Title of Presentation

Smaller Type

Conservation Easements 101South Llano Watershed

Alliance

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What Is A Conservation Easement (CE)?

• Voluntary legal agreement • Signed by both landowner & land

trust• Filed at county courthouse• TX Natural Resource Code Chapter 183

The Basics

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The Basics

• “Partnership” between landowner & land trust to accomplish goals of both

• Permanently protect land’s intrinsic values

• Provide income or tax savings to landowners

What Conservation Easements Do:

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The Basics

Property ownership = owning a bundle of sticks

How Does CE Work?

Examples: - Mineral Rights- Water Rights- Hunting Rights- Access/Easement- Development Rights

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The Basics

How CE Protects Land:

• Permanently restrict intensity of use or development of land

• Give partner organization the right to enforce restrictions

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The Basics

• All restrictions negotiated

• Landowners continue agricultural use & recreational enjoyment

• No public use required

How Landowners Are Protected:

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The Basics

• Sale of CE = cash

• Donation of CE = tax savings

• Tax credit in some states

How CE Provides Financial Benefits:

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The Basics

• Highly Motivated Buyer

• Competitive Process

• Negotiated Price

• Cash or Trade

How CE Can Be Sold:

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Sale of Conservation Easement

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Dahlstrom Dilemma

• Owned a Ranch worth $30M• Looming federal estate tax liability• Need to provide financial stability

for family• Wanted Ranch to be preserved

forever• Desire to share Ranch with public• Current quarry operations on Ranch

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Conservation Easement Terms

• 2,275 acre ranch; includes quarry• Protect archeological sites• Water quality and quantity is the

priority• No subdivision• Limited building• Allows agricultural and eco-tourism

business• Allows existing quarry operations

until 2060

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The BasicsHow CE Provides Tax Savings:

• Income tax deduction when donated • Lower appraised value of land in estate• Exclude part value from estate tax• Property tax relief in some cases • Tax credit in some states

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The BasicsRULE OF THUMB -- How CE Impacts

Land Value:

Near cities reduction/deduction can be 50-90% of land’s appraised value

Rural land reduction/deduction can be 30-60% of land’s appraised value

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Who Should Consider A CE? • Desire to preserve land or “keep in

the family”

• Land with conservation value/public benefit

• Location - Development “pressure” drove up value; unused value locked in the land

• Concerned about increasing ownership costs

• Sufficient income to use large tax deduction or ranch big enough for estate taxes

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Profiles Of Donors/Sellers• Urban Owners of Rural Land

• Land Rich, Cash Poor Families

• Heritage Landowners

• Developers marketing rural land

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TAX LAW: For CE Charitable Gifts

in 201230% of AGI Rule. Sec. 170(b)(1)(C)Limits annual charitable deductions to 30% of the donor’s AGI.

$500,000 AGIX 30% (2012) 50% Rule (Incentive) $150,000 MAD $250,000 MAD

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TAX LAW: For Charitable

Deductions30% of AGI Rule. Sec. 170(b)(1)(C)5 Year Carryover Rule Sec. 170(d)(ii)For contributions that exceed the 30% of AGIlimitation, there is a 5 year carryover, whichallows unused deductions in the first year tobe carried over up to 5 years (Incentive 15 yrs)

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Income Tax Savings 2012 - 2017Donor’s AGI $ 500,000Tax Rate 35%Value of CE (50% FMV) $

5,000,000Max. Annual Deduction (30% AGI*) $

150,000 Annual Tax Savings $

52,500Number Years to Use Deduction* 6

TOTAL TAX SAVINGS $ 315,000

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Income Tax Savings 2012 – 2027 Under Incentive LegislationValue of CE (70% FMV)

$5,000,000Donor’s AGI $

500,000Max. Annual Deduction (50% AGI*) $

250,000Number Years to Use Deduction*

16Tax Rate 35%

Annual Tax Savings $ 87,500

TOTAL TAX SAVINGS $ 1,400,000

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Structuring The Deal

• Donation• Sale• Combination • Phasing in CE over multiple tax years• Contract or letter of

intent• Donate CE after

death

Transaction Structure:

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Transaction Steps1. Establish conservation,

family & financial goals -- analyze outcomes

2. Select & negotiate with land trust3. Create transaction team4. Complete all due diligence steps5. Record CE, complete any cash gift 6. Implement & file post-gift state /

federal requirements7. Monitoring & enforcement

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“Qualified Conservation Contribution”

• A real property interest (CE)

• Exclusively for conservation purposes

• To a qualified organization – land trust

Tax Code Sec. 170(h) Requires:

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Treasury Regulation Sec. 1.170A-14 describes 4 “Qualified Conservation Purposes:”• Protection of relatively natural

habitat

• Open Space: scenic enjoyment or government policy

• Outdoor recreation or education with public access required

• Historical preservation with public visibility or access required

Identify Conservation Purpose

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Choose a “Qualified” Organization

• Governmental agencies with

conservation missions or policies

• Non-profit conservation

organizations

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Select a Land Trust

• Partnership – values fit with landowner

• Capacity to do the deal

• Long term capacity

• Landowner resource

• Costs

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Texas Perspective

• Texas land trusts - Helped conserve more than

1.5 million acres of Texas land

• TLTC Directory - 49 Texas land trusts in operation

• TLTC at www.texaslandtrusts.org

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Creating the Transaction Team

• Appraisal – Appraiser substantiates value

• Baseline Report – Biologist, ecologist documents conservation values

• Survey – Surveyor prepares legal descriptions, maps, exhibits, marks boundaries

• Land Planning – Land use planner for development plan

• Financial Planning & Analysis – CPA, CFP, etc.

• Legal Advice & Negotiation – Client’s attorney

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Basic Goals of Drafting Protect client’s future rights in the

property

Maximize client’s financial benefit

Protect conservation values

Meet organization’s needs and goals

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Possible Restrictions???• Recreation• Outdoor education• Care of scenic features• Care of water features• Care for historic features• Land Trust monitoring & access• Public access• Trash & dumping practices• Timber management• Management plan• Development plan

• Subdivision• Additional buildings• Commercial activities• Agriculture or grazing• Mineral development• Hunting and fishing• Habitat restoration• Road building• Motorized vehicles• Exotic species• Agency restrictions

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Result After Easement

Land Trust:• Conserve

Habitat Scenic Views Open Spaces Historic Sites Outdoor Recreation

• Low Cost

Landowner:• Create a Legacy• Save Tax• Still Use Land • Land

Appreciating & Marketable

• Unlocked Value

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Braun & Gresham, PLLCCassie Gresham

www.braungresham.com

“Conservation will ultimately boil down to rewarding the private landowner who conserves the public interest.”

• Aldo Leopold