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Ohio 'Shaleionaires' Need Advice, Lawyer Says
CLEVELAND -- You’re a rural landowner in Ohio, living your life and paying your bills, when a landman offers you a small fortune for your mineral rights, plus the possibility of even more money in oil and gas royalties. Thousands of property owners in eastern Ohio have become “shaleionaires” and many have the ironic problem of ensuring their new wealth is a blessing and not a curse.
“Many people, even those who had large land assets before, are now ‘cash rich,’ ” said attorney Scott Swartz of the business succession planning and wealth management practice of Benesch, Friedlander, Coplan & Aronoff LLP. “They have never had to confront the issues they face now. Wealth of this scale requires a completely different level of financial and legal sophistication, and many landowners simply don’t have the experience to cope with their new reality.”
Swartz, also a certified public accountant, added that attorneys with financial backgrounds have the ability to anticipate and help landowners avoid the common problems they face. In some cases, the attorney can act as a referee between family members who own a plot of land under lease in common. “There needs to be a management structure in place so everyone benefits and they can all avoid the grief that comes with family infighting,” he noted.
Issues with saving new wealth from taxation that can be legally avoided arise as well. “Many people don’t know the difference between capital gains taxes and income taxes," Swartz said. "This means some landowners, without professional help, could pay twice the taxes they are legally required to. Other common legal needs include establishing trusts for children and giving money to family members in a way that is both legal and avoids extra tax penalties."
Whatever the specific need, Swartz warned that timing is crucial. “The time to see a qualified attorney is before you sign an oil and gas lease or sale of mineral rights," he emphasized. “Before a signature, there are options -- but after a lease is signed, the list of options gets much shorter.”
It’s not all worry and wariness for Ohioans with newly found wealth. The Ohio Legislature has enacted a tax break that they and other state residents with assets can enjoy easily: Elimination of the estate tax.
Until now, Ohio has enforced a very low threshold for paying inheritance tax. Beneficiaries owed a tax of up to 7% on any estate valued at $388,888 or more.
Ohio House Bill 153, signed by Gov. John Kasich last June, repeals the entire estate tax effective Dec. 31, Swartz said, adding that many people don’t know this because the public’s focus was on other matters, such as Senate Bill 5, the law governing public union employees that voters defeated in a referendum last November.
“The elimination of Ohio’s estate tax is a big advantage for Ohio landowners with oil and gas proceeds," Swartz said. "It could tip the balance to encourage them to stay in their home state, near family, instead of moving to a more tax-friendly state so they can pass on their good fortune to their children.”
Published by The Business Journal, Youngstown, Ohio.