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PLANNING FOR WEALTH AND SECURITY
By Attorneys Jennifer and Jeff Hawkins

A Quick Overview Of Mineral Law- Part 2 Oil And Gas

This article concludes a two-part series explaining Indiana Mineral Law.  Last month’s article focused on the laws and economic conditions surrounding the development of coal and other related mineral interests.  This month’s segment focuses on oil and natural gas. 

Natural gas was produced underground by the decay of plant and animal material over thousands of years.  This article refers to the natural gas that commonly lies within or near crude oil in underground rock formations as “conventional gas” and coal bed methane gas as “CBM.” 

Oil and conventional gas squish around among the rock formations. The substances are either pressurized by the natural pressures existing in the ground or they may be pressurized artificially through the injection of carbon dioxide gas or salt water.  Either way, an injection well can be made in one location and an extraction well can be made in another location so that the injection well “pushes” the oil or gas toward the extraction well so that it may be pumped out of the ground and stored in tanks.  After the oil or gas is extracted it is sent to a processing facility to be cleaned and refined for the end user. 

CBM is trapped within the coal seams and does not move around like conventional gas.  In order to extract CBM from the ground the coal seam must first be crumbled up to allow the gas molecules to escape from their imprisonment in the coal.  Throughout the history of underground coal mining CBM has been a dangerously explosive substance that has resulted in the deaths of many underground miners.  The CBM extraction process capitalizes on that characteristic through a process called “fracturing.”  The fracturing process involves drilling down to the coal seam and forcing water or gas under high pressure into the coal seams to break up the coal and release the gas. Once the coal is fractured, the gas molecules collect in the small pockets created by the fracturing process and a similar extraction process can be used to force out the CBM as is used to force out conventional gas. 

Landowners may have rights to be paid for energy development, but their rights depend on what their predecessor landowners did with the land. If someone sold the coal, oil, or gas rights previously, the landowner’s rights will be more limited. Once a developer purchases oil and gas rights, the gas lease usually allows the producer to build roads, install electric power lines, install oil and gas pipelines, and install oil and gas storage tanks on the premises.  Although most producers try to be responsible about their use of leased facilities, such leases can entitle producers to carve up land like a checkerboard and destroy the productive usefulness of the surface for the surface owner.

Oil and gas leases deal with many topics that are subject to negotiation. Effective negotiation can mean the difference between a profitable and a miserable experience for the landowner.  

© 2009 by HAWKINS LAW PC, Estate, Trust & Business Attorneys. All rights reserved. Published with permission.

PLANNING FOR WEALTH AND SECURITY
By Attorneys Jennifer and Jeff Hawkins

A Quick Overview Of Mineral Law- Part 1

Southern Indiana counties have experienced a new surge in oil, gas and mineral development in recent years; most land owners know very little of the law and economic environment in which mineral development companies operate.  Those legal and economic factors are far too complex to describe in full detail in this column, but some basic information may be helpful to land owners if a development company representative knocks on you door.

COAL

Coal is a mineral that lies below the surface of the ground among various rock formations.  Several different kinds of coal exist in Southern Indiana ranging from coals that are somewhat “clean” or containing low amounts of sulfur, to coal that contains much larger amounts of sulfur.  Environmental regulations make clean coal more desirable for coal-burning electric power plants.  High-sulfur coal is much more plentiful in Indiana.  Sometimes several different kinds of coal may be layered on top of each other and they are identified by numbers that the coal companies used to distinguish one seam of coal from another.

Coal that is close to the surface is easiest to mine with strip mining technology.  A strip mine will dig a hole through the surface of the ground and dig out the coal.  After the strip mine has removed the coal, state and federal law requires the coal company to restore the surface of the ground to a similar condition to the ground condition that existed before the mine began its operations on that site. 

Deeper coal is more often mined by deep mine technologies that require mines to dig tunnels under the ground.  The deeper the coal, the more expensive the extraction process may be.  Sometimes, thick seams of coal may exist deep under the surface but the presence of water near rivers or underground streams makes it impossible or too expensive to extract the coal safely. 

Many people in Southern Indiana do not own the minerals under their ground because a previous owner of the ground sold the coal and other minerals many decades earlier.  If a coal company wishes to develop coal on your ground and you do not own the minerals, the coal companies rights to develop the coal depend upon how the coal company acquired its mineral rights.  Some old deeds to coal companies gave the coal companies rights to dig buildings and railroads and other structures and stockpile minerals on the surface of the ground.  If the coal company acquired those kinds of rights, it is possible that you will have a difficult time dealing with the coal company.  Otherwise, the coal company will often pay the surface owner a fee to either lease the surface so that the coal company can develop its coal rights or it will buy the surface from the land owner.

