Do I Need a Trust?

Estate planning relates to the arrangement of your affairs so that upon your passing your assets will pass to those whom you wish to benefit, while being subjected to the least amount of taxes and transfer costs. Often, too, it speaks of setting things up so that your assets can be professionally managed for the benefit of less sophisticated loved ones when you are gone.  A trust is a popular method of accomplishing all of these goals.  A trust is simply written instructions by someone called a “Settlor” (the person setting up the trust) to a “Trustee” (the trusted money manager) calling for the investment of assets (the “Trust Estate”) for the benefit of someone (the “Beneficiary”).Trusts are frequently used by parents who wish to make arrangements so that upon their death, their children are provided for, without having money pass directly to them while they are young. Such parents can establish trusts which will invest assets, pay out money for the expenses of rearing young children, eventually pay for college, and then distribute trust assets when children are older and more experienced with finances.  Though these are common goals of people setting up trusts, they are by no means the only arrangements a trust can offer.  Trusts are very versatile arrangements that can provide for any number of financial situations.  As such, they are a great vehicle for managing assets in a way that suites unique financial situations.Johnson & Johnson has been helping clients set up trusts for over 25 years.  We are confident we can suit your needs.

Breaking an old Oil and Gas Lease

How do you determine if your oil and gas lease is still in effect?This is one of the most common questions we receive. It typically comes from landowners who had signed an oil and gas lease many years ago and want to take advantage of the current lease frenzy. That is, landowners who have signed an oil and gas lease in the 1970's or 1980's want to know if they are eligible for a new lease and the signing bonuses that come with it. The answer to this question can be very valuable, as bonus payments for signing an oil and gas lease today are much much higher than they were twenty or thirty years ago.Like many questions concerning the law, the short answer to this question is: it depends. Generally speaking, if a person has signed an oil and gas lease in the past, it is pretty likely that they are ineligible for a new oil and gas lease. However, old oil and gas leases can and do expire. If this happens, a landowner would then probably be eligible to sign a new lease.Determining if land is still under lease involves many factors. Some have to do with the timing of payments made by oil and gas producers. Others have to do with specific terms of the old lease. Some of the language in the old lease might not be favorable to drilling new wells. Broadly speaking, however, if a landowner is still receiving payments for a well on or nearby their land, it is pretty likely that the old lease is still in effect.We realize that each landowner's situation is different, and will not always fit squarely into one of the above circumstances. With the above in mind, we have helped landowners effectively break their current oil and gas lease. Contact our office if you believe your old lease has terminated.

Frequently Asked Probate Questions

What is the probate court?

The probate court oversees the administration of a person's estate.  When a person dies, and after creditors and taxes have been paid, the deceased person's property must be passed on to heirs.  If the person had a properly drafted will, determining where the property goes is fairly straightforward: it will be described in the will.  The probate court has the legal authority to see that wills are properly executed, and to see that wills are properly carried out.  For example, the probate court may order the payment of debts and taxes.  Similarly, the probate court may issue deeds of real estate to heirs, or may transfer other personal property.  If a person does not have a will, the probate court will distribute the deceased person's belongings according to Ohio's laws of intestacy.  While the chief function of the Probate Court is to administer decedents’ estates, other matters within its jurisdiction are: issuance of marriage licenses, adoptions, guardianship proceedings, and the involuntary commitment of the mentally ill.

Do I want to “avoid probate”?

Generally, yes, though not always.  The most popular reasons to avoid probate concern the costs and time requirements of the process. Another good reason to avoid probate involves keeping sensitive financial information away from public court records.  Additionally, navigating the probate court system upon the loss of a loved one often is the last thing grieving parties want to do.On the other hand, sometimes a person may want the probate court to supervise the transfer of assets. This may be a good idea for quarreling families.  Additionally, when young children are to end up as beneficiaries of a trust—being too young to inherit until they are older and wiser—it may be a good idea to have the Probate Court supervise ongoing trust administration.

How do I avoid probate?

Clients can avoid probate by using alternative mechanisms to transfer assets at death.  Ohio makes it simple to transfer automobiles, real estate, financial accounts and securities by using “transfer on death” or “payable on death” arrangements.When a minor child is the beneficiary, the assets may still end up under the supervision of the probate court (through a guardianship) until the child reaches the age of 18.

Are "transfer on death" and "payable on death" arrangements good for everyone?

