1. What is a Conservation Easement?

Easements, in general, are legally binding agreements between a landowner and another party that results in the landowner transferring or sharing one or more of their property rights with the other party. To understand the easement concept, consider that when a buyer purchases a parcel of land, they essentially are purchasing a bundle of rights. These rights often include, for example, the right to construct buildings, to subdivide the land, to restrict public access or to harvest timber. A familiar example of an easement is when a utility company is installs electricity, gas, water, sewer or other utilities. The landowner generally does not give up all rights to use that eased area, they just formally agree to allow others to do something on their land. Easements are recorded at the Register of Deeds and run with the title to the property, generally in perpetuity.

Conservation Easements are a special kind of easement designed to restrict or prohibit activities that, if conducted, would negatively impact the Conservation Values of the property. Conservation Values typically include open space, prime farmland or soils, unique or high quality natural habitat, or historically significant areas such as burial mounds or battle fields. Through Conservation Easements, a landowner transfers some of their property rights to another party, such as a land trust. Rights commonly transferred by the landowner include:

• subdividing the property

• building structures, roads, or other "improvements"

• excavating, filling, or otherwise substantially altering the land surface

• conducting commercial or industrial activities

• operating off-road motorized equipment (ATVs, snowmobiles)

• un-managed timber cutting, mining, or removing/damaging other natural resources

• significantly altering water bodies or the natural flow of water over the land

Each easement agreement is negotiated and tailored to the property and the conservation interests of the landowner and the land trust. The Land Trust, as grantee, is then responsible for enforcing the terms of the easement agreement.

2. Why should I grant a Conservation Easement?

Conservation Easements protect private land from inappropriate development or other uses that are incompatible with the preservation goals. By granting an easement, the landowner is assured that the Conservation Values of the property will be protected, in perpetuity. In this way, landowners play a vital role in preserving America's natural heritage for future generations.

Conservation Easements can be purchased or donated, or a combination of the two. Landowners who donate easements to "qualified" charitable conservation organizations, such as a land trust, can receive substantial tax deductions if the transferred right(s) provide a significant public benefit, as is often the case. The Ozaukee Washington Land Trust meets the criteria of a "qualified" charitable organization under the Internal Revenue Code Section 501 (c) (3).

3. If there is a Conservation Easement on my property, does the Land Trust control my property?

The land trust does not have ownership of any part of the property upon which is holds an easement. The landowner may mortgage, sell, or otherwise transfer the property. However, land trusts do have a responsibility to make sure the terms of the easement are being honored thorough periodic on-site monitoring and other means.

4. Must a Conservation Easement allow public access?

Landowners who donate conservation easements determine whether to open their property to the public. The majority of donated easements are not opened to the public and that is decided by the current landowner. If an income tax deduction is to be claimed, however, some types of easements require public access. For example, if the easement is for recreation or educational purposes it must provide access. Access generally is not required for easements that protect wildlife or plant habitats, scenic open space or agricultural lands. Easements purchased using State Stewardship Funds usually do require public access, because public funds are helping support conservation of that property.

5. How can donating an Easement reduce a property owner's income tax?

The donation of a conservation easement is a tax-deductible charitable gift, provided that the easement is perpetual and is donated "exclusively for conservation purposes" to a qualified conservation organization or public agency. Internal Revenue Code Section 170(h) generally defines "conservation purposes" to include the following:

• The preservation of land for outdoor recreation by, or the education of, the general public.

• The protection of relatively natural habitats of fish, wildlife or plants or similar ecosystems.

• The preservation of open space—including farmland and forest land—for scenic enjoyment or pursuant to an adopted governmental conservation policy. In either case, such open space preservation must yield a significant public benefit.

The actual amount of money saved in income tax is based on the value of the property. The owner has the property appraised both at its fair market value without easement restrictions and at its fair market value with easement restrictions. The difference is the easement value.

