Best way to pass mineral rights to next generation

After reviewing many of the posts regarding mineral rights inheritance in Louisiana, I could not find a reply to one poster's question on the value of forming family LLCs to hold mineral rights.  Evidently, many LA attorney's recommend them but I have yet to see anyone list compelling reasons for relatively small mineral rights owners to go to the expense to form one.

   In my case,  I collect relatively small royalties from some 40 wells scattered on many small lots spread throughout several parishes and being paid out by 4 different producers.  If I simply leave my estate to my two kids,   I can imagine a logistical nightmare, and expense, when I pass(I'm single) and my 2 kids (or their attorney) have to sort out dividing these royalties in half.  Is this a situation where a family partnership or LLC would simplify things by consolidating all royalty payments to one entity? I'm sure the producers would prefer this instead of having to issue new division orders times 2!  thanks for any insights.

 

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Comment by Fritha S. Dinwiddie on October 25, 2011 at 8:54pm
Les, Every family has different reasons, and I guess for some it might depend on the size of the property and the long-term yield potential.  Ours is tree farm so is productive even if we never have drilling.  (Barring a forest fire of course!). One parcel was donated to my sister.  Other than that, we own shares in the whole but no physical property.  After operating costs, there's not much money left.  But so few families are privileged to own tracts of land that we wanted to ensure that it remained intact through the lives of my parents and myself and my sister.  At the end of the partnership (50 years) the boys will decide whether to renew.  This way we don't control it from the grave.  That is as it should be.  And my nephews and their stepcousin get to participate with equal authority.
Comment by Les on October 25, 2011 at 12:11pm
Fritha, thanks for the commentary.  A family limited partnership was also recommended to me by one lawyer who had a vested interest in suggesting it, another dismissed it.  I'm not sure of the benefits for one thing, other than protecting the blood line as you suggest. But I definitely see the expenses and our interests are not that great. There will be only two beneficiaries, in my case, after my death, so my current royalty checks would just be split in two, perhaps more paperwork for the operator but it doesn't seem worth making a family trust for.
Comment by Fritha S. Dinwiddie on October 20, 2011 at 7:24pm
We formed a family limited partnership for a north central Louisiana property which is also a tree farm.  No, we didn't always agree, and at least one attorney consulted is dead set against such arrangements because they can be acrimonious.  What we all agreed on was that ownership rights should pass along the blood line of the original owner, my grandfather.  To protect that imperative, I used a living trust (different names in different states) for by-marriage members: In my case, it honors my relationship with my stepson by avoiding usufruct and giving him voting rights and financial benefit at my passing.  It takes higher math to ensure that no heir or trust-partner has a controlling share.  In these days of loving relationships within non-traditional families, creative thinking and flexibility are demanded.  Back to usufruct--as I understand it from my lawyer, it is unenforceable, and the usufructuary is at the mercy of the heirs;  I love my family, but in this matter I wanted decisions to be made by rule of law.
Comment by Bailey on September 29, 2011 at 6:54pm

Les,

I am in St. Louis but plan to ask our accountant anyway.

I thought for sure there would be folks out there who had been through this. ?

 

Comment by Les on September 29, 2011 at 5:15pm

Bailey,

   I live way up in Illinois and my accountant had no idea when I asked him this question, said he would have to do some research, which isn't very reassuring.  if you are in the Louisiana area and find a straightforward answer to this from a local CPA, I'd appreciate hearing about the options. Thanks.

Comment by Bailey on September 27, 2011 at 7:11pm

I have been wondering the same thing.

If one owner of the mineral rights want to pass the royalty income onto his heirs say to 6 children.

Could a trust or entity be responsible for dividing the income between the kids each month? 

Could 6 kids own the land and rights without physically dividing it?

I might be asking the same question as Les, but I'm curious if someone has been through this.

I will ask an accountant so thanks for that Skip.

 

Comment by Skip Peel - Independent Landman on September 26, 2011 at 9:43am
Les, every case is different.  I counsel clients with your question to find a CPA experienced with royalty income.  The tax implications are often the most important factor in what legal entity is the most appropriate.

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