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Conservation Stewardship Incentives News & Events About Us Support PFT Publications Site Map Home The Pacific Forest Trust California Main Office |
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| Conservation Easement FAQs |
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What is a conservation easement? A conservation easement is a voluntary legal agreement that permanently restricts specified activities on a piece of property, in order to protect conservation values such as forest ecosystems, wildlife habitat, biodiversity, water quality, open space and carbon sequestration. The conservation easement is granted by the property owner to a conservation organization or government agency. The restriction stays with the property and is binding on all future owners. Conservation easements are site-specific documents that help landowners ensure that important natural values are protected forever, while keeping the property in private ownership and use. Why do landowners put conservation easements on their property? What are the benefits? The conservation easement is a tool that allows individuals, families or businesses to retain ownership of their property while protecting its natural landscape and establishing long-term management goals. Because the easement is perpetual and runs with the land, it assures future conservation after the current owner’s death or if the property needs to be sold. Therefore, the easement can protect the carefully stewarded natural capital of the property from future liquidation. A conservation easement can also yield often substantial tax savings or revenue, as discussed below. Is there financial value to granting a conservation easement? Conservation easements can be conveyed by charitable gift or sale. The value of the easement is the difference between the fair market value of the property before and after the easement restrictions are put in place. Because conservation easements usually reduce the market value of the property to reflect only the allowed uses -- eliminating speculative value -- the gift of a conservation easement can bring significant income or estate tax deductions. What are the income tax benefits of donating a conservation easement? Qualifying gifts of conservation easements are treated by the IRS like any other charitable gift. The value of the easement can be deducted against income taxes in the year in which it is granted; if any of the gift value remains undeducted, it can be carried forward against tax liability for up to five more years. The value of the conservation easement must be independently appraised for tax purposes. To qualify as a tax-deductible charitable gift under IRS rules, a donated conservation easement must meet three basic tests: It needs to be perpetual in duration; it must be donated exclusively for "conservation purposes"; and the grantee must be a qualified conservation organization, like the Pacific Forest Trust, or a public agency empowered to accept conservation easements. Internal Revenue Code Section 170(h) defines the necessary "conservation purposes" of an easement to include at least one of the following: • The preservation of land areas for outdoor recreation by, or the education of, the general public; or • The protection of relatively natural habitats of fish, wildlife, or plants, or similar ecosystems; or • The preservation of open space -- including forestland and farmland -- for scenic enjoyment or pursuant to an adopted governmental conservation policy; in either case such open space preservation must yield a significant public benefit; or • The preservation of historically important land areas or buildings. Conservation easements on managed forestlands usually qualify both as protection of relatively natural habitat or ecosystem, and as preservation of open space. To learn more about income tax benefits of conservation easements, download the PFT newsletter Pacific Forests Fall 1999, and see the article "Cutting Income Taxes While Protecting Your Forest". |
What are the estate tax benefits of donating a conservation easement?While estate taxes affect fewer than 2% of all taxpayers, owners of larger, well-stocked forests may find themselves in this elite group. With the rapid appreciation of land and timber values in many areas, families often don't recognize how devastating the estate tax bill may be when the current market value of their property is factored in, as required by the IRS. If not properly planned for, this tax liability could force heirs to raise money by selling some or all of the land, or more intensively harvesting timber than planned for. A conservation easement can reduce the appraised market value of the property to reflect current forest use rather than its speculative liquidation value. In this way, the conservation easement can reduce or eliminate estate taxes. This reduction can make all the difference for families with significant forest holdings, allowing them to pass the land onto the next generation intact. The federal estate tax rate ranges from 37% for estates valued at $675,000 to 55% for the value of estates over $3 million. With the passage of the Taxpayer Relief Act of 1997, the size of an estate exempt from tax will gradually rise up to $1 million by 2007. Congress is considering legislation that may further increase the exemption from this tax, or may change the estate tax system entirely. To read more about conservation easements and estate taxes, download the PFT newsletter, Pacific Forests Spring 1999, and see the article "Saving the Forest for the Next Generation: Conservation Easements Can be an Antidote to Estate Taxes." In Pacific Forests Spring 2000 see the article "New Estate Tax Benefits for Conservation Easements." Are there other potential tax benefits associated with conservation easements?Gift taxes: When a person gives land to someone who is not his or her spouse, the gift is subject to federal gift taxes if its value exceeds the maximum tax-free amount of $10,000 given to any one person per year. Lowering the appraised value of the land through a qualified easement may allow the owner to give more land in any one year without incurring a gift tax, or it may help reduce the amount of tax imposed.Property taxes: The amount of property tax is usually a percentage of the property’s market value; the market value reflects its development potential. If a conservation easement reduces the development potential of the property, it may reduce its assessed market value, thereby lowering the owner’s property tax. If