The newly enacted tax reconciliation bill raises the minimum deduction a donor can take from 30% to 50 % of a donor's adjusted gross income. The deduction can be taken over a 15-year period, instead of 5 years. Potential easement donors should seek legal counsel.

6. Can donating an Easement reduce an owner's property tax?

Property tax assessment is usually based on the property's market value, which reflects the property's development potential. If a conservation easement reduces the development potential of the property, it may reduce the level of assessment and the amount of the owner's property taxes.

The actual amount of reduction, if any, depends on many factors. State law and the personal attitudes of local officials and assessors may influence or determine the decision to award property tax relief to easement grantors.

7. How can granting an Easement reduce a property owner's estate tax?

Many heirs to large historic estates and to large tracts of open space—farms and ranches in particular—face monumental estate taxes. Even if the heirs wish to keep their property in the existing condition, the Federal estate tax is levied not on the value of the property for its existing use, but on its fair market value, usually the amount a developer or speculator would pay. The resulting estate tax can be so high that the heirs must sell the property to pay the taxes.

A conservation easement, however, often can reduce estate taxes. If the property owner has restricted the property by a perpetual conservation easement before his or her death, the property must be valued in the estate at its restricted value. To the extent that the restricted value is lower than the unrestricted value, the value of the estate will be less, and the estate will thus be subject to a lower estate tax. (Note that if the property owner donates the easement during his or her lifetime, he or she may also realize income tax savings.)

Even if a property owner does not want to restrict the property during his or her lifetime, the owner can still specify in his or her will that a charitable gift of a conservation easement be made to a qualifying organization upon the owner's death. If the easement is properly structured, the value of the easement gift will be deducted from the estate, reducing the value on which estate taxes are levied. Again, a lower estate tax results.

8. How much will a Conservation Easement be worth if I want to consider donating or selling an easement?

Professional appraisers determine the value of conservation easements. They will determine the value of the property without an easement, then the value of the property once the easement has restricted land use on the property. The difference is the value of the easement.

Landowners can protect their property though conservation options offered by land trusts.

1) Conservation Easement

A conservation easement is a voluntary, legal agreement between a landowner and the Land Trust. It protects a property's conservation values by constraining allowable land uses.

Advantages of a Conservation Easement:

• Landowner Retains Ownership – The Landowner retains ownership/title to the land and may continue to live on it, sell it or pass it on the heirs knowing that it will always be protected.

• Flexible – They are flexible agreements negotiated with the landowner to meet the conservation desires of the landowner and protect the natural features of their land.

• Permanent - They are permanent, running with the land as ownership changes.

• Professional - They are written by experienced Land Trust staff and attorneys, who work with the landowner and their legal counsel, as appropriate.

• Protect a Variety of Lands - They are used to protect a variety of landscapes including farms, grasslands, forests, wetlands, lakeshore and scenic and open space.

• Public Benefit - They protect private lands that in turn offer the public benefit of improving water quality, providing wildlife habitat and promoting the economic sustainability of communities.

• Tax Benefits - An easement donation that meets federal tax code requirements can qualify as a tax-deductible charitable donation. (Refer to the enclosed fact sheet, "What are the Tax Benefits?")

• Affordable Way to Pass on Land - An easement that restricts development can lower the land's market value, which in turn can lower estate taxes and make a critical difference in an heirs' ability to keep the land intact.

Conservation Easements DO NOT:

• Require public access on private lands.
• Transfer ownership or management responsibilities to the Land Trust.
• Lead to government ownership of land.
• Remove property from the tax roll.
• Restrict landowner's ability to sell their property.

2) Limited Development Conservation Easement

This approach is similar to the above, but allows the landowner to set aside a portion of the property for development to off-set the lost development-related revenue resulting from the easement. Under this option, a site development plan is incorporated into the easement to ensure that future development is consistent with the preservation goals for the property. The advantages noted in Option #1 above apply to this approach, as well.

