It is becoming increasingly important for owners of land with Marcellus Shale gas wells currently in use, or that may be in use in the future, to make sure that they have a plan in place to ensure financial stability for themselves and their families. Marcellus Shale landowners can anticipate significant royalty payments for many years into the future, along with bonus payments. It is critical that owners consider how this money will be distributed to their families. Proper planning now will ensure that future generations will still be reaping today’s rewards.
Why Wealth Management is Critical for Marcellus Shale Landowners
Individuals and families who own Marcellus Shale gas wells 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. Without a carefully crafted and fully implemented wealth management plan, much of the wealth gained through bonus and royalty payments may be lost to taxes, divorce or even creditors. Proactive and effective estate planning is essential to reduce exposure to these costly taxes and other pitfalls. Timing is critical. Adopting and implementing a plan prior to production will accomplish this goal.
There are powerful IRS tax credits available to families with wealth or those acquiring significant wealth through royalty and bonus payments. 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 these benefits.
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. It is more difficult for the original owners to decide who should control the LLC in years to come. It is never too early to begin these discussions. Currently, natural gas prices are low. This decreases the value of the limited liability interests, so now is the best time to start planning.
The families affected by the Marcellus Shale boom will benefit from proper and timely estate planning. Although estate and gift planning are not the most pleasant topics of conversation, they are too important to ignore. Individuals who are proactive and seek tax advice can save themselves tremendous amounts of money, time and frustration.
To maximize taxation benefits through the estate planning vehicles mentioned above, it is important for Marcellus Shale landowners to consider a subsurface valuation of mineral rights preferably prior to the commencement of drilling operations on their property or in their pooling unit. To maximize wealth management benefits, landowners 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 developed 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.
For more information, please contact Wayne C. Buckwalter, Chair of the Wealth Preservation Group.