1. What is a conservation easement?
A legal agreement made between a landowner and a qualified conservation organization that restricts certain activities on their property, such as clearcutting timber, subdividing a property for development, construction of certain structures, etc. A conservation easement also protects properties that have conservation or historic value by keeping them undeveloped. The owner keeps the right to use the property for income or recreation and keeps the right to sell or deed the property to another. A donation of a conservation easement may also reduce estate, income, and property taxes.
2. What kind of properties qualify for a conservation easement?
A conservation easement must have a valid conservation purpose:
3. How long does a conservation easement last?
An easement may be granted for a term of years or in perpetuity. However, for a landowner to take full advantage of the possible benefits of a donated easement, it must be given in perpetuity.
4. Can an easement be changed?
Only allowed with court approval upon showing that the original purpose for the easement is no longer valid. Reasons for amending an easement include adding property to the easement or clarification of terms or additional restrictions. Generally, an easement will only be amended if the amendment strengthens the document and increases the property's protection. The document is recorded on the land records of the town or county where the property is located. All subsequent owners of the property, or anyone who obtains an interest in the property, purchase it subject to the easement terms.
5. What restrictions are contained in a conservation easement?
An easement is tailored to fit the particular property based on the desires of the owner and the goals of the conservation group. The only rule is that all restrictions must be consistent with the applicable laws. Typical restrictions eliminate commercial and industrial uses and mining, limit subdivision, roads, homes, other structures and design timber cutting according to best management practices. An easement might prohibit all future development, commonly called a "forever wild" easement. An easement might preserve the land for historic or educational use, or allow a certain amount of development that will not damage the natural value, but help the owner gain economic benefit. For example, Mr. Smith owns a 2,000-acre ranch. He wants to donate a conservation easement but has certain needs for his family and ranch business. Mr. Smith donates an easement that prohibits future development, but he reserves the right to subdivide two lots, one for each child on a specified portion of the ranch, and to build additional feeding structures and storage buildings for the ranching operation. He also reserves the right for his family and himself to hunt and fish the property. Mr. Smith has protected his land but also reserved the rights necessary to continue his ranching operation and pass it on to his children.
6. Who can hold a conservation easement?
To take advantage of the tax benefits of the donation, the owner must grant the easement to a public agency or a conservation organization that qualifies as a public charity by the Internal Revenue Service. An easement holder should be chosen with great care. A donor must be sure that the holder has the expertise, time and financial commitment to protect the property indefinitely. Ducks Unlimited has decades of experience holding easements in landscapes across North America.
7. How does Ducks Unlimited fit in?
Most of America's remaining wetlands are found on private lands, and working with private landowners is an integral part of DU's conservation program. We believe that most lands can benefit wildlife while also producing economic return to its owner, and we are committed to working with landowners to craft easements to meet their needs and the needs of wildlife.
8. What responsibilities does DU have as the holder of an easement?
Monitoring and enforcement of the terms of the easement are a cooperative effort between the landowner and the easement holder (such as DU). The easement holder is responsible for enforcement of the restrictions in the document, must monitor the property on a regular basis and maintain a written record. Each year a regional biologist or other qualified representative from DU will visit the property and prepare a written report based upon the condition of the property. Usually, the owner or his manager chooses to accompany the biologist. Both parties need to be assured that the property continues to be maintained in compliance with the terms of the easement. Should the monitoring uncover a violation, DU has the duty and legal right to require the owner or violator to correct the problem including taking legal action. Regular communication between the landowner and the holder helps eliminate the need for legal action, and most problems are solved by the parties themselves.
9. What responsibilities does the landowner have in the easement process?
Each state has unique laws for conservation easements. Before proceeding with an easement, donors should consult their legal and tax advisors about the legal and tax implications of the proposed easement.
Once the landowner and qualified organization begin formal discussions about an easement, each party has responsibilities for furthering the easement. The landowner is responsible for obtaining an appraisal of the property, from a qualified appraiser, who will provide a market value of the property before and after the conservation easement has been placed on the property. (Thus, the landowner and the conservaiton organization have to have finalized the requirements of the easement before the appraisal can be completed.) The difference between the “before” valuation and the “after” valuation is used to determine the tax deduction that may be allowed.
Landowners also need to obtain a Baseline Documentation Report (BDR) for the easement. The BDR is an inventory of the conservation values of the property, and it identifies and describes the quality and types of habitat and land features present on the property and what land management practices are underway on the property. The BDR is, essentially, a snapshot of the property at the time of donation. The U.S. Internal Revenue Service requires the donor to provide the BDR to the holder of the conservation easement because the BDR provides critical information about the protected features of the property and is used for monitoring and enforcement. The BDR may cost several thousands of dollars to prepare, and DU can help the donor to arrange for the preparation of these documents.