Not always, no.  These types of arrangements, though effective in probate avoidance, can be rather blunt instruments.  For example: assume that Client sets up a bank account as"payable on death” to three children, all of whom have children of their own. If one of Client’s children, X, dies before Client does, X's children would not inherit X's share of Client's bank account: Client's two surviving children would take everything. This may not be what Client wanted.As a result many people have come to use living trusts for Probate avoidance and to carry out other estate planning goals, including tax planning. These are described in the estate planning article.

If I don't avoid probate, what can I expect?

Expect a lot of paperwork, a lot of accounting, and a good bit of waiting.  Starting a probate estate requires that an attorney present the court with: the deceased person's Last Will and Testament, an estimated schedule of the individual's assets, and a listing of “statutory heirs” (those persons who would inherit if the decedent had passed away without a will).  Next, the court will put someone in charge of the estate: an Executor if the individual had a will, or an Administrator if the individual did not have a will.

Who is in charge of the estate?  Who interacts with the probate court?

A person's will typically nominates someone to be in charge of the estate.  If a person dies without a will, the surviving spouse is given the right to oversee the estate.  If there is no surviving spouse, typically a child becomes the estate administrator. Where a decedent dies with no will and no immediate family, the probate court will look to more distant relations. However, where nobody comes forward to begin administration, a creditor can petition the court to act as administrator.

What responsibilities do Executors/Administrators have?

Executors and Administrators have the following responsibilities:

1. Identify the decedent’s assets;
2. See that assets are properly valued;
3. Preserve assets during estate administration;
4. Deal with creditors;
5. Pay taxes;
6. Interface with beneficiaries;
7. Distribute assets after debts and expenses are paid and;
8. Account to the Court.

Will a smaller estate go through the same procedures as a large one?

Certain smaller estates are treated differently under Ohio law:If 1) the total value of all property in a decedent’s name is $35,000 or less;or 2) estate assets are $100,000 or less and the surviving spouse is the sole heirthen the estate can be relieved from administration. This means a less expensive, streamlined procedure can be used to process the estate.

How long does it take to finish an estate?

As discussed above, smaller estates “relieved from administration” typically takes 2-4 months to process. For other estates, the length of time involved can vary greatly, depending upon the complexity of the assets owned. If real estate and business interests are involved, this will likely stretch out the administration process. Also, creditors are given 6 months after a decedent’s passing to assert claims. Thus, the court and an executor/administrator will be extremely reluctant to pass out estate assets until that time period as expired—otherwise the fiduciary could end up personally liable for estate debts.

How much does probate cost?

There are many expenses involved in handling an estate.  Among them are: probate court fees, executor/administrator fees, appraisal fees, and of course attorney’s fees. Court costs are based on a fee schedule established by statute for each type of document filed in the Probate Court. Executor/administrator fees are also established by the state legislature and are based on percentages of the assets in the estate. These range from 1% to 4%, depending upon the nature and value of the assets. Where the value of an estate asset is not readily ascertainable, an appraiser must be appointed. Appraisers are often appointed to value real estate and are paid an appraiser fee—generally not more than one or two hundred dollars. Attorney fees are not set by statute, but are determined according to the rules of each county Probate Court. Most Courts tie attorney fees to the amount of time the attorney spends in dealing with estate matters.

What taxes must an estate pay?

All taxes due on or after the death of the decedent must be paid from the estate assets by the executor or administrator of the estate. These taxes are: real estate taxes, personal property taxes, local, state, and federal income taxes, and Ohio and federal estate taxes.

Will I have to pay estate taxes to the state of Ohio?

Effective in 2013, the Ohio estate tax is entirely repealed.

Will I have to pay estate taxes to the federal government?

For a detailed discussion of estate planning concepts and federal estate taxes, see our Basic Estate Planning Principles page. In a nutshell, if you are leaving everything to your spouse, there are no federal estate taxes. Beginning in 2013, a decedent can leave $5 million to heirs without paying the 40% federal estate tax.  The $5 million is adjusted for inflation each year.

How can I find out what is happening in a particular estate?

Like other court proceeding, an estate is a public matter and any documents which have been filed in an estate may be reviewed. If you stand to inherit from an estate, you can examine the filings of the executor/administrator. For example, the executor must file an inventory of estate assets - what the decedent owned at the time of death. The executor will also need to file a final accounting which shows what monies were paid out of the estate and to whom they were paid. If the decedent had a will, it is on file with the court and can be reviewed.

