Qualified Appraisals

I have a gifting question for those here who know a lot more about this than I. We are planning to pass our mineral rights on to our children and thought now might be the best time to do so particularly with some of the more favorable tax laws this year and next. The kids are in their 30's and 40's, so if it all works out we might all get to enjoy a little slice of this together. Anyway, we've been in discussions with our CPA/CFP about going through this process and have been told we would need to get a "Qualified Appraisal for Gift Tax Purposes" for the mineral rights or in order to proceed. This was a very specific request, but as our family is not in the immediate area any longer (or in the gas business), I thought I might pose the question to the board here to ask what exactly this is and if there would be someone in the area, or just who would I contact to discuss having one done. I was told to start with calling the oil companies themselves, but to me that just doesn't seem the best way to go to try and get the most value for  you own interests (not necessarily theirs). It was also suggested to discuss with the individual who helped broker the lease deal with us. Now we started there and they are looking iinto it for us, but nothing readily came to bear fruit. Maybe one of these avenues is the best way, I am just not sure. Has anyone else heard of this and if so, would there be anyone in the area or just who would I contact to discuss having one done. Any insight or contacts related into this would be greatly appeciated.

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Permalink Reply by Joe Aldridge on March 6, 2011 at 19:49
This is a question that I have toyed with. I think all you would need to do is contact someone in the industry that is buying minerals. You would need the valuation in writing, on a letter head, and I personally would get more than one. There are a number of people/companies that are advertising on this site that they buy minerals. They should be able to give you a "Market Value" as of today. That to me would be enough to satisfy the IRS. Its also important to get the valuation before production begins. Better yet before drilling starts. Other than that you could hire a consulting geologist and they will work up a valuation for you. For a donation of this type you want to get the lowest valuation that you can get based on Market Value. It will be interesting to see what others say on this thread.
Permalink Reply by P.G. on March 7, 2011 at 3:22
How could anyone put a price on mineral rights until exercised? Wouldn't that be speculative?
Permalink Reply by Joe Aldridge on March 7, 2011 at 6:42
All property has value. There is value before production. You can buy, sell and donate property - land and/or minerals to anyone at any time whether there is production or not. What is wrong with speculative value? It maybe low and for this type of donation or transfer that's what you want. My understanding is that all that is needed is a "fair market" price at the time of the valuation. If you have an offer from a person that is in the business of buying and selling mineral interests then that should be enough to establish value - whether its speculative or not. You should be able to do that on an offer to purchase at a price. That establishes value as of that date. It should not matter whether the property is in production or not. At least that's my understanding. Again it will be interesting to get other views especially from some of the attorneys that post on this site.
Permalink Reply by P.G. on March 7, 2011 at 9:27
Mineral rights "Could" be worth nothing or "Could" be worth a fortune. It's really a bet, like buying the cast of a fisherman's net. It's probably worth something to someone I suppose, but For tax purposes though..
Permalink Reply by Joe Aldridge on March 7, 2011 at 10:47

Actually, its not a bet. Its the appraised or what an interested buyer would pay, "Fair Market Value", on a certain date.

Under the gift tax code You can only give a limited amount of property to someone in any given year. The earlier you give or transfer the mineral interests the better. If it has little value then you can transfer more of the mineral interests to family members per year. After discovery then the mineral interests are valued at current appraised value for donation or at current value at time of death for the death tax. The earlier you get an appraisal or valuation and transfer mineral and/or real estate interests the better. Talk to someone that is an estate planner. They can advise what route to go. This guy evidently has already done that and needs to get a current value so he can transfer minerals to his family under the gift tax code. He just needs to get a current value and it does not matter if the value is great or not or whether there is discover and/or production or not. If he waits and a well is drilled and production is established then the estate could have to come up with what ever % (its been as high as 70% in the past) of the appraised value of the minerals in the estate at the time of death. If your estate does not have the cash to pay the tax then the minerals or real estate would have to be sold to cover the tax. I know of a family that happened to. They ended up having to sell a prime real estate property to cover the death tax of the father. I asked an IRS agent once what would happen if the value of the mineral/real estate property was appraised at an amount and then the minerals/real estate were sold and they did not reach the amount that the IRS said was owed. His statement was that at that point the death tax had been paid and the estate did not owe any more. So basically they can take all of the estate's property if they get a high enough appraisal. It just depends on how much Obama and his friends want us to share the wealth in the future as for as a death tax is concerned. In the past couple of years the death tax was zero. That is one of the big things that the current administration wants to bring back. They consider property in an estate as unearned income to the relatives and they feel it should be taxed greatly and shared.

Permalink Reply by Max on March 7, 2011 at 4:23

Jimmy,

What State do you own the minerals in?

Permalink Reply by Jimmy Stiles on March 7, 2011 at 11:43
The great State of Loosianna
Permalink Reply by Jimmy Stiles on March 7, 2011 at 14:33
and missippi
Permalink Reply by Parkdota on March 7, 2011 at 7:19
I am a state certified appraiser in MS who has residential property as well as minerals in my estate.  We choose the residential property valuation based on some documented acceptable format such as an appraisal or tax assessment.  Generally one chooses tax assessment due to it being the lower of the two values.  On minerals you can value it based on estimated ultimate recovery (EUR) whether that be based on a plethora of various estimates or one can value the minerals on what someone would pay for them immediately which is generally the lower of the two.  If I were doing it for current estate and IRS reasons I'd value the minerals based on what someone would pay immediately and you can get that from many different companies willing to purchase your rights.  Another way to look at it, thought, is if there isn't production how do you really know if it's worth anything?  At that juncture I'd value the land off tax assessment and not even bother with the minerals.
Permalink Reply by Bacon on March 7, 2011 at 8:07
We had a place named Coutret & Assoc. in Shreveport do an evaluation for us.  They titled it

 "Economic Evaluation and Fair Market Value Determination of the Mineral Interest".  That was in '09.

Permalink Reply by Jimmy Stiles on March 7, 2011 at 14:36
Thanks and I like the photo. We always thought of starting a bacon specialty store/restaurant/bar, but never had the funds. If things work out we might actually get an opportunity. who doesn't like Bacon?
Permalink Reply by CR Warner on March 10, 2011 at 3:34
Pigs are uniformly opposed to bacon

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