3) Gift of Land

A land donation releases the donor from the responsibility of managing and caring for the land (as the Land Trust now holds title). It can provide a substantial income tax deduction and estate tax benefit for the donor, while avoiding any capital gains taxes that would result from selling the property. Donating land will also remove its value from your estate and reduce future estate-related taxes.

4) Fair Market Sale

Land Trusts, public agencies and other non-profits are often interested in buying land because direct ownership allows more control and access to protect and restore a property's natural features. However, these organizations, whether alone or in partnerships, often lack sufficient funds to buy land at fair market value. Therefore, this method of protection is often difficult to pursue unless the cost is reduced through Option #5 below. The seller would also be subject to capital gains taxes on the property's appreciated value and may incur substantial sale-related costs such as realtor's commission, which can substantially reduce profits.

5) Bargain Sale

A bargain sale is a transaction that is part sale and part gift. It involves selling property for less than the fair market value, with the remaining value being donated to the Land Trust. For example, say Mr. and Mrs. Jones own 40 acres of woodlands that the Land Trust is interested in preserving. Further, let's say that the market value of the property is $4,000 an acre and the Land Trust is unable to raise the entire $160,000. Mr. and Mrs. Jones want to preserve their woodlands but can not afford to donate the land outright because they need to receive some funds for their retirement. The solution might be a bargain sale of the property at $3,000 per acre. In this case, the Land Trust would buy the property for $120,000, which would provide sufficient resources for Mr. and Mrs. Jones retirement as well as a potential income tax deduction of $40,000. This approach reduces their capital gains tax on the sale, provides a deduction to offset the income received by the sale, and allows preservation of the woodlands.

6) Conservation Buyer Program

The Conservation Buyer Program provides a unique opportunity for a private buyer to work in partnership with the Land Trust to preserve land. Conservation Buyers agree to protect land through the following methods: i) they can acquire the land and donate a conservation easement immediately following their purchase, or ii) they can acquire the land and gift it to the Land Trust. Buyers who choose to donate a conservation easement or land under this program may also receive significant tax benefits. Conservation Buyers may also have the opportunity to purchase property that is already subject to a conservation easement, thereby significantly reducing the purchase price.

7) Remainder Interest/Reserved Life Estate

This option involves a donation of property to a Land Trust in which the landowner (or another named person) lives on the property during their lifetime. The Land Trust will obtain full control of the property when the donor or specified person dies or releases their life interest. This approach would allow the donor to continue to live on and enjoy the land without paying property taxes. Because the deed is transferred during their lifetime, the donor also has greater control over the terms of the transfer. A remainder interest gift may also entitle the landowner to an income tax deduction when the gift is made. The possibility for estate tax liability must be evaluated if the life tenant is someone other than the donor.

8) Charitable Remainder Trust

A charitable remainder trust is a land conservation technique in that it can be combined with a conservation easement, for example, to both protect land and provide funds to the trustee. A charitable remainder trust involves the donation of property by a landowner to a trust created by the landowner. The trust sells some of the land for development and donates a portion to a Land Trust to be protected. The proceeds from the sale or development are invested to generate income for the trustee beneficiary. Upon the passing of the beneficiary or expiration of the trust terms, the remaining funds in the trust are turned over to the named charitable organization – such as the Land Trust.

9) Conservation Registry Program

The Land Trust offers Registry Program agreements as a unique, flexible option to conserve private lands. The desire and commitment of a landowner to protect the natural features of their property is the basis of this program. The Registry is a formal agreement, although not legally binding, between the Land Trust and a landowner. Under this option, the owner commits to preserve and protect the land to the best of their abilities, including notifying the Land Trust of any threat to the natural features of the property. In addition, the owner agrees to notify the Land Trust of their intent to sell the property before it is placed on the market or in any other way transfer title, so that the Land Trust may have an opportunity to further discuss preservation options at that time.

