Benefits of LLC for Mineral Rights Owner?

Hello,

Could someone please describe the tax benefits of forming a LLC for a natural gas rights owner. We are trying to plan for the balance of a lease signing bonus as well as future royalty payments. The property is located in PA but we live out of state. 

Thank you. 

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Permalink Reply by Buddy on July 21, 2012 at 3:46am

Yes, I knew about the look back period and thought that transferring sooner rather than later would be the best route.  Hard to know what to do, especially in this "high middle" age bracket.  Thanks again.

Permalink Reply by Clinton44 on July 21, 2012 at 3:49am

Buddy,

Everyones case is different, if pooling of or drilling on your land is not in the near future you still have time to gather information and make decisions. You know how much drilling activity is in your area and due to the low price of gas and the overabundance of gas, driiling in many areas has slowed. It will pick up again when is always the question??

Watch for indications of pooling, for example water testing which they must do if your water well is within a certain distance of proposed well. Watch for drilling permits being pulled close by etc.

This will give you a good indicator of how fast you need to move with your legal matters and the more people involved in your venture, LLC, partnership the more time it will take you to get everyone on the same page... 

 

Permalink Reply by David Perotto on July 19, 2012 at 12:08pm
One benefit of an LLC would be to exclude your personal assets if an environmental accident occurs. If the well pad is on your property, an LLC would certainly make sense for liability reasons. For example, O&G company puts well pad on your property and you receive compensation for this. O&G company has a spill and contaminates nearby properties or worse, a local tributary/body of water. Park Foundation, some environmental group or private landowner sues you in court. You will only be liable for damages to the LLC, not your personal assets.

You could also deduct any expenses that you incur, but this will be minimal.
Dave
Permalink Reply by Steven Kacerski on July 23, 2012 at 3:34am

That's one of the main things I have tried to stress to people when I've presented at oil & gas meetings about the tax and financial implications of the marcellus and utica shales.  The tax issues/planning shouldn't just center around 2011, 2012 or whatever year a person receives their sign up bonus. I have heard the "real money" will come from the royalties. However, the income from royalties is not as straightforward as the signing bonus since we don't know what is 6000 feet down on our property and what the market price will be at the time they extract it and sell it. At least with the signing bonus you can put a value on that income (amt per acre x no. of acres).  A person may never be included in a unit or they can be fortunate to be part of a unit like you referred to.  Time will tell. 

Permalink Reply by LW on July 24, 2012 at 1:10am

Will you please give your thoughts on what are some of the things to consider in making a family trust?   What should be included? Not included?   Can you make it to protect heirs from themselves for future generations?  Should you?

 

Permalink Reply by Steven Kacerski on July 24, 2012 at 3:46am

LW,

One of the first things I would consider and recommend if you're considering a family trust is make sure you find an attorney who works in the estate and trust area to draft the trust documents.  Just like any other professional service (accounting, financial, legal, etc.) you get what you pay for and you don't want to cut corners.  I've seen some trust documents drafted by atttorneys that make no sense and included assets that didn't need to be included in a family trust to meet the objectives of the client.  I can provide you the contact information for the attorneys our firm typically works with. If you're interested, send me a friend request since I can't give out phone numbers as part of our discussion. 

You can include most anything in the trust, the question is whether it is necessary to do that in order to accomplish your specific objectives.  For example, if you have a retirement account, there is no need to put that in a trust in order to designate where it should go upon death. All you need to do is select the beneficiary for the account and it will go to that person upon your death. 

 

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