Why Protect Your Land?

Each year, millions of acres—forest and prairie, mountain and shore, desert and wetland – are irretrievably altered worldwide.  Today, more than ever before, long-term protection of vital natural areas depends in part on the actions of private landowners with foresight.

Ensuring that your land is protected in its natural state can bring many benefits.  Perhaps the most gratifying is the knowledge that present and future generations will cherish the natural sanctuary your actions made possible.  There can also be substantial tax advantages.

The Nature Conservancy offers many options to private landowners.  Many of the preserves protected by the Conservancy were either donated or acquired for less than full value.

Of course, not every property is appropriate for preservation as a natural area.  The Nature Conservancy has specific goals concerning protection of ecologically important natural areas and the preservation of biological diversity.  Because the organization’s resources are limited, the land’s ecological significance must further the Conservancy’s stated conservation goals in order to be acquired as a preserve.  However, even if you own land without ecological value, such as developed real estate, you can donate it to the Conservancy.  The Conservancy will then sell the property and use the proceeds to acquire targeted natural areas.  Such properties are known at

the Conservancy as “trade lands.”

This document outlines the benefits of working with The Nature Conservancy and presents a variety of tools that may be used to protect your property.  Determining which options may be right for you will involve careful consideration, and we hope this document will provide some background to the issues involved. 

The Role of The Nature Conservancy

Before you begin working on a plan for the future of your land, you need to define your goals and objectives for the property.  You may be able to accomplish this by asking a few key questions.

Ø      How important is continued ownership of the land?

Ø      What are your tax concerns?

Ø      Should you limit development and other potential uses of your land?

Ø      Is the land important as a future revenue source?

The Nature Conservancy can help you by exploring the range of options with you, explaining the Conservancy’s conservation goals, and providing general information on legal and tax issues.  It is essential, however, that you also obtain your own independent professional advisor.

Protecting Land While Retaining Title

CONSERVATION EASEMENTS

Conservation easements are restrictions landowners voluntarily place on their property that legally bind the actions of present and future owners of the property.  Property ownership includes certain privileges that allow a landowner to exercise certain rights.  Being allowed to cut timber, explore for minerals, dig a ditch and build a house are all examples of a landowner’s rights.  A conservation easement restricts the landowner’s ability to exercise some or all of these rights in order to preserve the land’s natural features and flora and fauna or to otherwise meet conservation needs. 

The rights the owner relinquishes and those he or she retains are set forth in a legal document known as a “conservation easement.”  The easement is transferred to either a qualified conservation organization or a government agency.  When the document is properly drawn, signed and recorded on the land records, the property’s current and future owners can no longer exercise the rights relinquished in the conservation easement.  Each conservation easement must be specifically designed with a particular piece of property and its unique natural characteristics in mind.  The specific rights retained by a landowner or restricted by an easement will vary with each property.  

The following section highlights issues as landowner should consider before deciding to preserve land through a conservation easement.  The Nature Conservancy is primarily involved with conservation easements designed to protect the natural characteristics and features of a property, and easements are discussed here from that perspective.  Easements for other purposes may have requirements not directly addressed in this document.

WHAT RIGHTS DOES THE HOLDER OF THE CONSERVATION EASEMENT HAVE?

The conservation easement “holder” – the qualified conservation organization or government agency – has the right to enforce the restrictions placed on the land.  In addition, the easement holder has a limited right of access for inspection, scientific data collection or other purposes agreed to by the landowner.

If the land requires active management to preserve or restore its natural values, some management rights may also be granted to the easement holder.  But the conservation easement does not allow the holder to do anything that the landowner is prohibited from doing to the land.

Conservation easements can be used to preserve wildlife habitat, open space, agricultural land, or the historic features of a building or site, while allowing the landowners to continue owning and using the property.

WHAT RIGHTS AND DUTIES DOES THE LANDOWNER RETAIN?

The landowner retains all rights in the property except the ones specifically relinquished or restricted by the conservation easement.  The landowner still owns the land and can use it in any way consistent with the restrictions.  For example, the landowner can sell the land, live on it, or leave it by will.  The landowner is obligated to pay real estate taxes on the property and ensure that the restrictions are not violated.

