Understanding Mineral Rights and Medicaid Eligibility

Mineral rights are the legal rights to extract minerals (like oil, gas, or coal) from the land. If you own land or have inherited land, you might also own the rights to the minerals beneath that land. These mineral rights can be worth a lot of money, which could impact your Medicaid eligibility.

Medicaid is a government program that helps people with limited income and resources pay for healthcare, especially long-term care in nursing homes. To qualify for Medicaid, you have to meet specific asset and income limits, which differ by state.

Mineral rights are considered part of your assets, and Medicaid may look at the value of your mineral rights when deciding if you qualify. If your mineral rights are worth more than the allowed limit for assets, Medicaid may deny your application until you reduce your assets or “spend down” to meet the threshold.

Figuring out whether you should sell mineral rights or hold onto them is a key decision to make when qualifying for Medicaid.

Rules Vary by State

Each state has its own rules regarding Medicaid eligibility and how they handle assets like mineral rights. Let’s take a look at how a few states treat mineral rights:

Texas

In Texas, mineral rights are considered an asset for Medicaid eligibility. The state looks at whether these rights are producing income. If the mineral rights are non-producing, they may still count toward your total asset limit. However, if they produce income, that income can also be considered when determining eligibility. You may need to sell or transfer these rights if they exceed the asset limit.

Texas Medicaid Website

Oklahoma

Oklahoma treats mineral rights similarly to Texas. They are counted as an asset whether they are producing income or not. If you own valuable mineral rights, this could affect your Medicaid eligibility. Selling or leasing those rights may be a strategy to bring your assets below the state’s limit.

Oklahoma Medicaid Website

New Mexico

In New Mexico, mineral rights are also included in the calculation of your total assets for Medicaid eligibility. If the mineral rights are producing income, the state may count both the rights themselves and the income when determining if you qualify for assistance.

New Mexico Medicaid Website

When applying for Medicaid, it’s important to know the value of your mineral rights because this will count toward your asset limit. Medicaid has strict guidelines on how much in assets you can own and still qualify, and mineral rights are included in this calculation. Here’s how to estimate the value of mineral rights based on whether your mineral rights are non-leased, leased, or producing royalties.

1. Non-Leased / Non-Producing Mineral Rights

If your mineral rights are not currently leased or producing any income, they generally hold less value for Medicaid purposes. These rights are typically valued between $0 and $100 per acre, depending on factors like location, market conditions, and whether there’s any potential for future production.

• For Medicaid eligibility: Estimate the value of non-leased and non-producing mineral rights on the low end, between $0 and $100 in total. This conservative approach ensures that you don’t overvalue them when reporting assets.  This is a fair estimate because in many cases, mineral rights that are non-leased / non-producing have zero value.  Mineral buyers do not like to buy these mineral rights and it is usually impossible to find a buyer, making the value $0.

2. Leased Mineral Rights (Without Production)

If you have an active lease agreement on your mineral rights but they are not yet producing, their value is usually higher than non-leased rights. The value of leased mineral rights is often estimated based on the lease bonus you receive from the lessee (the company that leases the rights from you).

• Rule of thumb for valuation: Estimate the value of leased mineral rights to be about 2 to 3 times the lease bonus. For example, if your lease bonus is $500 per acre, the value of your leased mineral rights might range from $1,000 to $1,500 per acre.
• For Medicaid eligibility: Use this multiplier to estimate the value conservatively. This is a quick and effective way to calculate their worth when reporting assets for medicaid eligibility.

3. Producing Mineral Rights (Royalties)

If your mineral rights are currently producing income through royalties (typically from oil or gas production), their value is much higher. The value of producing mineral rights is often calculated based on the expected future royalties over a set period of time. You can use our mineral rights value calculator to get an accurate estimate.

• How to calculate mineral rights value for Medicaid: When using the calculator, rely on the low-end estimate or a 3-year payback period to determine the value of your producing royalties for Medicaid purposes. This conservative approach ensures that you’re not overestimating the value, which could make it harder to qualify. Use the calculator below by taking the average of your 3 most recent royalty statements and entering it in the first box of the royalty calculator.

