CONSERVATION
EASEMENTS
A conservation easement (or conservation restriction) is a legal
agreement between a landowner and a land trust or government agency
that permanently limits uses of the land in order to protect its
conservation values. It allows you to continue to own and use your
land and to sell it or pass it on to heirs.
When you donate a conservation easement to a land trust, you give
up some of the rights associated with the land. Future owners also
will be bound by the easement's terms. The land trust is responsible
for making sure the easement's terms are followed.
Conservation easements offer great flexibility. An easement on property
containing rare wildlife habitat might prohibit any development,
for example, while one on a farm might allow continued farming and
the building of additional agricultural structures. An easement
may apply to just a portion of the property, and need not require
public access.
A landowner sometimes sells a conservation easement, but usually
easements are donated. If the donation benefits the public by permanently
protecting important conservation resources and meets other federal
tax code requirements--it can qualify as a tax-deductible charitable
donation. The amount of the donation is the difference between the
land's value with the easement and its value without the easement.
Placing an easement on your property may also result in property
tax savings.
Perhaps most important, a conservation easement can be essential
for passing land on to the next generation. By removing the land's
development potential, the easement lowers its market value, which
in turn lowers estate tax. Whether the easement is donated during
life or by will, it can make a critical difference in the heirs'
ability to keep the land intact.
LAND DONATION
Donating land for conservation purposes is truly one of the finest
legacies a person can leave to future generations. It may be the
best conservation strategy for you if you do not wish to pass the
land on to heirs; own property you no longer use; own highly appreciated
property; have substantial real estate holdings and wish to reduce
estate tax burdens; or would like to be relieved of the responsibility
of managing and caring for land.
Donating land releases you from the responsibility of managing the
land and can provide substantial income tax deductions and estate
tax benefits (while avoiding any capital gains taxes that would
have resulted from selling the property). Most important, if the
land is donated because of its conservation value, it will be protected.
(Although our focus here is on conservation land, commercial and
residential properties can also be donated to a land trust, with
the understanding that the organization will sell the land to support
its conservation work.)
Donating a remainder interest in land
An outright donation is not the only way to give land. You can continue
to live on the land by donating a remainder interest and retaining
a reserved life estate. In this arrangement, you donate the property
during your lifetime, but continue to live on and use the property.
When you die (or sooner if you choose), the land trust gains full
title and control over the property.
By donating a remainder interest, you can continue to enjoy your
land and may be eligible for an income tax deduction when the gift
is made. The deduction is based on the fair market value of the
donated property less the expected value of the reserved life estate.
Donating land by will
If you want to own and control your land during your lifetime, but
assure its protection after your death, you can donate it by will.
You should make sure the chosen recipient is willing and able to
receive the gift.
Land donations that establish a life
income
If you have land you would like to protect by donating it to a land
trust, but need to receive income during your lifetime, you might
use a charitable gift annuity. In a charitable gift annuity, you
agree to transfer certain property to a charity, and the charity
agrees to make regular annuity payments to one or two beneficiaries
you specify for life.
Your gift of land usually qualifies for a charitable income tax
deduction at the time of the gift, based on the value of the land
less the expected value of the annuity payments. Another option
for donating property and receiving regular income is a charitable
remainder unitrust. You place the land in a trust, first putting
a conservation easement on it if it is to be protected. Then the
trustee sells the land and invests the net proceeds from the sale.
One or more beneficiaries you specify receive payments each year
for a fixed term or for life, then the trustee turns the remaining
funds in the trust over to the land trust.
The gift qualifies for a charitable income tax deduction when the
land is put in the trust, based on the value of the land less the
expected value of the payments. Charitable gift annuities and charitable
remainder unitrusts are most useful for highly appreciated land,
the sale of which would incur high capital gains tax.
Bargain Sale of Land
If you need to realize some immediate income from selling your land,
yet would like the property to go to a land trust, a bargain sale
might be the answer. In a bargain sale, you sell the land to a land
trust for less than its fair market value. This not only makes it
more affordable for the land trust, but offers several benefits
to you: it provides cash, avoids some capital gains tax, and entitles
you to a charitable income tax deduction based on the difference
between the land's fair market value and its sale price.
Your Next Step
A land trust can help you arrive at a conservation plan that makes
the most sense for you, and can put you in touch with attorneys,
appraisers, accountants, and land planners familiar with conservation
techniques.
Talk with your own legal and financial advisors.
