Estate planning often centers around clear-cut assets like homes, retirement accounts, and savings. But for mineral rights owners, there’s another critical piece of the puzzle: oil royalties. These assets may have been inherited or purchased as investments, and they can provide a passive income stream for years. However, when planning for the future, many owners find themselves asking: Should I hold onto my royalties, or sell them as part of my estate planning strategy?
While keeping royalties can sometimes make sense, the truth is that selling them can offer powerful advantages, especially when it comes to simplifying your estate, minimizing taxes, and creating a legacy of clarity and value for your heirs.
Let’s explore the many layers of this decision—and why, for many mineral rights owners, selling sooner rather than later can be a proactive, strategic move.
What Are Oil Royalties?
Before diving into estate planning considerations, it’s helpful to revisit what oil and gas royalties are. When an oil or gas company drills on land where you own the mineral rights, you may be entitled to a portion of the production revenue—this is your royalty. These payments are typically calculated as a percentage of the production value (e.g., 12.5% to 25%), and they continue as long as the well produces and the lease remains active.
There are different types of interests, each with implications for ownership and mineral estate planning:
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Royalty Interest – You receive a portion of production income with no responsibility for expenses.
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Overriding Royalty Interest (ORRI) – Similar to royalty interest, but it typically expires with the lease.
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Working Interest – You share in production profits but also operational costs and liabilities.
Owning oil royalties can be financially rewarding, but the more complex nature of these assets means they don’t always integrate seamlessly into an estate plan—unless you make a few smart decisions in advance.
The Estate Planning Dilemma: Hold or Sell?
At face value, it may seem ideal to hold onto oil royalties—why give up a stream of income? But when you examine these assets through the lens of estate planning, a more nuanced picture emerges.
Most estate planning experts agree that liquidity, simplicity, and tax efficiency are key. Unfortunately, oil royalties can introduce the opposite: complexity, confusion, and hidden costs. That’s why more and more mineral rights owners are choosing to sell during their lifetime—and doing so with intention.
Let’s take a detailed look at the top reasons why selling your oil royalties could be the smarter move when planning your estate.
1. Avoiding Multistate Probate
Mineral rights are classified as real property, and real property must be probated in the state where it is located. That means if you live in California but hold royalties from producing wells in Texas, North Dakota, and Oklahoma, your heirs may be required to initiate separate probate proceedings in each of those states—a process known as ancillary probate.
Ancillary probate can delay estate settlement by months or even years and result in thousands of dollars in attorney fees and court costs. For heirs unfamiliar with oil and gas law (or even unaware that such interests exist), this can become a logistical nightmare.
Selling your oil royalties during your lifetime converts those assets into cash or other liquid investments, eliminating the need for probate and making your estate far easier to administer.
2. Reducing Tax Exposure
Your estate is subject to federal estate taxes if its value exceeds certain thresholds—currently over $13 million per individual, though that number is expected to drop significantly after 2025. Many states also impose inheritance or estate taxes at lower limits.
Here’s the catch: oil royalties are included in the value of your taxable estate, and the IRS may require a formal appraisal. If oil prices spike or your royalties produce higher-than-usual income, the valuation can rise—even if your heirs don’t see that income for years.
In contrast, selling your royalties now provides a clear, fixed value. Not only does this reduce the uncertainty of future tax liabilities, but it also allows you to strategically gift or transfer the proceeds into trusts, charities, or other structures that can dramatically minimize your estate’s tax burden.
3. Simplifying Management for Your Family
Let’s be honest—most heirs don’t understand how to manage gas and oil royalties. They may not know how to:
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Track production volumes
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Read division orders
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Negotiate lease terms
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Monitor operator performance
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File taxes properly on royalty income
Even worse, if the heirs are numerous, such as in the case of generational inheritance, royalty ownership can become fractionalized, leading to disputes, diluted value, and even lost income if paperwork is mishandled.
Instead of leaving your loved ones a complex asset requiring specialized knowledge, consider leaving them something they can use and manage easily. Selling your royalties and investing in diversified, lower-maintenance assets not only protects your financial future, but it also protects your peace of mind.
4. Capturing Value at the Right Time
The oil and gas industry is notoriously volatile. Global energy policies, environmental regulations, technological innovations, and geopolitical tensions all influence prices—and therefore, your royalty checks. In some regions, wells begin to decline in production just a few years after peak output.