property is not already in a special tax program for timber or agricultural production, and if a conservation easement significantly reduces the market value of the property, then the landowner should consider asking the County Assessor for a reduced valuation. Prospective donors should consult their own legal counsel and accountant to determine the potential for income and estate tax benefits, and to learn how a conservation easement is compatible with other tax planning tools. Who owns the land under the conservation easement?The present owner who establishes the easement (the "grantor") retains title to the property and continues to own it, and can sell it or give it to others just as he or she would otherwise. The owner’s use of the property continues, subject to the restrictions agreed to in the conservation easement. How does a conservation easement affect the owner’s property rights?It affects property rights only to the extent spelled out in the easement document signed by the property owner. Think of owning land as holding a bundle of property rights that could be used, commercialized or sold. Timber rights, water rights, mineral rights and development rights are familiar examples. A land owner may sell or donate all or some of these rights through a conservation easement. In fact, conservation easements allow a landowner to exercise the right not to develop. The conservation easement needs to be carefully drafted to ensure it accurately reflects which rights the landowner wants to restrict or give up entirely, and which ones he or she wants to retain. Which land uses are usually restricted by a conservation easement? Which are usually allowed? The specific terms of each easement vary with the nature of the property and the landowner’s goals. Activities on the property that would harm the conservation values identified for protection are either prohibited or restricted in some way. Restrictions typically limit subdivision and the extent of residential or commercial development; industrial use; waste dumps; alteration of waterways; and extensive road-building or other activities that contribute to sedimentation or erosion. Timber harvest may be restricted to the extent desirable to protect sensitive habitats, streams, soils and overall forest productivity. Forest management, agriculture, grazing, residence, recreation, low-impact commercial uses, and the building and maintenance of roads can all continue on the property, although the easement may limit their intensity or location. Are timber harvest and other economically productive uses still allowed under a conservation easement? Yes. If a piece of property can produce income for its owners and still retain its conservation values, it is more likely to be protected through time. As Janet Diehl and Thomas S. Barrett note in The Conservation Easement Handbook, "The ability of the grantor [landowner] to make economically viable, productive uses of the property may be as important to the long-term preservation of the open space character of the land as the easement itself." Who determines the forest management on a property under a conservation easement? The landowner retains all management responsibilities for the property. Just when, where and how timber harvest and forest management activities occur are up to the landowner -- consistent with the terms agreed to in the easement. How does a conservation easement differ from other types of easements? Legally a conservation easement is similar to other easements, in that certain rights associated with a piece of property are held by someone other than the property owner. It is different in a major way: The rights conveyed by a conservation easement are negative in effect, not positive. For instance, with a road easement the landowner gives someone a positive right to cross a property. Whereas with a conservation easement, the landowner may forgo the right to subdivide the property or to clear-cut the forest. The grantee organization (the party holding the easement) does not gain the right to do the subdivision or clear-cut; rather, it holds those restrictions "in trust" and ensures that no one uses any of the rights that have been restricted by the grantor. Does a conservation easement give the public a right to enter and cross private property? No, not unless the owner expressly grants that right in the easement document. Most conservation easements do not require public access. The landowner still controls access by neighbors or other people. A conservation easement does give the grantee the right to enter the property at reasonable times to make sure the provisions of the easement are being complied with. What process does a landowner follow to establish a conservation easement? The process starts with careful thought by the landowner about long-term conservation goals for the property. If the property is owned by more than one person, they need to confer. If the owners believe a conservation easement might be appropriate, they should contact a non-profit land trust (sometimes known as a conservancy) or government agency qualified to receive and manage conservation easements. That organization will send someone to look at the property and discuss conservation goals with the landowners to determine whether it would be eligible for a conservation easement under the land trust’s criteria. By establishing a conservation easement, the landowner and land trust will become partners in conservation, so taking the time to establish a knowledgeable, trusting relationship is important to success. Based on a mutually agreeable conservation plan, the Deed of Conservation Easement will be drafted -- usually going through several versions after review and comment by both parties. Another document called a Baseline Report is also prepared. It describes the property’s physical characteristics and conservation values as they exist at the time the easement is being established. Maps and surveys of the property and its natural resources may be needed for the Baseline Report. In consultation with the landowner the land trust also prepares a monitoring plan so it can ensure the easement terms are honored in the future. Finally, whether an easement is charitably given or is sold, an appraisal will be needed to determine its value. What are PFT’s responsibilities for easements granted to it? As the recipient of a conservation easement, PFT is responsible for guarding against violations of the easement’s provisions. This is accomplished by periodically making monitoring visits to the property, and ensuring there is good