So You Are Now a Shaleionaire!

So you signed a great lease, they drilled several wells, and you are getting huge royalties.  Congratulations!  But there is a lot of potential negative that comes with all that positive. Sudden wealth can destroy families, divide friends, even end your life any number of ways.

We all aspire to maximize our financial gain from these shale plays but are we really prepared for what comes after? Perhaps its is something that needs to be discussed and prepared for.

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Permalink Reply by wyalusing jim on June 10, 2013 at 11:54am

regarding valuation, we used the highest of all offers to purchase minerals received in the 3 months preceding the transfer to an flp/llc.

a lawyer/cpa who was working with us approved that method.

the valuations received from mineral buyers changes over time and is based upon the status of the property/minerals. (leased, in production, etc.)

my reasoning for using this method was that the maximum value was in reality the same as the maximum that someone was willing to pay for it.

there of course was no cost involved in obtaining those valuations.

wj

Permalink Reply by Gary on June 10, 2013 at 1:27pm

What if the true value is 10 times the current value..which I think could very well be the case due to multiple levels, the price of gas, and exporting to international locations...then what happens?..is there a multiple factor involved in the LLC if the value increases? Have any suggestion for a Goood Lawyer?

2z248p19vqnh9Permalink Reply by 2z248p19vqnh9 on June 10, 2013 at 5:58pm

OK, Gary - devil's advocate...you SUPPOSE the 'value' is 10x...maybe yes, maybe no...'they will AWAYS hope to get things' valued higher - because of the % they make ON that percentage...very fine line. People always have 'blue sky' thoughts...and that's fine, but it just isn't always 'in line' with reality...there just hasn't been enough time gone by to 'sort through the chaff'...many variances!

As one light lights another, nor grows less - so nobleness enkindles nobleness. Never give up.

2z248p19vqnh9Permalink Reply by 2z248p19vqnh9 on June 10, 2013 at 6:05pm

Then there's the problem of 'outliving you setablished tryst' so that it WILL be able to be 'active'...hope that nothing odd happens to throw a monkey wrench into all of that careful planning.

I'm NOT being 'negative', just know that there are certain criteria entailed in this poker game to keep things on the up & up...and have it ALL 'turn out A-OK'...THEN there's the idea of 'not having in you control' everything that YOU have worked hard for yourself. DO you 'turn over the keys to your kingdom'?...just like that??? THAT IS tough...because you are essentially 'giving up your power' to someone else - even someone you trust & love...because things CAN change in ways that you NEVER could have EVER anticipated...

THAT is the 'wild card'...tough, but NO ONE said it would be EASY! As one light lights another, nor grows less - so nobleness enkindles nobleness.

2z248p19vqnh9Permalink Reply by 2z248p19vqnh9 on June 10, 2013 at 6:16pm

Yep, Jim...THAT is the bug-a-boo...BUT if you don't make ANY plan - THEN you'll have THAT result, too - to deal with.... Tough call.

I remember when things got strange a few tears ago...I though - where can I go to 'get outta' dodge' & 'be safe' until smoke clears?...I had trepidation. THEN I realized - I'm in the best place that I am right where I am...everything is 'in place'. Getting everything 'picked up/moved around...on & on & on...and I had complete calm. I am fine right where I am.

THAT's why I say - stay calm. Read, research for yourself...that way WHEN YOU DO go to speak with helpful individuals - YOU will understand what your focus in planning your estate needs to be addressed. You'll be more comfortable & be more in control. You managed your land - didn't you? You managed the lease with the G/O Co. - didn't you?

NOW the 'fruit of your labor' has bore you a great endowment...YOU CAN do it. You did it before, you'll do it again. Use your noodle, Earnest! USE YOUR NOODLE!

As one light lights another, nor grows less - so nobleness enkindles nobleness. *OPTIONS - KNOW your options. (GREAT suggestion, Jim!). HEY - where were 'the options' with at least x3 G/O Co.'s knocking on your door for 'your lease'??? - suitors?...THAT is a 'G/O monopoly mystery' to me yet...

As one light lights another, nor grows less - so nobleness enkindles nobleness.

Permalink Reply by Steven Kacerski on June 11, 2013 at 10:27am

Keith,

You may not necessarily lower the tax bill.  If the kids are young enough, the income may still be subject to what is referred to as the "kiddie tax", which in essence taxes the income at the parents rates.  Unfortunately, I ran into a situation like this earlier this year where someone was advise to setup an LLC and spread some of the income to their kids. The attorney forgot to mention the kiddie tax and we as the accountants had to be the bad guys.

Permalink Reply by Keith A Williams on June 11, 2013 at 11:14am

Steven,

Valid point if the kids are still your dependants.

That's why ya have to plan early. Get advice from accountants. My kids are all grown. I just need the E&P company to drill a well.

Keith

2z248p19vqnh9Permalink Reply by 2z248p19vqnh9 on June 10, 2013 at 6:37pm

Camel going through the eye of a needle?...Sam? Like the 'Shale Barron'...there ARE options. 12 Simple Steps to an Estate Plan | Nolo.com...

Whether you had the money to give two hoots about or not - THIS is a good list of things to address for ANYONE....

Avoiding Family Disputes of an Inheritance - Nolo.com...

LLCs (Limited Liability Companies) - Nolo.com...

Lots to chew on here...as one light lights another, nor grows less - so nobleness enkindles nobleness.

Permalink Reply by Jim Litwinowicz on June 10, 2013 at 2:57pm

There are many threads here at GMS about how to minimize your taxes and the best advice is to use a good financial planner, a CPA, and a good attorney.  But what advice does anyone have for people that have a special needs child? Or a family member with drug and/or alcohol abuse issues? What if one of your offspring have been married several times with a complex family structure? Going through divorce?

New found wealth can get very complicated for some. The bigger the pie the more people will want a slice...or two....or more.

Permalink Reply by Samuel J. Orr on June 10, 2013 at 4:40pm

You are right Jim. I have  always said that you were an honorable and decent man. So first come, first served...may I please have a piece of your pie? By giving me a piece of your pie, your newfound wealth will be diminished and your situation will become  less complicated. 

Permalink Reply by Pete V on June 11, 2013 at 3:13am

The proper use of trusts can effectively address most (if not all) of these scenarios

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on June 11, 2013 at 7:41am

And what did you say your home address was?

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