10) Native Landscaping

Whether or not a landowner is able to enter into a formal preservation agreement, the Land Trust encourages all landowners to incorporate native plantings into their landscaping. Creating more natural habitats in urban and rural landscapes greatly benefits the landowner as well as wildlife. Traditional turf-based yard maintenance has many drawbacks, including significant ongoing investment in time and fuel, application of fertilizers and pesticides that negatively impact wildlife and the natural areas and water resources upon which they depend, and the degradation or destruction of pre-existing native landscapes that support wildlife. Becoming more familiar with the natural landscape potential of your own back yard leads to a greater appreciation for natural landscapes in and around your community.

Disclaimer: Potential donors should consult their tax and legal advisors to determine the tax advantages of any donation transaction.

Land trusts consider many types of land worthy of protection, some that landowners might be surprised to find are judged significant. Land trusts are committed to identifying land and water resources that are valuable to their communities. It could be a farm, a prairie, a forest or a river. As community-based organizations, land trusts have an interest in preserving areas that are closely identified with their community's natural heritage. In broad terms, land trusts work with landowners, other conservation organizations and government agencies to protect:

• Natural Areas

Prairie and oak savannas; forests and other ecologically sensitive areas that is important as wildlife habitat;

• Wetlands, Streams, Rivers and Lakes

Efforts to protect these areas help preserve water quality, waterfowl nesting habitat and shoreline areas, and support fish and other aquatic species;

• Working Forest

Land trusts collaborate with private working forests to help protect working forests and develop sustainable forest plans;

• Recreational Land

Community enjoyment of recreation lands is an important objective of land trusts; examples include protection of trail systems that invite walkers, hikers, bicyclists and cross-country skiers, as well as hunting and fishing areas for all to use;

• Open Spaces

Open areas are important to many cities and towns, urban or rural; land trusts work to preserve these spaces for their natural, historic and agricultural values;

• Park Lands

Park lands initially protected by a land trust may be transferred to local governments to manage or added to existing park areas;

• Scenic or Unique Areas

Scenic views along rural roads or highways or unique natural features in or near a community are part of our priceless landscapes; land trusts use various conservation methods to protect these areas for all to enjoy;

• Agricultural Lands

Working farms, orchards and cropland also have a place in the conservation landscape; land trusts work to protect land and water areas with significant agricultural value.

The motivation behind most conservation easement donations is the owner's love for the land and their desire to see it preserved for future generations. However, these donations can also result in substantial tax savings for the landowner, thereby benefiting both the land and the landowner. A brief overview of the potential tax benefits is presented below.

1. Income Tax Benefits Associated With Conservation Easement Donations.

Prior to 2006 a landowner could use the fair-market value of their donation as a tax deduction to offset as much as 30% of their adjusted gross income, and the unused portion of the deduction could be carried forward for up to five (5) years. In 2006, Congress passed a law allowing landowners to apply the fair-market value of their donation to offset as much as 50% of their adjusted gross income and increased the carry forward provision to 15 years. This enhanced incentive is set to expire at the end of 2011, and the tax incentives will revert to pre-2006 provisions.

2. Special Benefits for Farmers.

The 2006 law allows a farmer to use the fair-market value of a donated conservation easement as a deduction to offset as much as 100% of their adjusted gross income, provided the land remains available for agriculture production. "Farmers" are defined as landowners who receive more than 50% of their income from "the trade or business of farming" in the year of easement donation. This provision also allows the unused portion of the deduction to be carried forward up to 15 years. Again, this enhanced incentive is set to expire at the end of 2011, and the tax incentives will revert to pre-2006 provisions.

3. Donation May Lower Your Property Taxes.

Property taxes may be reduced when a conservation easement lowers a property's full market value, which is typically the developed or "highest use" value.

4. Donation May Lower Estate Taxes.

Donation of a conservation easement can also reduce estate taxes when the easement reduces the property value as described above.