communication with the landowner. The Pacific Forest Trust is always available to answer questions about the easement and works to resolve any potential conflicts early. If necessary, the grantee will take legal action to enforce the easement if it is violated, and to restore the property’s conservation values if any are damaged. Because the easement is granted in perpetuity, these responsibilities are also perpetual, and represent a significant annual expense for the grantee. A property owner should make sure that the recipient organization has the staff and budget to monitor and enforce the terms of the easement. Land trusts such as PFT ask landowners who can afford it to make a charitable contribution to a Stewardship Endowment to fund this obligation. How long does it take to establish a conservation easement, and what does it cost the landowner? The time required to design the conservation easement and put it in place will vary depending on the size of the property, its uses and proposed restrictions, and the complexity of ownership. In our experience it takes a minimum of six months to complete an easement. In creating a conservation easement the landowner usually bears the costs of natural resource, legal or tax professionals consulted; necessary resource inventories and mapping; and, if the easement is a donation, the appraisal to substantiate the value of a charitable tax deduction. When PFT provides its expertise in drafting a conservation easement, the organization is typically compensated for this service by the landowner, just as attorneys or professional foresters retained by the landowner are. The landowner’s expenses can be offset by the revenue or tax savings derived from granting the conservation easement. Sometimes PFT’s services are funded by grants from foundations or public agencies. The ongoing monitoring and enforcement of a conservation easement is funded out of PFT’s Forest Stewardship Endowment. When an easement is granted PFT requests a charitable gift from the landowner, of sufficient size to provide investment returns that can pay the annual costs of PFT’s perpetual obligation. The size of these endowments varies depending on the size of the property and complexity of the easement. What is the government’s role? Does the conservation easement give state or federal agencies increased access to private property? Does it subject the owner or the property to more rules and regulations? The government has no role in the administration of a conservation easement donated to a non-profit land trust. If a government agency is the grantee chosen by a landowner, only that agency is involved with the conservation easement. Whether the grantee is a land trust or agency, the grantee can only monitor and enforce compliance with the terms in the easement, not other laws or regulations. No new regulations or governmental rules are imposed by establishing a conservation easement. Nor are governmental agencies given any new rights of access. Can a conservation easement be modified or amended? The purpose of a conservation easement is the permanent protection of the land’s natural values. The grantor of a conservation easement can receive substantial income tax benefits — but only if the easement is perpetual and in the public interest. For these and other reasons, conservation easements always should be implemented with the idea that they will not be modified or amended. However, changed circumstances or conditions might someday justify an amendment to the easement document. Such circumstances could include the need to clarify the document’s terms; or to better protect the conservation values due to natural changes or changes in technology. Amendments to easements are rare and serve to improve the protection of the property’s conservation values. What happens to the conservation easement if PFT can no longer hold it? PFT is committed to being around to fulfill its obligations as the grantee of conservation easements. That is one reason PFT establishes a Stewardship Endowment for each easement it accepts, enabling the organization to fund its future costs. In addition, PFT’s conservation easements include a provision in which the easement can be assigned to another qualified organization if PFT should go out of existence. Sometimes a specific "back-up" grantee organization is named, allowing for a smooth transition of responsibilities if necessary. What are the disadvantages of establishing a conservation easement? Conservation easements are not appropriate to every property or to every landowner’s situation. Careful evaluation of the appropriateness of a conservation easement is critical by both the landowner and the land trust at the beginning of their discussions. It may be, for instance, that the landowner’s need to maximize current income overrides the financial benefits of conservation. Or, the reduction in market value of a property by the conservation easement may be unacceptable to the next generation’s owners. Further, while the perpetual nature of a conservation easement has the advantage of protecting the property’s natural values over the long term, some see it as a disadvantage for subsequent owners to be bound in this way. Finally, conservation easements are partnerships between landowners and conservation organizations. As with any partnership, sometimes there can be disagreements that are difficult to resolve and legal action is the only recourse. That can be costly for both parties. Conservation partners need mutual trust and good communication to avoid unnecessary disputes. Why does the Pacific Forest Trust acquire conservation easements? PFT is a publicly-supported charity with a mission to preserve private, productive forestland. The organization is committed to the expanded use of conservation easements as effective tools to protect our working forest landscape for its many public benefits while keeping the land in private ownership. PFT is especially organized and well-staffed to serve as a qualified grantee for conservation easements on managed forests. What if I have more questions? Contact Parke Godar, Conservation Associate, at pgodar@pacificforest.org if you own property in California. Contact Dave Warren, PFT¹s Washington Conservation Director, at dwarren@pacificforest.org if you own property in Washington state. Forestland owners in Oregon should contact Craig Jacobson, PFT¹s Oregon Conservation Director, at cjacobson@pacificforest.org. For general inquiries, contact the Pacific Forest Trust at pft@pacificforest.org. |
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