"That's why the very first thing we ever do is ask them, 'Is estate planning a bigger concern than nursing home [costs]?'" DeNardo said.
The second threshold test for potential clients, DeNardo explained, is to determine whether they can afford to unload their oil and gas stakes before they've signed a lease and collected any bonuses they might be entitled to.
"A lot of these landowners are folks who don't have a lot money," DeNardo said. "They're the farmer that has been farming their whole life and getting by just on the farm income. If they were to do planning now before they signed a lease, in a lot of ways that's giving away everything. Those people aren't willing to do that because they want a piece of it."
The "middle-of-the-road option" DeNardo gives many of those clients is to form an entity through which they can eventually gift their oil and gas interests but through which they retain ownership of those interests until after they've signed a lease and collected their bonus payments.
"If a person owns 50 acres and they get $3,000 an acre [in bonus payments], that's a nice chunk of change. Then they can gift it away so [the recipients] get the royalties," DeNardo said, explaining that by employing that method, a landowner can act fairly quickly when the time comes to transfer oil and gas interests because the tax entity is already formed.
Of course, there are those landowners who can afford to gift their oil and gas interests and still live comfortably.
To those clients, DeNardo said he typically recommends planning their estates as early as possible in order to avoid having to pay higher taxes.
"For people that have money to live on, we're telling them, 'The earlier you can give [those oil and gas rights] away, the better,'" DeNardo said.
Tice said he takes a similar approach, encouraging clients whose oil and gas interests are located in what he called "the sweet spot" of oil and gas development to set up entities while the values of their oil and gas interests are still low, so they can lock in at a lower tax rate.
"My thought has been the time to do planning is ideally before the property is fully developed," Tice said. "I'm basing this on discussions with a guy we've used for appraisals of oil and gas rights and I agree with him that before there's been any development, gas rights may be appraised at a low value. But when you look at the value after the wells have been drilled and are in production, at that point the value's going to be much higher. The ideal time to do estate planning is before that."
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Evan Guthrie Law Firm
The United States has so much natural wealth and it is important to do estate planning to protect that wealth for future generations.
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