Land Management: Conservation Easements
Real property–land and the home or other structures on it–often has special significance
to the family that owns it, to the surrounding community or to the ecology of the
area. It may have played a role in an historical event; provide habitat for wildlife;
command a magnificent view; or offer access to recreational or educational venues.
It is only natural that owners might want to preserve the unique character of their
Yet, real estate passing to one’s heirs is valued at its “best and highest use”
for estate tax purposes. Even if it is open, undeveloped land, it will be taxed
at the value that a residential or commercial developer would place upon it. This
optimal market value of real property also may affect its assessment for local property
For these reasons a growing number of conservation-minded landowners are choosing
voluntarily and permanently to reduce the value of their land. The mechanism
that they employ in this process is known as a conservation easement.
In legal terms an easement is a right ceded by a property owner to others for limited
use of the property, permitting a shared road to pass through one’s land, for example.
A conservation easement generally gives to a qualified conservation organization
a guarantee that the property in question will not be developed in a way that compromises
the interests promoted by the organization.
The unique nature of the property governs the type of organization that may accept
the donation of a conservation easement on it:
- If it has buildings of historical significance, or is part of a battlefield, an
organization such as the National Trust for Historic Preservation may wish to enter
into an agreement conserving its unique character in perpetuity.
- An organization such as Ducks Unlimited or the Nature Conservancy may accept an
easement protecting a significant wildlife habitat containing special natural attributes.
- Limiting development of property commanding an impressive view may be of interest
to local land trusts.
- Organizations also exist that are dedicated to the preservation of ranch and farm
- Less commonly, easements have been created in order to preserve land for public
outdoor recreation or education.
Taking the form of a written agreement between the landowner and the conservation
organizations, easements are quite adaptable to the individual circumstances of
the case. Rights that the owner wishes to retain can be written into the agreement–even
the right to subdivide, build an additional structure, retain timber, mineral or
hunting rights, etc.
An easement is regarded as a charitable donation–the value of the donation being
equal to the loss of value of the affected property. This can run from less than
20% to more than 90% of the property’s unencumbered value. Naturally, the more rights
retained by the landowner, the lower will be the value of the easement.
The donation is deductible from income taxes up to a limit of 30% of income. Any
excess can be carried forward for five additional years. Landowners granting easements
with substantial value can even stagger their gifts in order to extend the tax deduction
Although it is not assured, an easement also may reduce the property value in the
eyes of local tax assessors, resulting in savings on property tax.
Potentially the biggest advantage of conservation easements is in the estate tax.
Easements are often cited as responsible for keeping in the family valued property
that might otherwise have to be sold to pay estate tax. Recent changes to the tax
code have given additional support to those contemplating the granting of an easement
in order to keep a property in the family:
- The Taxpayer Relief Act of 1997 allowed an additional estate tax deduction of up
to 40% (a maximum of $500,000 in 2002) of the otherwise taxable value of land subject
to a qualifying conservation easement. The law applied to land close to metropolitan
areas, national parks, Wilderness Areas and Urban National Forests. However, the
tax act of 2001 extended the benefit to land anywhere in the United States. To qualify,
the easement must protect outdoor recreation or education resources, wildlife habitat
or open space “for the scenic enjoyment of the general public or in fulfillment
of a . . . public conservation policy.” Easements solely for historic preservation
do not qualify under this particular provision of the law.
- In 1998 Congress made the grant of postmortem easements possible. So long as no
income tax deduction is taken for the easement, the estate can grant an easement,
deduct its value, and, if applicable, claim the additional deduction authorized
in the 1997 Act. To qualify, the easement must be in place by the estate tax return
filing deadline including extensions.
In practice the agreement for an easement must carefully spell out the rights that
are being ceded and those that are being retained and must be binding on both parties
For this purpose the assistance of an attorney specializing in real estate matters
is essential. There must be something special or unusual about the land that you
are protecting, although a great variety of properties, large and small, can be
found to qualify. The agreement must be with a legitimate charity or government
agency. In order to substantiate a tax deduction, the value assigned to the easement
must be supported by a qualified appraisal. Often a cash donation accompanies the
grant of an easement in order to help the grantee organization maintain the rights
ceded to it.
An easement is generally not appropriate when a quick sale is contemplated. The
tax benefits notwithstanding, most people who grant conservation easements have
a genuine interest in preserving the environment. Although an easement is regarded
as reducing the market value of the property on which it is granted, the reverse
is sometimes the case. Certain buyers it seems are actually willing to pay more
for conserved land.
As you can see, a conservation easement can be a key part of a family’s financial
and estate planning. After all aren’t a family’s landholdings worth as much planning
attention as a family’s business?