WHAT RESTRICTIONS CAN A CONSERVATION EASEMENT INCLUDE?

A conservation easement can include almost any kind of restriction agreed to by the landowner and the easement holder.  For example, it can specify that the land must be left completely in its natural state.  In other cases, the easement may restrict subdivision or development of the land but allow activities such as forest or grazing management.  Even construction of new facilities may be allowed, provided it does not destroy the ecological value of the land or interfere with the conservation purpose of the easement.  The easement can be applied to the landowner’s entire property or to only a portion of it, such as the land along the shore of a lake or stream.

Each conservation easement is specific to the protection needs of the particular piece of land.  The terms of the easement must be precise and detailed.  The condition of the property at the time the easement is finalized should be documented in a report using maps, photographs and biological inventories.  This documentation can help avoid future disagreements or uncertainties that may arise after the land changes ownership.

WHAT ARE THE LEGAL CONSIDERATIONS IN GRANTING A CONSERVATION EASEMENT?

The effectiveness, consequences and legality of a conservation easement are governed primarily by the laws of the state in which the land is located.  The Nature Conservancy has experience in drafting easements that comply with the applicable laws in may states, but all prospective grantors of a conservation easement should consult their own attorneys and tax advisors as to the laws of their state and the legal and tax implications of the proposed grant.

Conservation easements must be tailored to each situation.  Many states have adopted legislation that specifically recognizes conservation easements as legally valid arrangements.  In other states, a conservation easement may not be perpetually enforceable unless the recipient owns adjacent lands.

Conservation easements are not easily amended or terminated.  Because of these and other similar concerns, it is important that a landowner approach this topic knowledgeably and with appropriate expert advice.

WHAT ARE THE TAX CONSIDERATIONS OF DONATING AN EASEMENT?

The federal income tax benefits of donating a conservation easement are similar to other tax-deductible gifts of real property, but are subject to some unique requirements.  As with other gifts of land, a taxpayer is entitled to take a federal income tax deduction for the value of the interest in land given to charity.

To meet the additional criteria necessary to qualify for this deduction, a conservation easement must be given in perpetuity to a qualified organization for a qualified conservation purpose.  Many conservation organizations – including The Nature Conservancy – and government agencies meet the criteria for qualified organizations.  

Qualified conservation purposes include:

Ø      The preservation of land for public outdoor recreation or education.

Ø      The protection of natural habitats of fish, wildlife or plants.

Ø      The preservation of open space – including farm and forest land – for scenic enjoyment or pursuant to and adopted governmental conservation policy.

Ø      The preservation of historically important land or buildings.

The value of a conservation easement must be based upon an appraisal for tax purposes.  Appraisals are the responsibility of the landowner and must be acceptable to the Internal Revenue Service.  Although often difficult to calculate, the value of an easement is generally the difference between the value of the land unrestricted and the value of the land with perpetual conservation restrictions in place.  For example, if a tract of land is valued at $50,000 without restrictions, and at $30,000 after the conservation easement has been given, the value of the conservation easement (and the amount of the tax deduction) is $20,000.

CAUTION: Each parcel of land and each conservation easement is unique, and there can be no set or average percentage of value attributed to any rights relinquished.  Each situation will be different.

Real property tax assessments are based on the property’s value as determined by a local assessor.  State law, local practice, and local tax assessors determine whether a conservation easement causes a reduction in the assessed value of the property.  If the assessed value of the property is reduced by the easement, then real property taxes may be lowered. 

A gift of a conservation easement may also reduce federal estate taxes whether the gift takes place prior to death or through a will.  In the first case, the value of the property in the estate may be reduced; in the second, the value of the easement is deducted as a charitable contribution from the value of the estate.  Both cases may mean reduced estate taxes.  Too often, heirs who have inherited family land must sell all or a portion of the property to pay the estate or inheritance taxes.  Conservation easements may be an effective way to pass land on to the next generation in its natural state.