Landowner Rights Video

On Nov. 30, 2011, I had a chance to address landowner rights during the YOUNG 2011 Conference & Expo in Youngstown, Ohio. This post has an embedded video of the one hour presentation that I gave that day.

Oil and Gas Lease Forfeiture or Expiration in Ohio

Recently, I’ve been receiving a number of calls from prospective clients who are looking for ways to extract themselves from an old lease that covers their property. Various scenarios exist: (1) an old lease was signed years ago, but no well was ever drilled; (2) a well was drilled, but has sat idle for some time, with no royalties being paid; (3) a well was drilled and royalties have been paid, but they are sporadic or of a very small amount. With the recent increase in leasing in Ohio, and considering the large sums being offered, these clients want to know if they can cancel the old lease to allow them to sign a new lease for large dollars.

Old Lease – No Well Ever Drilled

This situation is the simplest to deal with. An oil and gas lease will normally have a fixed primary term (for example, 5 years) and a loose ended, secondary term (for example, so long as oil or gas are produced). If a well is not drilled within the primary term, the secondary term never kicks in and the lease terminates automatically – it is not necessary for a landowner to go to Court to void the lease. A landowner should be free to sign a new lease with another company after the lease term expires. The new company will sometimes request that the landowner sign an affidavit indicating that no well was ever drilled under the old lease and that no royalties ever paid, just to have some peace of mind.

Old Lease – Well Drilled, But No Royalties Being Paid

This is a much trickier situation, and will really depend upon the particular facts. Recall, as discussed above, that the lease has a secondary term. Leases use various language to define the secondary term. Oil companies will frequently use some very broad, and sometimes vague, language to define the secondary term of the lease. For example, the lease will continue if “oil or gas are capable of being produced from a well on the subject premises in the judgment of the lessee.” That’s not a good clause for a landowner. I prefer to define the secondary term as “so long as oil and gas are being produced in paying quantities.” This means that there is significant production coming out of the well and the landowner is being sent a royalty check. I believe this is fair to both parties. After all, when the lease was signed, the parties likely were not agreeing or anticipating that the lease would continue for years after the point where was no profit being generated from the well.If the lease is favorably drafted for the landowner, and if production has stopped for an extended period (particularly if for no good reason), a landowner can successfully argue that the term of the lease has expired. “Extended period,” as used in the preceding sentence likely means years, rather than months. There have been several Ohio court decisions that have so found under these circumstances. See, for example, American Energy v. Lekan, 75 Ohio App.3d 205 (1992) and Moore v. Adams, Ohio App. 5 Dist.,2008, 2007AP090066.

Old Lease – Well Drilled, Minimum Royalties Being Paid

One monkey wrench that an oil and gas company can throw into the above situation is the payment of a shut-in royalty. Most leases provide for a shut-in royalty that can extend the secondary term of the lease, even though a well is shut in. In the Moore case, cited above, the lease did have a provision permitting the lease to continue if shut-in payment were made. However, the gas company failed to pay shut-in payments (or any other royalties) for a period of 6 years. Then, as the landowner was about to file suit, the oil company sent a check equal to 6 years’ worth of shut in payments. The landowner (smartly) refused to cash the check and the court determined that tendering this late check did not keep the lease alive. When representing landowners, I will typically permit a shut in clause because sometimes things happen that legitimately cause an oil company to shut things down for a time. However, I like to fine tune that clause so that a producer does not have a right to pay a modest shut in fee indefinitely and for no good reason.

Other Issues

The discussion above really concerns the expiration of a lease based upon the written terms thereof. An alternative method of cancelling a lease would be through a forfeiture. Ohio courts generally disfavor forfeitures, so these are tough cases. If the facts and lease language are a favorable, a landowner will generally want to argue that his lease expired by its terms, rather than argue that the lessee forfeited its interests in a lease. Sometimes, however, you don’t have favorable lease terms or facts. For instance, maybe there is an old well and you are still getting small royalties. At the same time, all your neighbors are getting great wells drilled and the company operating your well appears to be in no hurry to do any additional drilling. You have a large farm which has ample room for more wells – or perhaps deeper formations could be drilled on your property (e.g. to the Marcellus or Utica formation.) What can you do about that?Again, these are difficult cases, but you could argue that, by failing to drill additional wells on your land, the lessee forfeited such right. In 1897, the Ohio Supreme Court, in Harris v. Ohio Oil Co., 48 NE 502, held that an oil and gas companies have a duty to operate prudently, under the surrounding circumstances, and to reasonably develop the lands under lease. It affirmed similar decisions in other states that implied these concepts into an oil and gas lease. It recognized that where wells were drilled on neighboring properties, it was negligent for an oil and gas company to permit that to continue where gas or oil might be drained from the leased property. However, the court stressed that if the landowner could be compensated by money, rather than a by forfeiture of the lease, that was the preferred method of compensation. There have not been a lot of cases decided in Ohio on this issue, but I anticipate that there will be more activity in the courts in the near term.