For some individuals, selling their mineral rights may be the best way to reduce assets and meet Medicaid’s eligibility requirements. If your mineral rights are considered too valuable and prevent you from qualifying, selling them could allow you to spend down your assets in a strategic way. However, selling mineral rights is a significant financial decision that requires careful consideration and planning.

Why Selling Mineral Rights Can Help with Medicaid Eligibility

Medicaid has strict asset limits, and if the value of your mineral rights exceeds those limits, you may need to reduce your assets to qualify. Selling your mineral rights allows you to convert them into liquid cash, which you can then use to pay for medical expenses, long-term care, or other qualified expenses as part of a Medicaid “spend-down” strategy. Once your assets are below the Medicaid limit, you can apply for benefits.

Timing Matters: Medicaid’s Look-Back Period

It’s essential to be aware of Medicaid’s five-year look-back period, which reviews any asset transfers or sales made within five years before your application. If you sell your mineral rights for less than fair market value, Medicaid may impose penalties or delay your eligibility. Therefore, getting the best price for your mineral rights is crucial to avoid potential penalties.

The Benefits of Selling Mineral Rights

Selling mineral rights has several advantages when it comes to Medicaid eligibility:

• Immediate access to funds: Selling mineral rights gives you cash upfront, which can be used to pay for healthcare costs, nursing home care, or other qualified expenses.
• Simplifies Medicaid planning: Converting mineral rights into cash can make your financial situation more straightforward, as it removes a variable asset from your portfolio.
• Reduces asset value: By selling your mineral rights, you can lower your total assets and meet Medicaid’s strict requirements more easily.

Working with an Expert Broker to Get the Best Price

Selling mineral rights is a complex process, and getting the best price requires expertise in selling oil and gas royalties. Working with a broker who is an industry expert is crucial. Brokers who specialize in mineral rights transactions can:

• Provide an accurate valuation: They understand the market and can help you get a fair price based on the location, production potential, and other factors.
• Navigate the sale process: An expert broker will guide you through the often-complicated sale process, ensuring that all legal and financial aspects are handled properly.
• Maximize your earnings: Industry-experienced brokers can negotiate with buyers on your behalf, ensuring you get the best possible deal.

Selling mineral rights can be a smart strategy for those looking to qualify for Medicaid, but it’s important to approach the process carefully. Working with a broker who is an industry expert ensures you get the best price and avoid Medicaid penalties. A knowledgeable broker can help you navigate the market and secure a deal that benefits you both financially and in terms of your Medicaid eligibility. Always consult with a professional to make sure the sale is handled properly and fits into your overall Medicaid planning strategy.

The best approach is to work with professionals who understand your state’s rules. Here’s what we recommend:

1. Talk to a local CPA (Certified Public Accountant) – They can help you determine the tax impact of selling and help you make a better financial decision related to Medicaid.
2. Consult an attorney – Medicaid planning attorneys specialize in helping people protect their assets while still qualifying for Medicaid. They can help you explore options and guide you through the process.
3. Reach out to the Medicaid office – Each state’s Medicaid office can provide up-to-date information on what assets are counted and how you can qualify. They will give you the clearest picture of the rules in your state.
4. Mineral Rights Broker – If you do decide to sell mineral rights to qualify for medicaid, work with a qualified broker in your state who understands how to sell them for maximum value.   They can help you locate mineral rights buyers and get a fair price.

Mineral rights can complicate Medicaid eligibility, and how they affect you depends on the state you live in. Whether you’re in Texas, Oklahoma, New Mexico, or another state, you should work with a CPA, attorney, and Medicaid office to ensure you are handling your mineral rights in a way that helps you qualify. Selling your mineral rights could be an option, but only after careful consideration of your situation.

By seeking professional advice and understanding how mineral rights affect your Medicaid application, you can make the best decision for your future care.

If you have questions about your mineral rights, fill out the form below.  Our team will quickly be in touch to assist.