SERVICES - Facilitate Conservation Easement Donations - Easements Explained
What are Conservation Easements?
Conservation easements are voluntary legal agreements between landowners and land trusts that restrict certain uses of the land in order to conserve its agricultural and natural values forever.
If you think of private property rights as a bundle of sticks, conservation easements give landowners a way to exchange two big sticks—the right to subdivide and the right to commercially develop—for tax benefits or cash.
Except for the rights they expressly restrict (like the right to subdivide), conservation easements generally do not affect traditional uses of the land like ranching, hunting, and fishing. Landowners can reserve the right to build a certain number of future homes, sell the land, pass it to heirs, or use it as collateral for loans.
Each conservation easement is unique. There’s no minimum or maximum acreage, and an easement can cover all or just a portion of a property. Easements don’t have to be perpetual, but most are in order to qualify for federal income and estate tax benefits.
Importantly, conservation easements do not require or allow public access unless the landowner wants them to.
How Do Conservation Easements Work?
Conservation easements work by:
Describing the things that the landowner wants to conserve (like
agricultural viability, wildlife habitat and/or scenic views);
• Defining the things that the landowner can continue doing on the property (provided those things are consistent with the things the landowner wants to conserve);
• Defining the things the landowner can no longer do on the property; and
• Providing our organization with the right to monitor and defend against any violation of the easement forever.
For example, our easements typically allow landowners to:
• Continue ranching (including grazing livestock, growing crops and leasing pasture);
• Construct things like buildings, fences, utilities, roads, and irrigation structures that are necessary for agriculture and compatible with the easement’s goals;
• Sell, give or otherwise transfer the land to someone else (subject to terms of the easement);
• Prohibit public access;
• Restore or enhance habitat for birds, fish and big game; and
• Do anything else that’s consistent with the easement’s goals and isn’t specifically prohibited.
Our easements typically prohibit landowners from:
• Subdividing their property for residential development;
• Developing their property for commercial or industrial use;
• Dumping non-compostable or toxic waste on their property;
• Separating any water rights from the land; and
• Surface mining.
Our easements give us the right to conserve and protect the property according to easements’ terms; monitor the property at least annually with proper advance notification to the landowner; and stop any violation of the easement and restore the property to its “pre-violation” condition (or as near to it as possible).
The terms of the easement do not in any way negate or modify state or federal law. Specifically, a conservation easement cannot prevent condemnation.
One quick note: Like the properties they conserve, each conservation easement is unique. Our organization works with every landowner to ensure that the conservation easement meets the landowner’s needs and goals and conserves the property’s distinctive character.
How Does Your Organization Get Conservation Easements?
We acquire conservation easements in one of two ways: We either accept them as charitable donations or purchase them from landowners who may not have the income against which to take a tax deduction. If a landowner donates an easement, he or she can deduct the easement’s value as a charitable gift on their federal income and estate taxes. If a landowner sells an easement, he or she can use the sale proceeds to improve their operation, retire debt, or invest for the future. Our organization works with every landowner to ensure that the conservation easement meets that landowner’s needs and goals.
We raise money to purchase easements from a variety of sources. Our last easement purchase involved everything from $5 and $10 gifts from community members to six-figure gifts from donors like the Wyoming Wildlife and Natural Resource Trust. We’ve worked with natural gas mitigation funds, federal funds like the NRCS Farm and Ranchland Protection Program, and charitable foundations like Doris Duke. Easement sellers typically play a role as well by selling their easements to us at a discount through a “bargain sale.” In a very real way, every gift matters.
How Do You Know What the Easement’s Worth?
As a general rule, the value of a conservation easement equals the difference between the fair market value of the land without the easement in place and the fair market value of the land as restricted by the easement. To carry the “bundle of sticks” illustration through, each stick in the bundle of property rights has a value. Together, these values make up the property’s overall worth. By limiting certain uses of the property, conservation easements essentially remove sticks from the bundle, thereby reducing the property’s overall value. The value of the removed sticks equals the value of the conservation easement.
Qualified appraisers determine the value of the conservation easement. Our organization can provide contact information for appraisers to interested landowners.
What are the Potential Tax Benefits for Donating a Conservation Easement?
Conservation easements offer a variety of federal income and estate tax benefits (when the estate tax is in effect). Federal tax law treats conservation easement donations as charitable gifts and allows donors to deduct the easement’s value on their federal income tax returns, subject to certain percentage limitations. The restrictions imposed by a conservation easement also reduce the value of the property in the donor’s estate, resulting in estate tax savings. In addition, the executor of a decedent’s estate can elect to exclude an additional 40 percent of the value of the land subject to a qualified conservation easement up to a maximum of $500,000. These potential estate tax savings offer a powerful planning tool to help keep ranches in the family.
To qualify for federal income and estate tax benefits, the conservation easement must meet the following general requirements:
1. It must be donated outright or sold for a bargain price;
2. It must be a “qualified real property interest,” meaning it must restrict the use of the property to protect its conservation values in perpetuity;
3. It must be donated to a “qualified organization” (like the Green River Valley Land Trust);
4. It must be granted in perpetuity; and
5. It must serve at least one of the following “conservation purposes:”
Preservation of open space (including farmland, ranchland and forest
land) that is either (a) pursuant to a clearly delineated federal,
state or local governmental conservation policy and will yield a
significant public benefit or (b) for the scenic enjoyment of the
general public and will yield a significant public benefit;
• Protection of a relatively natural habitat for fish, wildlife, plants, or similar ecosystems;
• Preservation of land for public outdoor recreation or education; or
• Preservation of a historically important area or certified historic structure.
In addition to these requirements, the conservation easement must prohibit all surface mining. For subsurface mining (like mining for oil and natural gas), landowners who own some or all of their mineral rights may reserve the right to develop those minerals so long as the method of mining (1) is not inconsistent with the easement's conservation purposes and (2) has only a limited, localized impact on the property that is not irremediably destructive of significant conservation interests.
Also, if a mortgage encumbers the property, the IRS will not allow a deduction unless the mortgage holder subordinates their rights in the property to the land trust’s right to enforce the easement’s terms. Again, our organization will work with donors and the mortgage holder regarding subordination.
Finally, a resource inventory must be prepared to document the condition of the property at the time of the donation.
Why Should I Conserve My Land?
Conservation easements offer a variety of benefits for landowners and communities. For landowners, easements provide a voluntary way to:
• Keep their land available for agriculture;
• Alleviate income and estate taxes;
• Pass their property on to children and grandchildren;
• Curb residential subdivision and commercial development;
• Preserve habitat for moose, antelope, elk, mule deer, fish, birds, and other wildlife; and
• Maintain the beautiful views we all enjoy
Easements can also provide economic incentives like tax deductions or cash.
For communities, easements provide a way to preserve their agricultural heritage, sustain working ranches, support local businesses, and maintain their quality of life.
What Happens Once the Easement’s In Place?
Once the easement’s in place, our organization works with the landowner to ensure that the easement meets the landowner’s conservation objectives. Our organization visits the property annually, but does not get involved in day-to-day management. These annual visits foster good communication with the landowner and provide an opportunity to answer questions or respond to concerns.