Distribution of Trusts, Estates & Partnerships: The sale of royalties held in a trust or estate etc. may eliminate expenses and reduce the need to maintain separate bank accounts, simplify tax returns and eliminate monthly distributions.
Depleting Asset: Royalties are depleting natural resources and not appreciating financial assets. At some point the reality of diminishing returns should be recognized by the royalty owner. The sale of royalties before they have declined near their economic life may bring a substantial cash consideration. Proceeds from the sale may be redirected into non-depleting assets.
Fractionalization: As minerals and royalties are handed down from generation to generation they become increasingly and exponentially fragmented. As such, they carry a declining economic benefit to each generation. They also become increasingly expensive and complicated to administer.
Elimination of Severance and Property Taxes: Texas severance taxes are 4.6% on oil and 7.50% on gas royalties. Severance taxes in Kansas, Wyoming and other states may range up to 12½%. In addition, Texas and some other states also assess property taxes, also known as ad valorem taxes, which absorb a much larger amount of revenue from oil and gas production. This is due to the fact that this tax is assessed upon the projected value of the oil or gas instead of the current income. It is also driven by the school or county's desire to fund ever increasing budgets. Some counties levy property taxes exceeding 25% of income.
Removal of Uncertainty: Oil and gas assets are subject to many uncertainties such as Alternative Energy (ethanol, fuel cells, etc.). Political Taxation ("windfall profits and carbon tax"), and Foreign Oil (aggressive foreign imports drive down U. S. oil prices).