How to Pass Down Mineral Rights Without Causing a Family Partition Suit

Reviewed by Attorney Kim Hegwood

A Texas mineral interest is one of the most fragmenting assets in American estate law. Not because mineral rights are complicated to leave to your children — they aren’t. Because of what happens after your children leave them to their children. And then their grandchildren.

Three generations in, a mineral interest that started as one undivided 100% interest is owned by 14 cousins, several of whom have never met, scattered across four states, with completely different views about whether to lease, when to sell, and what a fair royalty rate looks like. One cousin has a Permian Basin operator offering a lease bonus that the others think is far too low. Another cousin needs cash. A third cousin won’t return phone calls. The mineral title runs across multiple counties, and any single cousin can file a lawsuit to force the sale of the entire interest under Texas Property Code §23.001 — the partition statute.

That’s the partition suit. It is the most common, most preventable, and most family-destroying outcome of inherited mineral rights in Texas. And by the time it’s actually filed, it’s usually too late to fix.

The good news is that mineral rights, properly structured during the parents’ lifetime, can be passed down without splintering. The structures aren’t complicated. They have to be put in place before the splintering starts.

Why Mineral Rights Fragment So Fast

Mineral interests are particularly vulnerable to fragmentation because of how Texas treats the underlying ownership. When a Texas resident dies owning a mineral interest, that interest passes either by their will or by the Texas intestacy statutes. If the interest passes equally to multiple children, each child becomes an undivided fractional owner — meaning each of them owns an undivided percentage of the whole interest, not a discrete portion of it.

When those children die, their fractions get divided again among their heirs. A 1/3 interest becomes a 1/9 interest, then a 1/27, then a 1/81. Within three or four generations, what started as one cohesive mineral interest is owned by dozens of distant cousins, some of whom may not even know they own anything.

Each of those owners has the same legal rights as every other. Each can sign a lease for their own fractional share. Each can refuse to sign a lease. Each can sell their fractional share to a stranger. And each can file a partition suit under Texas Property Code §23.001 to force the sale of the entire interest if the co-owners can’t agree.

When mineral interests are producing — generating royalties, attracting lease offers, sitting on top of profitable formations — the disagreements multiply. One owner wants to lease at $500 per acre with a 25% royalty. Another holds out for $1,000 per acre with a 22.5% royalty. The operator gives up and goes to the next mineral tract. The royalty income everyone could have had goes to somebody else’s family.

When the disagreement gets serious enough, somebody files a partition suit. The court orders the sale of the entire interest. The proceeds get divided according to ownership percentages. Almost no one walks away happy. Family relationships that were already strained collapse.

The Texas Partition Statute Is Brutal

Texas Property Code §23.001 gives any joint owner of real property — including mineral interests, which are real property in Texas — the absolute right to demand partition. The statute doesn’t require the demanding owner to show a good reason. It doesn’t require unanimity among the other owners. It doesn’t require notice or opportunity to negotiate.

The court has two options. Partition in kind, where the property is physically divided so each owner gets a discrete piece — almost always impractical for mineral interests, which can’t be meaningfully divided in kind. Partition by sale, where the entire interest is sold and the proceeds distributed. The court will order partition by sale whenever in-kind partition would be unfair or impractical, which for mineral rights is essentially always.

Texas partition cases for mineral interests typically settle for less than market value. The forced-sale dynamic, the litigation costs, and the involvement of cousins with no commercial sophistication tend to push prices down. The cousin who wanted out gets cashed out — but at a discount. The cousins who wanted to keep the interest lose it. And the family is left with everyone resenting whoever filed the suit.

For Texas families with valuable mineral interests, preventing partition is the entire goal of estate planning around minerals.

The Structures That Prevent Fragmentation

Three legal structures, used alone or in combination, can keep a mineral interest intact across multiple generations.

A Mineral Interest LLC

The most common solution for active Texas families. A Texas LLC is formed to hold the mineral interest, and each family member receives a membership interest in the LLC. The LLC’s operating agreement governs everything that would otherwise fragment the underlying interest:

Decisions about leasing — typically a designated manager or majority vote rather than unanimous consent. Decisions about selling all or part of the interest — typically a supermajority requirement to prevent any single member from forcing a sale. Distribution of royalty income — usually pro rata to membership interests, but the operating agreement can specify timing, reserves, and minimum distributions. Buyout provisions for members who want out — almost always with a right of first refusal for the other members and an installment payment schedule, which prevents the partition lawsuit dynamic. Restrictions on transfers — preventing a member from selling their interest to a stranger, locking the membership in the family.

The LLC structure also provides creditor protection. A member’s personal creditors generally can’t reach the underlying mineral interest — only the member’s distributions, and only through a charging order under Texas Business Organizations Code §101.112. This eliminates the bankruptcy-of-a-cousin problem that plagues unstructured fractional ownership.

For most Texas families with significant mineral interests, the family LLC is the workhorse structure.

A Family Mineral Trust

A trust — typically irrevocable — holds the mineral interest, and the family members are beneficiaries rather than owners. The trustee makes leasing and selling decisions according to the trust terms, with input from the beneficiaries as the trust instrument provides. Distributions of royalty income flow to beneficiaries according to the trust’s distribution provisions.

