By Wayne C. Buckwalter, Esq.
If you currently own, or are about to own, land on which Marcellus Shale gas wells are in use or may be in use in the future, it is increasingly important to make sure you have a plan in place to ensure your financial stability, and that of your family.
As an owner, you should anticipate significant royalty payments for many years into the future as well as bonus payments. It is important to ask upfront how you would like the money distributed to your family. With proper planning now, future generations will still be reaping today’s rewards.
Recognizing that individuals and families must now decide how to pass significant royalty profits from one generation to the next, while minimizing substantial Federal Estate Taxes, Income Taxes and Pennsylvania Inheritance Taxes is the first step. Without a carefully crafted and fully implemented wealth management plan, much of the wealth gained through bonus and royalty payments may be lost to government taxes, divorce and even creditors.
Timing is critical. Proactive and effective estate planning is essential to reduce your and your family’s exposure to these costly taxes and other pitfalls. A plan put into place prior to production will accomplish this goal.
A simple will stating “I leave everything to my spouse and if my spouse is not living, then I leave everything to my children,” is insufficient to take full advantage of powerful IRS tax credits available to families with wealth or those acquiring significant wealth through royalty and bonus payments.
Many of the Marcellus Shale landowners have created Limited Liability Companies (LLCs) to hold the mineral rights. With the use of valuations and applicable discounts, gifting can be used to transfer limited liability ownership to future generations. This is the easy part. What becomes more difficult is for the original owners to decide who should control the LLC in years to come. It is never too early to start having these conversations. Also, given low natural gas prices, which would equate to lower values of the limited liability interests, now is the best time to be considering planning.
Although estate and gift planning are not the most pleasant topics of discussion, they are extremely important and should not be ignored. Individuals who are proactive and seek tax advice can save tremendous amounts, not only in terms of tax dollars but also in time and frustration.
To maximize taxation benefits through the estate planning vehicles described above, you will need to consider a subsurface valuation of your mineral rights preferably prior to the commencement of drilling operations on your property or in your pooling unit. To maximize wealth management benefits, you should act prior to exposure to potentially significant royalty wealth.
To assist in managing this highly complicated area of taxes and inheritance, the Wealth Preservation Group at Cohen Seglias has created a sophisticated practice in federal and state tax, estate planning, family limited partnerships, LLCs, estate administration and wealth management as specifically applied to Marcellus Shale gas leases.
Wayne C. Buckwalter is a partner at Cohen Seglias and chair of the Wealth Preservation Group. Mr. Buckwalter’s practice emphasizes innovative estate and business succession planning, including the creation of revocable trusts, life insurance trusts, wills, charitable trusts and gifts, private annuity plans, qualified residence trusts and family limited partnerships. He can be reached at (215) 564-1700 or firstname.lastname@example.org.