If you own minerals, the coal company may be interested in either purchasing the minerals from you for a fixed dollar value or leasing the minerals from you.  An out right sale of the coal is a rather simple idea and the key to determining the value of the coal is to determine the fair market value of the coal.  Usually, the coal company knows what the coal is worth if the coal company can sell it and it will usually offer a much smaller value to the land owner than the coal company can sell the coal than the price the coal company would receive for mining and selling the coal to a power company because the coal company intends to make a profit on its development of the coal. 

A coal lease is an agreement in which the coal company agrees to pay some money at the beginning of the lease, called “advance royalty” for the right to establish the lease.  When the coal company removes the coal from the ground, it will pay a royalty to the mineral owner at a rate of several dollars per ton of coal.  The lease will entitle the coal company to claim a credit for the advance royalty that it paid and will only begin to pay earned royalty to the mineral owner after it has claimed full credit for the amount of advance royalty that was paid at the beginning of the lease. 

A mineral owner will often be paid more money on a coal lease than it will be paid for selling the coal.  The problem, however, is that the coal company can shut down the coal production if the economy changes and the price of the value of coal drops.  Therefore, some coal leases lapse and mineral owners end up owning undeveloped coal that they can’t sell to anyone else.  Ultimately, some risk accompanies the decision whether to sell or lease coal. 

Next month, this column will focus on oil and gas leases. 

© 2009 by HAWKINS LAW PC, Estate, Trust & Business Attorneys. All rights reserved. Published with permission.

PLANNING FOR WEALTH AND SECURITY
By Attorneys Jennifer and Jeff Hawkins

NEW LONG-TERM CARE FINANCE RULES THIS FALL

This column has warned readers of changes to the Indiana Medicaid rules several times this year (see 2009 articles for  May, June, July, and August at http://www.hawkinslaw.com/main/index.php/articles). Those harsh new rules are  descending on us now.

The new rules change how Medicaid treat a person who gave gift to family before suffering a health crisis that requires  nursing home care. The old rules disqualified a gift giver from the month after the gift was made until a later period. The  length of disqualification (this is the  penalty period ) depends on the gift's value.   Large gifts trigger longer  disqualifications than smaller gifts. The old rule hurt some families that lacked enough cash to pay nursing home bills during  the penalty period, but it offered a predictable result that people could plan to address.

One of the new rule's biggest differences is that the penalty period does not start in the month immediately after the gift is  given. Instead, the penalty period is delayed until the gift giver enters the nursing home and spends his money down to  $1,500 (rules differ slightly for married people). Thus, Medicaid does not begin to refuse to pay until the gift giver  becomes broke and admitted to a nursing home   a very tight spot.

The new rules implement a federal statute made by Congress in 2006. The Indiana General Assembly passed a state law  to adopt the federal law this past April, but delayed the start date until at least October 1, 2009, or until FSSA adopts  regulations for the new rules.

This summer, the Family Social Services Administration (FSSA) advised members of the Indiana chapter of the National  Academy of Elder Law Attorneys (NAELA) that it would not adopt regulations to implement the new rules until  November 1, 2009. However, just a few days ago, one of our chapter members discovered that FSSA delivered its  regulations to the Indiana Secretary of State a full month earlier that it had previously represented. Therefore, most elder  law attorneys in Indiana are bracing for an October effective date for the rules. Then, long-term care planning will be much  more difficult than before October 1. We will still have planning options, but we must be more creative in the future.

THIS ARTICLE IS NOT LEGAL ADVICE. ALWAYS CONSULT AN ATTORNEY DIRECTLY BEFORE  RELYING UPON THIS ARTICLE OR CHANGING AN ESTATE PLAN.

© 2009 by HAWKINS LAW PC, Estate, Trust & Business Attorneys. All rights reserved.

PLANNING FOR WEALTH AND SECURITY
By Attorneys Jennifer and Jeff Hawkins

Faithful Planning and Plan Execution

Everyone has a plan. When you woke up this morning, you developed a daily strategy that would guide your activities until your head hits the pillow tonight. Even if you don’t spend time thinking about what you will do, your actions will still form the pattern of a plan that you will execute throughout the day. Hindsight bears witness to whether your plan and its execution reflect the financial, social, and moral values that you claim to cherish.

