Should your organization seek gifts of mineral rights?

By Patricia Smith

Considering that I work for the Colorado School of Mines Foundation, when I was asked recently to research gifts of mineral rights, I was surprised to find myself chasing down a rabbit hole, much like Alice in Wonderland! I had anticipated being able to provide leadership with the nuts and bolts of how we too can build a program and process for accepting donor gifts of mineral rights. We certainly can and do accept gifts of mineral rights, but we were hoping to more proactively solicit those gifts.

The Quest for Data

My approach was to determine if other universities actively solicit donors for gifts of mineral rights; if they have programs and processes in place for the active solicitation of mineral rights; and if they have sources of information or databases they use to find out which of their donors have mineral rights, and how to value them.

The overwhelming response from the sources contacted said that they are not actively soliciting donors, but that they will accept gifts of mineral rights and mention mineral rights as a potential gift in their literature.

I also sought out a local landman and asked him for the best source of information to determine if my prospects have mineral rights. He told me:

“If that database existed thousands of landmen would be out of work. Really, the only way to find out is to go to the courthouse to run title. That’s what a landman does, and that’s why the business can be so challenging. You have to do a ton of research to find out.”

It turns out that a group of North Texas prospect researchers had met to try to determine what I had hoped to find in my own research, and by the end of the discussion the group had pretty much scrubbed the idea. They felt there were too many complexities and expenses involved. There is no central resource for accessing lease databases for all states; you have to go state by state and subscribe to separate databases. There are other sources as well, but none that are comprehensive.

Now What? Ways to Say Yes to Mineral Rights

Proactively identifying prospects may be too difficult, but not all is lost. There are some relatively easy ways to solicit gifts of mineral rights. One is through a Term Royalty Deed (TRD).

A TRD provides the donor with the following benefits:

  • Donor can still maintain ownership of his/her mineral interests.
  • During the deed term, the royalty is sent directly to the organization, so the donor does not pay income taxes on the mineral royalty.
  • The donor can create an endowed gift to support a program of choice.
  • At the completion of the royalty term, all royalties return back to the owner.
  • Donor can choose between a time-based deed created for a specific amount of time or a dollar-based deed, created for a specified dollar amount.

Other ways a donor can give using mineral interests:

  • Use cash generated from mineral royalties to fund a gift (outright, charitable remainder unitrust or charitable gift annuity), in which case the donor receives a charitable deduction.
  • A donor can transfer mineral interests during his/her lifetime and receive a charitable income tax deduction.
  • Create a bequest that would transfer mineral interests after the donor’s lifetime.

In summation, although suggesting to donors that they may make a gift of mineral rights to your organization can be a fruitful endeavor, proactively seeking to identify mineral rights holders in your donor database may send you down the rabbit hole.