Ohio Oil and Gas Leasing Update January 2012

In the last six months we have seen a lot of changes in the oil and gas leasing game. More wells have been drilled and more data about the Utica Shale is now available. This has created a lot of buzz in the oil and gas world. There has been a real surge in interest by many oil and gas companies. There are new “hot” counties where lease prices have escalated substantially, while other counties are of less interest to the oil and gas companies. More companies are moving into this play every week. Major companies now include: Chesapeake, Devon, Hillcorp, Shell, Anadarko, Hess, Gulfport, Consol, and XTO (Exxon). However, not every company is interested in the same area.It can be extremely difficult to figure out how to get the highest price for your property. As a law firm, we have worked with many landowner clients since the inception of the Utica shale play. We keep track of the offers in terms of upfront lease money and royalty. We also track the offers geographically so that we know which companies are interested in which counties and townships and what the ‘going rate’ is for a particular area. Because we understand the lease market, we are able to negotiate on your behalf and will attempt to get you the highest price available. Importantly, we also have contacts within the major Utica companies and can typically work more quickly than a landowner could on their own.Give our office a call today at 888.324.5127 and let us do the negotiating work for you.

Thoughts on Group Leasing or Mineral Selling

We are often asked whether a landowner should join a “group.” The short answer is “it depends.” Certain landowners will benefit from joining a group while others will do better standing alone.Factors we consider include:

• How many acres do you own?
• Are you willing to sign a lease that allows the company to drill on your property?
• Are your neighbors leased?
• If your neighbors are leased, did they sign with the same company that has approached you or a different company?
• Is the group made up of large landowners or small landowners?
• Is the group centered around your property or spread out?
• If the group is spread out, how many townships or counties does it span?
• Has the group already been approached by any companies?
• Does the group want you to pay a fee to join?
• Does the group want you to commit to joining the group for some period of time without guaranteeing terms?

Depending on the answers to these questions we may advise you to join or not join a landowner group. There are many different groups available. We often put our landowner clients into “groups” where we feel it benefits them. If we think your position is stronger by yourself, we will advise you to stand alone.You should speak to an attorney to figure out if you will benefit from a group situation. As always, do not sign any documents committing you to anything until you have consulted an attorney.

June 2011 Update

Oil and gas leasing in Ohio has continued at a rapid pace. Columbiana County, Jefferson County, Mahoning County, Caroll County, Stark County and Harrison County continue to generate signing bonuses in the $2,000/acre and up range, with prices in Harrison County (where a rumored huge well has been drilled) reportedly hitting over $3,000 per acre. Outside of that core area, in Trumbull County, Portage County, Summit County, and Tuscarawas County, activity is pretty brisk, but at lesser per acre amounts. Going beyond those counties, we are seeing new entrants, besides Chesapeake Energy, into the Utica shale play who are leasing in Medina County, Ashland County, Wayne County, Holmes County, Coshocton County, Belmont County and other areas. These new players are paying considerably less per acre than what we have seen in Chesapeake’s core area.Approximately 5-6 horizontal Utica shale wells have been drilled to date, with only a few of those having been fully completed and put into production. We are likely to see some dozens more drilled by year end. Leasing trends are going to be dependent upon the success of these initial wells.Finally, in some of the core areas, landowners with old leases are being courted by a company known as MC Mineral Company, LLC to buy out their mineral rights with a one-time payment. MC Mineral Company, LLC would appear to have a relationship with Chesapeake Energy. It need be understood that if you are selling your mineral rights, this is different than signing a lease. Under a lease, a landowner is entitled to future royalties if and when a well would be drilled. A sale of mineral rights would cut off an landowner’s right to future royalties. Tread carefully if you are considering such a sale of mineral rights. I am in the process of putting a group of landowners together to negotiate the sale of their mineral rights, so feel free to drop me a line if you have received a letter from MC Mineral Company on this issue.