Arkansas Land Conservation Assistance Network

What is a Conservation Easement?

A conservation easement is a legal agreement between the landowner (grantor) and a non-profit conservation organization (grantee) which seeks to perpetually protect the property from development while retaining rights and activities conducive to the property’s current uses and landowner’s desires. Ducks Unlimited, Inc. feels very strongly that the desire of the landowner to protect the property, its wildlife, natural resources and openness should not inhibit its economic function as agricultural land, forest and timber resources or otherwise.

Each property is unique; therefore each conservation easement is unique. The landowner does not relinquish ownership of the property encumbered by an easement. Rather he/she gives up certain rights, primarily the right to subdivide and/or develop the property. The right to continue agricultural production or timber harvesting is not impaired. Such activity is undertaken in accordance with the protection of the property’s natural resources and wildlife habitat. Additionally, the landowner is not obligated to provide access to the general public. The types of reserved rights can be exemplified as follows: 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 reserved 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 himself and family to hunt and fish on the property. Mr. Smith has protected his land but also reserved the rights necessary to continue his ranching operation and to pass it on to his children.

 

What are the benefits of encumbering my land with a Conservation Easement?

The landowner may reap many benefits from a conservation easement placed on his/her property. First and foremost, the perpetual protection of the property will ensure that it will remain in its current physical state. Secondly, with the threat of development removed, the wildlife habitat and natural resource values will be enhanced. Thirdly, the landowner can be assured that the property will be enjoyed by future generations according to his/her desires for the property. Lastly, depending on the state in which the property is located, the landowner may be eligible for state, federal and estate tax deductions.

 

What are these tax benefits particularly?

Estate tax benefits – With the recent repeal of the estate tax, many landowners may not be subject to the possibility of having to sell the land in order to pay off such debt. But, many landowners may be subject to the estate tax, either prior to 2010 or starting in 2011, when the existing rates are reinstated on estates in excess of $1 million.

Federal Income Tax Deductions – Conservation Easements are regulated by the IRS Code, Section 170(h). This section stipulates that the donation of the conservation easement must be made to a “qualified conservation organization” and if worth more than $5,000.00 documented by a qualified appraisal. The maximum charitable deduction is set by federal tax law at a percentage of the landowner’s annual adjusted gross income. Generally the landowner may deduct up to 30% of this adjusted gross income in one year. The excess value of such a gift may be carried forward for five additional tax years. After that time, any unused remainder will be lost.

State Income tax deductions – Some states have legislation that enables the landowner to receive state income tax deductions upon the donation of a conservation easement. Thus far none of the southeastern states have any such legislation.

Property tax benefits – Property taxes are based on the assessed value of the property, which is usually for its highest and best use. A reduction in the fair market value of the property due to the easement restrictions may mean that a corresponding reduction in property tax value is due.

 

What rights to I have to give up?

First and foremost, the landowner does not convey the fee title to the property to the holder of the conservation easement. The landowner retains all rights in and to the property except for those that he/she wishes to give up. For example, all of the rights associated with ownership of land can be viewed as a bundle of sticks. Each stick represents a right; the right to develop the land, the right to farm, the right to hunt, etc. The landowner will choose which rights to keep and which to remove from the bundle. Usually, the only right that is expected to be relinquished is the right to develop the property. All other rights are optional depending on the landowner’s future intentions and the natural resources to be protected.

 

What is the landowner responsible to provide to the process?

The landowner is responsible for obtaining several things in order to ensure the transaction meets the federal guidelines under IRS Code Section 170(h). The Baseline Documentation Report is an inventory of the physical nature of the property and must be obtained by the time of the easement donation. This document establishes the present condition of the property thus providing a “baseline” which will be used during the annual monitoring visit by the holder. An appraisal must be completed in order to determine the conservation easement value, or tax deduction, entitled to the landowner. This document must be completed no earlier than 60 days prior to the time of the conservation easement donation. Lastly, the landowner must provide a title search on the property that is prepared by an attorney, title company or title examiner depending on the standards of practice in the area. This will verify ownership of the property, provide a legal description and acreage as well as determine whether or not there are any encumbrances of record that will need to be cleared prior to completion of the transaction.

 

How do I go about taking advantage of this tool?

There are many national and local 501(c)(3) conservation organizations throughout the Southeast qualified to hold conservation easements. Ducks Unlimited, Inc., the world’s largest organization dedicated to the protection of wetlands, waterfowl and other wildlife, is headquartered in Memphis, TN, and has its Southern Regional office in Ridgeland, MS. Since it’s inception in 1937, “DU” has conserved over 9 million acres of wetland and wildlife habitat funded through the donations of over 1,000,000 contributors worldwide. In the United States alone, DU’s membership is 750,000 members and growing strong. And, since most of the remaining wetlands in the country are located on private lands, working with landowners is an integral part of DU’s conservation mission and land protection strategy.

If your property is located in the Mississippi Alluvial Valley, you are welcome to call Jimmy Emfinger, the Manager of Land Protection at the Southern Regional Office, (601)206-5434. He will be very happy to discuss conservation easements as well as other private lands initiatives that might be conducive to the property in question.

Article Published in Tree Talk (Official Publication of the Mississippi Forestry Association, Inc.) Fall 2001