Humans dominate the top of the animal kingdom food chain at because we possess physical and mental capabilities to influence our environment and seize opportunities. More than that, however, a person’s values can elevate him or her above the crude comfort and self-preservation instincts that describe the other animals. This power to conceive and do the “right thing” defines a person’s moral character. People display their character in their daily actions and omissions. Some people’s righteous words match their character, but the two differ sharply in others.

Questions arise often in estate plans and in the administration of estates, trusts, and guardianships about what is “possible” and what is “right.” For example, a person may say: “Who would know that I have this asset if I don’t tell them?” Forget for a moment that failure to disclose an asset on a Medicaid application or some tax returns is a felony punishable by years in prison – a person should consider how this thought fits with his moral and ethical values.

Many honorable people walk among us quietly demonstrating their character without public fanfare. Those people influence our communities by teaching their values to younger generations and contributing to organizations that encourage and reward such faithfulness and moral character. Estate plans can empower trustees to help redirect prodigal beneficiaries toward redemptive lifestyles. Plans can also encourage family philanthropy to build our communities’ strengths and take back this world from greed and malice. It all starts with a plan to get out of bed and “do good”, and ends after a day filled with faithful execution of that plan.

THIS ARTICLE IS NOT LEGAL ADVICE. ALWAYS CONSULT AN ATTORNEY DIRECTLY BEFORE RELYING UPON THIS ARTICLE OR CHANGING AN ESTATE PLAN.

© 2009 by HAWKINS LAW PC, Estate, Trust & Business Attorneys. All rights reserved. Published with permission.

PLANNING FOR WEALTH & SECURITY
By attorneys Jennifer & Jeff Hawkins
 
October 1 Deadline for Landowner Nursing Home Planning

This column has focused a great deal in the last few months on changes that the Indiana legislature established earlier this year concerning long-term care ( see May, June, and July, 2009, under Articles at www.hawkinslaw.com ). For those readers who missed those articles, Congress passed legislation in 2006 that requires states to penalize people more harshly for transferring assets to their family members before seeking Medicaid assistance. The Indiana legislature finally passed legislation that adopts the Federal law in April of this year, but delayed the start of that law until October 1, 2009. Recent communications from Indiana’s Family and Social Services Administration express that the agency may not begin enforcing the new law until after October 1, 2009.

Long-term care costs for room and board in a nursing home can run as high as $6,000 or $7,000 per month in some Wabash Valley facilities. At an annual cost between $60,000 and $90,000, very few people can afford to pay for such long-term care before exhausting their funds. No one looks forward to nursing home residency, but advance planning to protect resources from such costs is important for those people who lack sufficient resources to pay the bills in cash.

Landowners can transfer partial ownership of their land to family members before October 1, 2009, and lock in treatment under the more favorable existing Medicaid laws. As word of the October 1 deadline spreads, many landowners are thinking about how to protect farmland and other valuable property from long-term care costs by transferring it to specially constructed trusts. The transfers are usually organized so that the landowner still receives all of the income benefits from the land and can continue to reside in residences that are situated on the land for the rest of the landowner’s life, but the long-term ownership of the land is protected so that the land will not have to be sold to pay for long-term care expenses.

It takes some time to set up real estate transfers properly so that land can be protected. Landowners who want to protect their land should speak to a qualified elder law attorney in plenty of time before October 1, 2009. Elder law attorneys will undoubtedly be extremely busy during the months of August and September, 2009, so it will be important for people to make appointments with their lawyers as soon as possible to beat the rush. More than usual, snoozing before October 1 can lead to a lot of losing.

THIS ARTICLE IS NOT LEGAL ADVICE. ALWAYS CONSULT AN ATTORNEY DIRECTLY BEFORE RELYING UPON THIS ARTICLE OR CHANGING AN ESTATE PLAN.

© 2009 by HAWKINS LAW PC, Estate, Trust & Business Attorneys. All rights reserved.

PLANNING FOR WEALTH & SECURITY
By attorneys Jennifer & Jeff Hawkins
 
New Indiana Transfer on Death Act Arrives

The Indiana’s new Transfer on Death Property Act offers radically new opportunities for people to transfer wealth after July 1, 2009. Hoosier can now own land, vehicles, and the contents of their junk drawers with some of the same simple account ownership styles that banks and investment companies offer.

Banks and investment firms have offers “TOD” (transfer on death) and “POD” (pay on death) account designations for decades. The TOD account owner designates beneficiaries to “inherit” the account after the account owner dies. The owner can change the TOD beneficiaries at any time, and the TOD beneficiaries have no ownership rights in the account during the owner’s life. The old TOD and POD statutes were very simple and provided few protections for beneficiaries when unusual circumstances arose. Despite the limitations, the old statutes made it very easy for people to set up bank and investment accounts to pass wealth to beneficiaries.