Selling now, especially during favorable market conditions, locks in value while your assets are at their peak. Waiting might seem like a bet for higher returns, but it’s also a risk of diminishing returns, lease terminations, or even non-producing wells.
By monetizing the asset now, you crystallize the value and eliminate the uncertainty. Those funds can then be used for estate gifts, trust funding, debt reduction, or reinvestment into more stable income-producing assets such as annuities, index funds, or real estate.
5. Unlocking Liquidity for Retirement and Legacy Goals
Estate planning isn’t only about what happens after death—it’s about how you live today. Many royalty owners are nearing retirement or are already retired. Rather than relying on inconsistent royalty checks, some prefer to liquidate and reinvest in more predictable income streams that align with their lifestyle and risk tolerance.
Selling royalties can give you the funds to:
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Pay off debt or mortgages
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Fund long-term care plans
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Make generous gifts to family or charity
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Set up education trusts for grandchildren
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Travel or enjoy your golden years with less financial anxiety
By selling, you’re not losing value—you’re unlocking it, putting yourself and your family in a stronger financial position today, not just in the future.
6. Opportunity to Create a More Strategic Legacy
One of the most powerful benefits of selling oil royalties is the chance to be intentional with the proceeds. Instead of leaving a complex asset that might cause confusion or disputes, you can use the sale to build a legacy that reflects your values.
Options include:
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Donor-Advised Funds (DAFs) to support charitable causes
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Family Trusts to provide income to children over time
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Scholarships or Foundation Endowments
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Gifts to churches or nonprofits in your community
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Business investments to empower the next generation
Selling gives you flexibility. It puts you in the driver’s seat—not just financially, but philosophically.
But What About Holding? When It Might Make Sense
While the selling case is strong, there are situations where holding onto your royalties may still be appropriate. You might consider retaining them if:
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The royalties provide critical income that you rely on
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The producing wells are in an early stage of development
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You have a well-structured family trust or LLC that manages royalties efficiently
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You or your heirs are comfortable with oil and gas management
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You want your heirs to receive a step-up in cost basis at death to reduce capital gains tax
Still, in these situations, it’s often wise to at least evaluate partial sales or structured buyouts, which can balance liquidity and future income potential.
Hybrid Option: Selling a Portion of Your Royalties
Here’s an increasingly popular strategy: sell part of your royalty interest and hold onto the rest. This allows you to:
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Secure some liquidity now
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Reduce estate complexity
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Lower your taxable estate value
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Maintain some passive income
Partial sales are particularly effective when combined with estate planning tools like trusts or family partnerships. They offer the best of both worlds: financial flexibility and long-term legacy value.
How to Sell Your Royalties: What to Know
If you’re considering selling, follow these steps to do it wisely:
1. Get a Professional Valuation
Never rely solely on an unsolicited offer. A qualified mineral appraiser can evaluate your asset based on production history, operator reputation, commodity prices, and drilling activity.
2. Work With a Trusted Buyer or Broker
Choose a company with a strong reputation, transparent terms, and a no-pressure approach. Look for:
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Competitive bidding or marketplace platforms
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No hidden fees
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Clear purchase agreements
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Fast, secure closings
3. Talk to Your Estate Planning Attorney
Your estate plan should be updated to reflect the sale and any new assets acquired. Your attorney can help you structure proceeds for maximum tax and legacy benefit.
4. Consider Timing
Oil prices fluctuate. If prices are high or your wells are nearing decline, it might be the optimal time to sell. But don’t try to time the market—focus on what makes the most sense for your estate strategy.
Final Thoughts: Sell Smart, Plan Smart
Selling your oil royalties isn’t about giving something up. It’s about gaining control over your estate, your legacy, and your peace of mind. It’s about choosing simplicity over complexity, liquidity over volatility, and empowerment over uncertainty.
Every estate is unique, but for many royalty owners, the smartest move is to monetize the asset now, minimize future headaches, and use the proceeds to build a clearer, stronger legacy.
You’ve spent a lifetime building your wealth. Don’t let outdated or illiquid assets create unnecessary confusion for the people you love. Sell smart, plan smart—and enjoy the freedom that comes with it.