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.