The benefits over an LLC: stronger creditor protection (beneficiaries have no ownership interest to attach), removal from the beneficiaries’ taxable estates (if the trust is properly structured as a non-grantor trust), and the ability to use generation-skipping and dynasty trust techniques to keep the interest intact for centuries. With Texas’s 300-year rule against perpetuities (Tex. Prop. Code §112.036, effective September 2021), a Texas mineral trust can theoretically hold the interest for the next 12 generations.

The tradeoffs: less family control over decisions; ongoing trustee fees; tax complexity (mineral trusts have specific income tax treatment that requires CPA coordination).

For Texas families with substantial mineral interests and a long-term outlook — particularly those holding interests in producing fields they expect to remain valuable for decades — a family mineral trust is often the right answer.

A Co-Tenancy Agreement

The simplest structure: the family members continue to own the mineral interest as tenants in common (the Texas default), but they sign a written co-tenancy agreement that operates as a contract among them. The agreement can include voting requirements for leasing and sale decisions, restrictions on transfers, buyout provisions, and dispute resolution requirements.

The benefits: no entity formation costs; familiar ownership structure; minimal administrative burden.

The downsides: a co-tenancy agreement does not override Texas Property Code §23.001 — any owner can still file a partition suit, and a court will likely grant it regardless of the agreement (though the agreement may give the other owners contract claims for damages). Co-tenancy agreements work as a soft constraint, not a hard one.

For smaller mineral interests held by close-knit families with strong existing relationships, a co-tenancy agreement may be enough. For most active mineral interests of meaningful value, an LLC or trust is the more durable structure.

The Provisions That Actually Hold Things Together

Whichever structure you use, the operative document needs to address the specific failure modes that destroy mineral-owning families.

Decision-making for leasing. Whether the manager (LLC) or trustee (trust) has unilateral authority, requires owner approval above a certain bonus or royalty threshold, or operates under a defined leasing policy. The wrong default is unanimous consent — one holdout can block every lease.

Decision-making for selling. Whether to sell, when to sell, what minimum price to accept. Almost always supermajority required, often with notice and right-of-first-refusal provisions for the other owners.

Distribution of royalty income. Pro rata is the default, but consider whether the entity should retain reserves for tax payments, professional fees, future investment, or buyout funding.

Transfer restrictions. Preventing a member or beneficiary from selling their interest outside the family. Typically a right of first refusal in favor of the entity or the other family members at the offered price.

Buyout provisions. A defined process by which an owner who wants out can be cashed out without forcing a sale of the underlying interest. Usually includes appraisal, an installment payment schedule, and discounts for lack of marketability.

Death and divorce protections. Provisions ensuring that an owner’s interest passes only to lineal descendants (or back to the entity at fair value), preventing in-laws or step-relatives from acquiring ownership. Provisions ensuring that an owner’s divorce doesn’t drop a divorcing spouse into the entity as a new owner.

A clear signing authority. Mineral leases require signatures. The entity needs a clear chain of authority — typically the manager or trustee — so operators don’t have to chase down 14 cousins for a lease.

Sunset and decanting provisions. Eventually, the family’s situation will change. The structure should anticipate how decisions get made about whether to continue the entity, sell the interest, or transition to a different structure.

The Tax Issues With Inherited Mineral Rights

Inherited mineral rights in Texas come with several specific tax considerations that most families don’t anticipate.

Step-up in basis at death. Mineral interests inherited at death receive a basis step-up to their fair market value as of the date of death. This is a significant benefit — pre-step-up basis is often near zero for mineral interests held in families for generations. The step-up can mean the difference between a six-figure capital gains tax bill and no capital gains tax at all if the heirs sell. Families inheriting Texas mineral rights should always have a date-of-death valuation done, even if no immediate sale is planned.

Federal estate tax exposure. Mineral interests are part of the gross estate at fair market value, which can be substantial for producing or highly prospective interests. Texas has no state estate tax, but the federal estate tax applies to estates above the federal exemption — $15 million per individual or $30 million per married couple under the One Big Beautiful Bill Act of 2025. For families with significant mineral wealth, estate tax planning around minerals is meaningful work.

Income tax on royalties. Royalty income is ordinary income to the recipient, with the depletion allowance offsetting a portion. Royalty income held in an LLC passes through to members; in a trust, it’s either retained at the trust level or distributed to beneficiaries depending on the trust terms.

Texas property tax. Producing mineral interests are taxed annually by the county appraisal districts where the interests are located. Owners in multiple counties may receive multiple tax bills they didn’t expect.

Severance tax. Texas imposes severance tax on oil and gas production, paid by the operator. Mineral owners see this in the netted royalty payments rather than as a separate bill.

A coordinated mineral interest plan addresses all of these in advance, so the structure isn’t undone by tax issues nobody planned for.

If your family owns Texas mineral interests and you’d like to make sure they’re still owned by your descendants in 50 years — without the partition suit, the family fight, and the forced sale at the bottom of the market — let’s schedule a strategy session. We’ve been helping Houston-area families structure mineral interest planning for over 20 years.