Entering into a gas lease for the Marcellus Gas Rights can be a windfall of profit for the property owner. It is not, however, without its tax pitfalls. The gas lease can be a hidden tax bomb if its ownership is not handled properly through gift and estate planning designed to minimize or even eliminate the tax burden from your estate and heirs. Recent federal legislation has created a window of opportunity that did not exist before January of this year. 

The largest and most onerous tax on one’s death is the Federal Estate Tax. The rate is now set at 35%. The nature of this tax is that it is imposed on the right to give an asset away upon death. This same tax is equally burdensome to gifts given during one’s lifetime. If the amount one gives away in any year exceeds the annual gift tax exclusion amount (currently $13,000.00 for each recipient) then a gift tax is imposed at the same 35% rate. 

Marcellus Gas Leases have the potential of being valued at a very high current market value. Even untapped reserves have been estimated to have thousands of dollars of value per acre before production has begun. In many instances the value of the Marcellus Gas Lease will be the largest asset in one’s estate. 

To avoid the imposition of the Federal Estate Tax, the asset must be given away during one’s lifetime using the often under utilized Lifetime Gift Tax Exclusion. This sometimes overlooked regulation was revised effective January 1, 2011 and will remain in effect until January 1, 2013. The law now allows an individual to give away, during their lifetime, assets worth up to $5 million (without counting the annual gift tax exclusion mentioned above). 

The estate planning use of the Lifetime Gift Tax Exclusion under the current legislation presents a limited opportunity to reduce and potentially eliminate Federal Estate taxes. There will be a reduction of the exclusion amount to $1 million and an increase in the effective tax rate (as high as 55%) after January 1, 2013, unless Congress enacts new legislation. It is certainly timely to discuss this and other estate and gift planning objectives with the attorneys at Bassi, McCune & Vreeland, P.C.

Keith A. Bassi, Esquire

President and Managing Director at Bassi, McCune, & Vreeland, P.C.

No related posts.

This entry was posted on March 13, 2011 at 1:45 pm. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Posted in Oil and Gas Real Estate Wills, Trusts and Estates by Bassi, McCune & Vreeland, P.C. No Comments Yet