Replies to This Discussion

Permalink Reply by Thomas C. McKowen, IV on November 22, 2013 at 3:51

Yes, producing minerals must be valued in an estate.  (Even non-producing minerals must be valued, if they have any value.)  If minerals are of any substantial value (especially if an Estate Tax Return is required), a formal appraisal should be obtained.

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Permalink Reply by Max on November 22, 2013 at 4:40

Thomas,

I don't see how this would work. 

We'll say my parents have a producing well, average $1,000/month for the last 10 years and the well is projected to produce 10 more years.

They die, I get the well.

Bank X is the Executor and will get 2.5% fee.

How do they arrive @ the value of this well to me?  If they valued it @ $1,000/month for the next ten years, or an adjusted rate for decline for the next ten years, and the well was shut down before that time, I don't get a check, but I had to pay 2.5% of the estimated amount to the Executor of my parents estate.  Do I loose that?

Thanks, Max

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Permalink Reply by P.G. on November 22, 2013 at 5:00

Potential future value of minerals would be speculation wouldn't it?

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Permalink Reply by Thomas C. McKowen, IV on November 22, 2013 at 5:52

Max,       The value is obviously debatable.  But the fact that the minerals are an asset of the estate is not.  The minerals and their value should be included.  Of course, in many instances they are not included.         Tom

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Permalink Reply by Max on November 22, 2013 at 8:46

Thomas, I guess a fair value for producing minerals could be obtained by simply putting them up for sale and then review the offers.  We all know there are people selling their minerals everyday. 

In a lot of way's, you can compare it to a rent house passed to a heir, but giving that a rent house and naked land are both unmovable, I would think that the minerals are part of the land, a single asset. 

Their value could be added to the finial value of the property, just as one could add the value of timber or other movables, but who would want to add a value like that?

If I was a heir and the DDL had listed:

Land Tract:  $24,850;  Timber Stand:  $12,320;  Minerals:  $1,382,840.

Total:  Too damn much.....I would get an attorney and roll the dice to stop anything like that.

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Permalink Reply by P.G. on November 22, 2013 at 8:56

Does anyone actually own minerals still in the ground?
Or do they merely own the right to mine the minerals?

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Permalink Reply by Joe Aldridge on November 22, 2013 at 9:30

P.G.

No one owns the minerals before capture. If there is no production from the estate land then there should be no value. That's my opinion. So I have a problem with and don't understand why the minerals that are not discovered or produced can be considered part of an estate. Its just my problem with estate law as I understand it.

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Permalink Reply by Thomas C. McKowen, IV on November 22, 2013 at 9:51

We are all getting too theoretical.  One does not own oil and gas in the ground in Louisiana, only the right to explore for and capture.  But if one owns land from which he can sell or lease minerals, do you think such Louisiana law will prevent the U.S. government from collecting death taxes on the value of such minerals when he dies?

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Permalink Reply by Max on November 22, 2013 at 10:16

I would think that the U.S. gov. would only have access to income produced by an estate, and treat it like rent or capital gains.  Unless the estate was large (5-10 mil. up).

I'm sure the income from the minerals on Cindy's mother's estate was tabulated each year, and tax's were paid on that income.

Permalink Reply by Andrew on November 22, 2013 at 13:59

Max,

The value of producing minerals should be their fair market value (price a willing purchaser would pay and seller would accept in arms-length transaction). It is hard to know what the market value would be because there is no public record of sales prices, and I don't know if the IRS would give any weight to purchase offers (although I think this would probably be the best evidence Of value there is). Otherwise, you would estimate value based on future production.

The size of the mineral right would determine whether you would need to hire a reservoir engineer to make an appraisal, but for smaller properties you could probably just use the present value of future cash flows, less future depreciation and the risk-value that operations might be discontinued earlier than expected. Obviously, whatever a mineral right making $1,000 per month is worth, it's far less than $5 million or even $1 million. Unless there's a real chance the minerals might push an estate over the $5 million dollar value mark, no one is likely to ask too many questions about them.

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Permalink Reply by Max on November 22, 2013 at 15:16

Andrew,

Cindy started this discussion with a couple of questions about executors, and we've been discussing just one of the issues of their estate, minerals. 

Who in the world would have known, especially older parents, that just giving the kids the house, land, and their things could be so complicated.  Did they know, or have any ideal, that their Executor could be faced with the possibility of having to find a "reservoir engineer" to value the old home place?

I would guess that there are some Executors out there, without specific Will instructions, that could abuse an estate if they were independent.  Any heirs could contest the value, but when they do that, they are admitting that there is a value, therefore, a value must be set and that value will be added to the gross value of the estate.  A lot of values there, but a 2.5 percent executor fee could place an estate into a position to sell property to pay the executor...bad place to be in.

Thanks for the information, Max

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Permalink Reply by Andrew on November 22, 2013 at 17:15

Max,

Wouldn't the heirs be able to request that the court reduce an executor fee if it was out of proportion with the value of the services rendered?

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