I live in Minnesota and my mother-in-law owns some mineral rights in Oklahoma, Payne County. She just entered assisted living and we'd like to have her sell her mineral rights before Medicare starts paying for her assisted living and the government tries to put a claim to her mineral rights. My husband and I are interested in buying the mineral rights but we have to pay fair market value. We don't know what is the fair market value. Any idea how we can figure that out?
Thank you!
Are the rights producing? Can you give us the legal description? Section, township, and range.
We too are interested in valuing mineral rights (ours are in SD).
Would you share with us responses you receive ?
Thank you,
Mike Tikkanen
mike@packardgroup.com
I buy minerals in Payne County and have paid from $1200 to $2400 per acre for mineral rights only, it depends on so may variables like which part of the county, leased or not and if leased what the terms are, producing, if so how much.
The rights are in Section 30, 19 north, 4 east. The "spud" date, if that makes sense, was in December 2012. My mother-in-law has not been notified that it is producing.
They have completed the well and the initial production was pretty good. The offsetting well in the section South was very strong at 690 bopd and 879 mcfpd so they will probably drill another well soon and so the value will be North of $2400 per acre.
Wow, how did you figure all this out? Is there a website to go to or a phone number to call?
Heidi,
I was not aware Medicare would pay for assisted living. Medicaid might, depending on the financial situation of your mother-in-law.
A fair market value purchase should cover you as Medicaid can go back 5 years and reverse a sale to family members. The Matthew 30-1MH well (API 3511924004 was complete Jan 13. First sales date is listed as Jan 31. It is showing 200 BBL/Day Oil and 214 MCF/Day Gas.
http://imaging.occeweb.com/OG/Well%20Records/1DD0EB1E.pdf
In my opinion you will need a Registered Petroleum Engineer to place a value on the rights. That is the proper method to satisfy the IRS in an estate. This one might be difficult to value right now as there is not much production data to use. I can point you to someone we have used that I was satisfied with.
You’ll need to weigh your options on if you will come out in the long run better or not by making the purchase now or not. I don’t see the government claiming her mineral rights. It will be a source of income that will be used to pay for her care. If she has the means to pay for her care, it would likely exempt her from being Medicaid (welfare) eligible. The money obtained from the sale of the rights would also have to be declared as income and used for her care as well.
You could also look at filing a transfer on death dead. Or it could be sold with her retaining a life estate.
Just a couple of possible options, but I think you need to talk to an Oklahoma (Oklahoma law will apply to the Oklahoma property) estate attorney that is familiar with oil and gas properties.
Disclaimer: I’m not a professional. I’m a manager of our family assets and more aware of some of these issues than the average mineral owner. Verify anything advice I give you with an appropriate professional or other documentation to your satisfaction.
Sorry! You both replied as I was drafting my reply!
You're right, it would be medicaid. So far she is not getting any income from the well, which you know, so we don't have anything from that to pay for her care. She's using her assets (and her income from other sources) for her care but her assets will be depleted in a few months and then she'll get an elder care waiver (Medicaid). I like the idea of the sale with her retaining a life estate. I am familiar with some of this since I am an attorney but practice more in family law and criminal prosecution. Thank you for your input.
I too don't like the tax payers paying for her care which is part of reason she is using her assets for her care and not just spending them on frivolous items to make sure she can qualify. If her mineral rights are sold, then those proceeds will also be used for her care. These mineral rights were inherited from her father so it would be nice to keep them in the family. For sure we'd pay the right value since to do otherwise is not ethical. I do appreciate your concern about the tax payers since I am one of them too.
Because it is a fairly common practice for some to try to liquidate/transfer/hide assets, that is always my concern. Since the transactions are often, investigated, reversed, and prosecuted as fraud I felt it was worth mentioning. And I wanted to avoid accusing anyone of attempting it that might be following this thread.
From an estate perspective, I’m not sure of what would be the best way.
Right now the actual mineral rights could be worth very little if you strip away the Royalty Interest of the well, or wells subject to the lease. If there is not a depth clause on the existing lease it would be worth almost nothing. So the mineral rights could be deeded to Husband excluding the Royalty Interest. Then a subsequent Transfer on Death deed or deed retaining a life estate could be filed on the remaining interests. The minerals interest (by itself) would have very little current value, but who know what they would be worth in the next 5-10 years. The peak income on the well should be within the first and second years. So depending on the net mineral acreage if she passed at year 4-7 there would be very little value added to the estate. If there are subsequent horizontal wells they will also peak and fall in production along the timeline.
I’m just afraid the value you are going to see will be pretty high with an appraisal against it right now. In hindsight, going back a few years it would have been the thing to do.
I’m not sure how Medicaid treats all of these, but my recommendation is to research options carefully. Also if you use a transfer on death deed, the laws have changed a bit recently. After death an affidavit has to be filed within 9 months. Otherwise it goes back to the estate.
Thank you.
Rick has provided good advice.
I am an Estate Planning and Probate and Oil and Gas attorney in Oklahoma.
You could transfer the asset now, but as has been explained there is a 5 year look back if they investigate.
It sounds like you are leaning toward a transfer now, and retaining a life estate. This would work, because all of the royalty production would continue to be hers and could be used for her maintenance while she is still living. Once she passes, you have already transferred title and all that would be needed is an Affidavit of Death. The bad part of this plan is that the transfer occurs now and any creditors of whoever receives the asset could attach liens for after her death. Only nominal consideration necessary because the income producing asset does not transfer until the death of the grantor and no one knows when that will take place. Also, since the income producing asset is still owned by the grantor it is difficult to undo the transfer on the Life Estate because its tough to value. And the grantor still owns and receives the income to assist with living expenses.
A transfer on death deed accomplishes the same thing but with the transfer not taking place until after her death. As mentioned, you will need to file an Affidavit of Death and acceptance of a transfer on Death Deed within 9 months of the death. No creditor attachment until after death. The transfer is 100% revocable unlike reserving a life estate. No consideration necessary.
Matthew McBee
a Registered Petroleum Engineer to place a value on the rights. That is the proper method to satisfy the IRS in an estate.
Certified General Appraisers with mineral experience as well as geologists also value minerals and do so differently from an Engineer. Deed stamps are required on deeded sales in Oklahoma, therefore, a visit to the courthouse will show you the actual deeds filed recently and those are a good basis for valuing mineral rights...