain organized records or share information with his heirs. It can be a lot of work to manage minerals, from leasing to auditing royalties, and it is most helpful to have organized records of properties, leases, etc. for your successors.
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Under the Oklahoma statute, contingent beneficiaries are not provided for. Title 58 OS Section 1255(B) provides, "B. If one or more of the grantee beneficiaries dies prior to the death of the grantor owner, the transfer to those beneficiaries who predecease the grantor owner shall lapse. " This would seem to not allow the inclusion of contingent beneficiaries like per stirpes. Also, the 9 month window may be problematic for minors etc. Also, if a beneficiary is disabled this could wreck his/her benefits. Lots to think about here.
This is a great place, its good to learn about hem in a forum. But unlike DIY plumbing if there is a leak you can call a plumber to fix it, if you do your own estate planning and become disabled or die, calling an attorney is too late.
Richard,
Thanks for your comments. I appreciate them.
Hereâs where I find things to be confusing.
58 OS Section 1255(B/C) originally was worded (2008) with the term âalternate grantee beneficiaryâ, but when it was later amended in 2011, the language was changed to âgrantee beneficiariesâ, and covered one predeceasing the other(s).
So, Iâm not sure exactly what they tried to accomplish by the language change. Obviously you can have more than one, but whether the grantor is still given the prerogative to specify his ordering preference seems unclear. Would the Oklahoma Legislature want to remove the right of a grantor to specify an alternate? Beats me, but I donât see why.
Some of the Oklahoma legal commentators still mention designating an âalternateâ, but others just say that the law does not specify.
Iâm not an Oklahoma-licensed attorney, so donât consider my comments to hold much weight, if any.
Again, thanks for the discussion.
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Thanks Ribeye-rare (great name, makes my mouth water)
Like a parachute you want to make sure things are done correctly. That is why attorneys often hire other attorneys to create their estate plans.
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