The New Marcellus Shale Gold Rush - Estate Planning?

Been attending a couple seminars and meetings lately aimed at estate planning and the effects of Royalty payments on the estate.  The implied consequences are staggering.  So are the proposed legal fees for setting up Family Limited Partnerships, LLC's, ect.  I am really wondering if a lot of what they are hyping is true. 

 

The real scare part is the impact of possible future royalty valuation in the estate. If, as explained, the next 20 years worth of royalties can be added to the value of the estate and taxed at the time of death it could concievably add 10-12 million to an estate of a 200 acre land owner.  The tax on this and other parts of the estate would then be due from the estate within 90 days.  At a possible 45% tax rate this could mean 3-5 million due then.  For most the only way to pay that would be to sell the land and royalty rights, most likely at less than favorable prices.

 

So my question is has anybody had any experience or gotten any good advice from a tax or estate professional they trust.  Some of the figures I have gotten for setting up a Family Limited Partnership top $15,000.  Including appraisials of royalties, 3-6K, Legal Fees 8-9K. 

 

All of this is so new to area that I worry some of these outfits may be riding on/manufacturring a wave of hysteria.  If all the hype is true I definatley see the need to set things up now, cost seems pretty steep though.

 

This is my first post since joining last month so if I didnt put in the proper forum I apologize

Thanks

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Replies to This Discussion

Permalink Reply by Sondra Fisher on November 22, 2010 at 10:40am
We are planning more seminars after the holidays. Our one last week went very well and the drilling company (Range Resource) did a fantastic job of explaining and clarifying questions. I will keep you posted as to future seminar locations. Thanks
Permalink Reply by stormangasman on November 23, 2010 at 10:34pm
Sondra ihanks
Permalink Reply by Robert D. Congdon Jr. MAI, SRA on December 2, 2010 at 4:20pm
Charlie-

I have been reading with interest your replys and comments. I regularly do appraisals of mineral rights for estate planning professionals in NY and Pa. and enjoy reading about various techniques in use. I have attended finalcial planning seminars and been part of the presentations for NY coaolitions. Please feel free to call me any time.

Bob Congdon

Robert D. Congdon, Jr. MAI, SRA

Certified General Appraiser in New York, Pennsylvania, and Florida

Licensed Real Estate Broker in New York

MLS Member in Various Sections of NY, Pa., and Fla.

New York Contact Information

Congdon & Co. Inc.
10 Madison Ave.
Endicott, N.Y. 13760
607-757-0435
607-757-0742 fax
Permalink Reply by Charlie on December 3, 2010 at 1:13pm
Bob-

Thank you for the kind words. As you certainly know, it is difficult to find appraisers who know how to value mineral rights and I know my office has used some outfits out of Philly. I will certainly keep you in mind in the future. Good estate planning requires a solid team.
Permalink Reply by George Koons on November 26, 2010 at 4:53pm
Charlie,
Great info. As a financial advisor I am starting to get these questions from people quite often. I am also part of a lease and have been looking into an FLP for myself. Thank you
Permalink Reply by Rambo on November 25, 2010 at 4:10pm
I have a well site going in on my property. I consoled my lawyer and looked into estate taxing and setting up the future for my three children 24, 21, 16. We are going to set up trusts and divide the OMG from our estate. As mentioned above valuations on OMG's are still too new and are a learning process for everyone even the lawyers who practice this law due to the unknown outputs of these wells. The most $$ will come in the first 12 months then the well output will drop off and stabilize.
Permalink Reply by David Stewart on November 26, 2010 at 9:18pm
yea my parents did the same. we may do so as well. The best time to do it is before a well goes into production. After that the gas rights are easier to value. Before production starts the value is harder to put a number on. The only thing that worries me is how things will be viewed later. Under current tax laws you are only able to gift 1 million over a lifetime to kids. If the rights are valued later in excess of that the estate may be liable for taxes. Hard to believe that years from now they may go back and look at that but have heard rumours that the IRS is tasking additional agents just for estates in the marcellus shale area just for that reason. Hate to have to put my kids in the situation to have to scramble to come up with money (sell land or royalty rights) to pay estate taxes.

One solution one of the attny I spoke with was to use an ILIT (Irrevocable Life Insurance Trust) with some of the royalties to provide tax free life insurance benifits which would then be used to pay estate taxes. Doesn't get out of taxes but makes it so the kids dont have to worry
Permalink Reply by Veronica English on November 26, 2010 at 9:33pm
David,
Did your parents consider selling part of their royalties to get payments up front and avoid the estate taxes?
Veronica English
Permalink Reply by bill h on November 27, 2010 at 8:39pm
Veronica, did you ever consider the fact that these folks would be much better off borrowing the money against their mineral rights rather than lining your pockets?
Permalink Reply by Veronica English on November 27, 2010 at 11:22pm
Bill,
They could do this, but selling their royalties would allow them to #1 get SOME money up front #2 allow them to retain some of the royalties for future. With borrowing, they end up paying intrest and owing more than they need.
Veronica
Permalink Reply by Veronica English on November 26, 2010 at 8:31am
David
One way around the fees, is to sell part of the royalties now. In doing so you get the cash up front, with that in mind you could possibly set up some sort of accounts for those you have in mind. There is a company called ARS that does such a sevice. If you would like more information on this please email me and I will provide you with it.
Thanks & Good Luck,
Veronica English
bmcfarm@gmail.com
Permalink Reply by David Stewart on November 26, 2010 at 9:29pm
Have gotten a couple of pieces of mail in from other outfits like them I think. Most of them only want to pay pennies on the dollar for the rights though. Right now I think we are only on the edge of this whole thing and a lot of companies are out there to take advantage of us. Lord knows the gas companies have already done a good job of that, now the rest of the vultures are circling.

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