The inheritance of mineral rights can be both an exciting and stressful situation. The best thing for anyone who inherits mineral rights to do is to acquire further knowledge of the subject. Legal and financial definitions, tax liability, and inheritance value are only a few of the complex topics related to this matter.
Phoenix Capital Group Holdings, LLC offers services to help mineral rights owners understand their opportunities in both retaining and cashing out of their own positions. Below, Phoenix Capital Group shares all the information that anyone interested needs to know regarding mineral rights inheritance.
What is Mineral Rights Inheritance?
Mineral rights inheritance can be challenging to define. In a nutshell, mineral rights are the rights to the minerals in the ground and the ability to sell or profit from them. This sounds simple enough; however, most modern inherited mineral rights are severely fragmented.
In most cases, when you inherit a space and mineral rights, you are not getting the full rights to the area. If your great-grandpa owned 100% of the mineral rights and gave each of his four sons 25%, then your grandfather gave each of his two sons 50% of his 25%, by the time it reached your father, it would only sit at 12.5% of the total rights.
That means if you have three siblings, that 12.5% is then likely divided by 4, leaving you with just 3.1% of the total rights.
This makes for a much more complicated situation.
Legally Claiming a Mineral Rights Inheritance
If you are looking to claim your mineral rights inheritance, you have to begin the process legally. You cannot just suddenly start leasing or looking to sell your portion of the rights; you have to ensure everything is in the clear and uncontested to prevent more significant issues down the road.
Having a team of professionals within the industry is critical in evaluating what you own the rights to, as is having a legal team specializing in these complicated matters to help sort everything out.
Inherited Mineral Rights Tax Information
While the federal government does not view mineral rights inheritance as a taxable asset, they expect you to pay accurate property taxes. If you make income off of the ownership rights, through drilling or other means, you will have to pay taxes on that income, but not on the rights themselves.
Mineral Rights Inheritance Scenarios
There are a few different scenarios that can happen when sorting out mineral rights inheritance. First, probate measures, which is the most common way of sorting it out, require you to go to court to prove the will is valid. Over time the shares become smaller and smaller as they pass through generations, diluting the actual size of land you receive. This concept is most common when mineral rights inheritance is attached to the surface space.
Mineral rights that are lost can be tricky to navigate but, once recovered, can often be restored to their rightful owners. Lost rights are not impossible to regain; it just takes work to recover them.
Additionally, any royalties from an oil company or other entity using your mineral rights inherited space are inherited with the mineral rights. Therefore, you will receive the earned money from your mineral rights inheritance as long as one of the previous owners contracted with the company at some point.
Mineral leases are a great way to use your new asset. Leases are contracts that allow businesses or oil entities to come in and begin exploring and producing oil, minerals, and gases from your space if they find them. This is one of the most common uses for mineral rights inheritances since it brings in a direct income.
Mineral rights inheritance isn’t as scary sounding when explained. Now you are fully equipped with the knowledge you need to understand this topic!
About Phoenix Capital Group Holdings, LLC
Phoenix Capital Group offers services to help mineral rights owners understand their opportunities in both retaining and cashing out of their own positions. Phoenix Capital Group also provides opportunities for people to partner with and invest alongside the company. Their focus is on educating, serving, and guiding their clients with integrity and humility.
If you would like to better understand your options from a friendly industry professional, give them a call at (213) 316-8720.