The Indiana Legislature expanded the transfer on death laws in 2008 to allow people to order vehicle titles with the TOD designation. Like the old TOD account statutes, 2008 statute was very limited. At the time that the Legislature proposed TOD legislation for real estate and vehicles titles, but the Indiana State Bar Association persuaded the legislature to drop the issue with respect to real estate so that the Association could compose a more complete statute. An Indiana State Bar Association committee staffed by Chairman Jim Martin of Merrillville; Suzanne Katt of Indianapolis; and Jeff Hawkins of Sullivan teamed up to write the 20 plus page legislative behemoth earlier this year.

The new Transfer on Death Property Act, effective July 1, 2009, repeals all of the old statutes relating to TOD and POD bank accounts, investments, and vehicle titles, and replaces those statutes with a single, comprehensive statute. The law covers all of those topics, plus real estate, and every other kind of asset. For example, a person may now set up ownership of farmland, machinery, and artwork with a TOD designation so that beneficiaries will receive ownership of those assets without using a will or other estate planning device.

The Transfer on Death Property Act does replace the need for wills and trusts, but owners can manage some assets effectively with TOD designations. Hawkins Law PC uses TOD designations to channel assets through wills and trusts with less complexity and expense than was required before the Transfer on Death Property Act was established.

The new act does not specify how TOD designations should be made or offer forms to accomplish the structure. It is illegal for anyone other than a licensed Indiana attorney to set up a transfer on death deed to transfer real estate for another person. A person may set up TOD bank and investment accounts by consulting their bankers and investment advisors, but it is advisable to consult an attorney who has knowledge and experience with the Act so the TOD designations can be set up properly.

THIS ARTICLE IS NOT LEGAL ADVICE. ALWAYS CONSULT AN ATTORNEY DIRECTLY BEFORE RELYING UPON THIS ARTICLE OR CHANGING AN ESTATE PLAN.

© 2009 by HAWKINS LAW PC, Estate, Trust & Business Attorneys. All rights reserved.
 

PLANNING FOR WEALTH & SECURITY
By attorneys Jennifer & Jeff Hawkins
 
More Nursing Home Finance Regulations Coming

Indiana has been a Medicaid law breaker since February 2006. The Federal Deficit Reduction Act of 2005, passed in 2006, required all states to use the federal Medicaid law. Indiana’s legislature adopted the federal law when it enacted Senate Enrolled Act 301 (“SEA 301”) earlier this spring. The Indiana law takes effect on October 1, 2009, but the Indiana Family and Social Services Administration (the “FSSA”) will not publish or enforce its detailed rules until sometime after October 1, 2009. Meanwhile, FSSA is negotiating with a group of organizations that includes the Indiana chapter of the National Academy of Elder Law Attorneys (“NAELA”) so that the detailed rules will be fair and reasonable.

SEA 301 establishes harsh consequences for anyone who makes a gift or sells property for less than its fair market value after October 1, 2009. Most people should forget everything that they know about laws concerning gifts and sales of property under for less than the fair market value, because the new rules will be completely different after October 1, 2009. For example, if a person transfers a home or farm land to their children or grandchildren after October 1, 2009, and if the person suffers a health crisis that requires nursing home care, the gift or sale of property for less than the fair market value will disqualify that person from assistance for nursing home care after the person runs out of money and can no longer pay for nursing home care independently. Other rules limit how a person can invest in annuities and other financial products.

Sullivan’s Jeff Hawkins serves on Indiana’s NAELA committee that negotiates with FSSA. The ongoing FSSA negotiations concern such issues as how a person qualifies for Medicaid assistance if the family cares for the person at home. Indiana law requires that the Indiana Attorney General ensure that that FSSA’s rules comply with state and federal law. Then, FSSA must reprogram its computers and train hundreds of caseworkers to apply the new rules to the thousands of Indiana nursing home residents that apply for help each year.

As you may guess, the rule implementation process will give nursing home residents and their families a very unstable experience for the next few years until the state fixes bugs in the new computer programs and caseworkers become accustomed to the new rules. The Indiana NAELA Chapter sees this negotiation process as a positive movement by the State of Indiana and looks forward to Indiana’s establishment of a fairer and more logical Medicaid system.

THIS ARTICLE IS NOT LEGAL ADVICE. ALWAYS CONSULT AN ATTORNEY DIRECTLY BEFORE RELYING UPON THIS ARTICLE OR CHANGING AN ESTATE PLAN.