Finally, the landowner needs to obtain a title search or a title opinion from a title examiner or attorney in the area. This is necessary to disclose any encumbrances recorded on the land records that might conflict with the conservation easement. The cost of the title search is less than the cost of a BDR and will depend on how long the donor has held title to the property and the number of encumbrances recorded on the land records.
10. Does DU accept all easements offered?
No. DU carefully balances the conservation impact of a potential project with the long-term costs required for DU to monitor easements annually. Additionally, we concentrate our conservation efforts in areas of the greatest importance to waterfowl, including the important nesting, migration, and wintering areas for migratory birds throughout North America. If the property does not fit with DU's mission, DU will help the landowner find a more appropriate organization to accept the easement.
11. What are the steps in the easement process?
A landowner who wishes to donate a conservation easement should contact DU. A land protection specialist will visit the site to determine if the property contains valuable habitat and if it complements DU's mission. The biologist will prepare a short document for use by DU called a Preliminary Property Inspection (PPI) report. The terms in the easement document will then be negotiated between the owner and DU. In the meantime, the owner will arrange for the appraisal, title work and BDR. The process is one of cooperation as both donor and holder are working toward the preservation of valuable habitat. When both parties are satisfied with the terms and the conditions of the conservation easement, it is signed and recorded with the recording clerk of the local county or town.
12. What if there is a mortgage on the property?
A conservation easement, if recorded after a mortgage, could be extinguished if the mortgage is foreclosed. If there is a mortgage on a property of interest, the mortgage should be identified and subordinated. That is, the existing mortgage holders will have to subordinate (make secondary) their rights to those of the easement holder. The donor should contact any lenders early in the easement process and obtain a subordination for those mortgages.
13. What is the endowment fund?
DU has the responsibility of monitoring and enforcing the easement in perpetuity, which requires funding. DU has established a restricted endowment fund for the permanent work of monitoring and enforcing easements. DU will request that each donor make a tax-deductible donation to the endowment fund. This donation is based upon the size and location of the donated easement. A donation to the fund ensures that the owner's wishes will be carried out in perpetuity.
14. What are the estate tax benefits?
Land that is conveyed from one property owner to another at the time of death is subject to estate or inheritance taxes. Federal and state estate taxes are based upon the present market value of the land and vary depending on current tax rates and exemption levels and when the value of the land was formally established.
When land has a low “cost basis”, or formally established value, or when the value of land has significantly increased over time, estate taxes on that land can place a tax burden on heirs. This might cause heirs to sell the land so they can meet estate tax obligations. In these cases, to avoid such a sale, a landowner might consider pre-emptively using a conservation easement to reduce the value of their land and the associated future estate tax obligations. That is, if land is restricted by a conservation easement during the owner's lifetime, only the restricted value of the land is included in the estate. For example, Mrs. Smith owns a 1,000-acre farm that was bought in the Depression for a few dollars an acre. In the real estate market today, the land would be valued for at least $1,000 per acre or $1million in total. Mrs. Smith could reduce the value of this land and her estate by donating a conservation easement, which might lower the tax burden associated with her estate and enable her heirs to maintain ownership of the land.
15. What are the income tax benefits?
To qualify for a tax deduction, one requirement is that a conservation easement donation must be a charitable gift as defined by the IRS. The donation must also be made to a qualified charitable organization and, if worth more than $5,000, documented by a qualified appraisal.
The donation of a conservation easement can qualify for a federal tax deduction if the donation complies with IRS laws related to qualified conservation contributions. The amount of the deduction is based on the value of the conservation easement, which must be determined by an appraisal. The deduction is limited to a percentage of the donor’s annual income (with qualifying farmers and ranchers benefitting from a higher percentage), but if the donor is unable to use the entire deduction in the first year, the deduction can be carried forward to subsequent tax years. In addition, some states offer a state income tax credit for a donation of a conservation easement. Please speak with your tax professional to understand how a conservation easement donation could reduce your tax liability.
16. What are the property tax benefits?
An easement donor may be entitled to a reduction in property taxes. Property taxes are based on the assessed value of the property, which is determined by the “highest and best use” for the property. When a conservation easement is placed on a property, it changes the highest and best use of the property and reduces the market value of the property in an amount that corresponds with the easement restrictions. This results in a corresponding reduction in the property taxes. Land restricted by a conservation easement also may be eligible for other tax relief through state or local programs that help forestland and farmland owners.
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