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oil royalty
Old 12-05-2013, 09:23 PM   #1
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oil royalty

I am going to check with a CPA, but wanted to get a feeling for what others may have done in similiar situations. I generally see good feedback from this forum, and I am sure there are others who have been down this path.

Background: My mother put me on the deed to her property mainly so that when she passed the land would pass to me and then I can do whatever with it and if I sell it, split the money with my 2 sisters.

Oil: Well the land is in SE Ohio and so there is oil under the land. We got a lump sum just for for signing for them to do the drilling and if they find oil we get a royalty from that in the future. And oh by the way, there is another company wanting to buy up those royalty rights for a lump sum - life is getting more complicated.

Taxes: I am in a higher tax bracket than my mother. So my half is taxed at a higher rate. I did an estimate and put back $X dollars from that check.

Future: Whether we sell the royalty rights for a lump sum, or keep the royalty rights and get quarterly payments at some point in the future, my Mother wants me to distribute my share 3 ways, 1/3 to me and my two sisters. But after seeing how much goes to Federal/State/Local taxes, it is a big bite. Is there a way to structure this to minimize the tax burden?
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Old 12-05-2013, 11:03 PM   #2
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Quote:
Originally Posted by chrisaukcam View Post
I am going to check with a CPA, but wanted to get a feeling for what others may have done in similiar situations. I generally see good feedback from this forum, and I am sure there are others who have been down this path.

Background: My mother put me on the deed to her property mainly so that when she passed the land would pass to me and then I can do whatever with it and if I sell it, split the money with my 2 sisters.

Oil: Well the land is in SE Ohio and so there is oil under the land. We got a lump sum just for for signing for them to do the drilling and if they find oil we get a royalty from that in the future. And oh by the way, there is another company wanting to buy up those royalty rights for a lump sum - life is getting more complicated.

Taxes: I am in a higher tax bracket than my mother. So my half is taxed at a higher rate. I did an estimate and put back $X dollars from that check.

Future: Whether we sell the royalty rights for a lump sum, or keep the royalty rights and get quarterly payments at some point in the future, my Mother wants me to distribute my share 3 ways, 1/3 to me and my two sisters. But after seeing how much goes to Federal/State/Local taxes, it is a big bite. Is there a way to structure this to minimize the tax burden?
This could be important. You need expert tax advice, and there are probably attorneys around you that fit this bill, as these royalties have been a big deal around there for quite a while. Do it right, you will be glad.

Ha
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Old 12-06-2013, 06:28 AM   #3
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I wondering why she has you as the keeper of funds. She could easily have set up a family trust to hold the property and deal with the oil money. Having you responsible brings many uncontrollable issues into the picture. The property could be lost if you are found liable in a suit. It could be partially lost if you get divorced. It's part of your estate if you pass and your sisters may not be adequately protected. Any creditor could go after your assets which now include the property. You could just be a greedy b****** and keep all of the money. Giving money (even their fair share) may trigger gift taxes. Having you on half, eliminates the step up in basis when your mother passes.

To me, it seems like this has started out the wrong way.

By the way, the people wanting to buy your oil rights are unlikely to give you a fair deal. They prey on people that need a quick load of cash.
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Old 12-06-2013, 11:26 AM   #4
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Originally Posted by haha View Post
This could be important. You need expert tax advice, and there are probably attorneys around you that fit this bill, as these royalties have been a big deal around there for quite a while. Do it right, you will be glad.

Ha
+1

Sprint for an attorney familiar with these issues. They know what the rules are, what the intricacies of the loopholes are, etc. You don't. That lack of knowing some crucial tidbit of information could well cost a bundle far higher than any attorney's fee.
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Old 12-06-2013, 11:58 AM   #5
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Can everyone be put on the deed? My late FIL had an interest in something similar. His children bided their time with a knowledgeable agent to sell it until the offer was a fair one. Many heirs are not in desperate straits.
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