In addition to the above tax benefits, Congress enacted in 1997 the American Farm & Ranch Protection Act.  If you donate a conservation easement, this law allows your executor, after your death, to elect to exclude from your taxable estate up to 40 percent of the value of any underlying land subject to a qualified conservation easement that meets certain requirements.  This new provision is quite complicated, and there are additional significant limitations when applying this law.  Landowners should consult with their own tax attorney to advise them on this matter and determine the applicability of this provision, and other income and estate tax laws, to their own tax circumstances.

THE EASEMENT DOCUMENT

As this document has stressed, each conservation easement is unique and must be individually crafted to address the particular property involved, the natural resources being protected, and the needs of the landowner and the easement holder.  Each easement should address what the landowner and the easement holder have agreed upon in as much detail as possible and should be reasonable.  Often resembling deeds or other documents used to transfer interests in land, easements will have a great deal of legal language to ensure that they are valid and that the intentions of the parties are carried out.

Easements accepted by The Nature Conservancy usually include the following components:

Ø       A discussion of the conservation purpose of the easement.

Ø       Provisions to ensure that the easement is legally valid and enforceable, and, to the extent possible, tax-deductible.

Ø       The specific rights that are conveyed to the easement holder, such as:

▫          · the right to inspect the property to make sure the easement is being followed, and

▫          the right to enforce the provisions of the easement.

Ø       The specific restrictions on the landowner’s use of the property.  Restrictions typically contained in conservation easement usually address a number of land use issues, including:

▫          disturbance of the natural habitat;

▫          introduction of non-native species;

▫          forest, grazing, or agricultural management;

▫          mining, dredging, filling, dumping, etc.;

▫          developments, such as buildings, roads, bridges, and other improvements;

▫          wetlands and other waterbodies.

Ø       The specific activities that the landowner may continue on the property, such as :

▫          the ability to sell the property;

▫          the ability to use the property for any and all purposes consistent with the conservation purpose of the easement or otherwise restricted, and

▫          the ability to build additional buildings at specified locations, but only if the conservation values of the property will not be adversely affected.

The easement should also contain a number of general legal provisions addressing such issues as where formal notices should be sent, who is responsible for real estate taxes, how an easement can be amended and other similar matters.  The Nature Conservancy staff will work closely with landowners and their advisors to draft the easement document.

Protecting Land While Transferring Title

Often a landowner’s objective is to dispose of his or her real estate. The Nature Conservancy can acquire outright interests in real estate.

OUTRIGHT DONATION

Many of The Nature Conservancy’s preserves have been created by generous donations of land.  Giving your land to the Conservancy (or to another qualified conservation charity) is the simplest way to protect your land.  No financing or negotiations about price are necessary.  You only need to obtain the approval from the organization to which the land will be given, and then sign the deed.  A gift insures long-term protection of the land, relieves the owner of management responsibilities and payment of property taxes, and offers income tax benefits.  The owner can use the fair market value of the property as a charitable deduction when calculating income taxes.  The fair market value must be established by an independent appraisal.  In addition, no capital gains taxes are due upon the transfer, and the value of the property is removed from the taxable estate.

BARGAIN SALE

In a bargain sale, your property is purchased for less than fair market value.  If The Nature Conservancy purchases your property for less than fair market value, you can claim a charitable deduction for income tax purposes for the difference between the bargain sale price and the fair market value.  This difference must be documented by an independent appraisal.  The deduction can be used to offset realized capital gains from the sale portion.  When combined with other savings, including not paying a broker’s commission, the landowner may achieve nearly the same after-tax financial return, while providing a significant gift to the Conservancy.

SECTION 1031 EXCHANGES

Under a special provision of the Internal Revenue Code, landowners may exchange real property for other “like-kind” real property without having to recognize capital gains on the transaction.  These transactions often involve either two or three different landowners.  These exchanges allow a landowner to continue to own valuable real estate but transfer the original property to the Conservancy.

SALE AT FAIR MARKET VALUE

A sale at fair market value is the sale of property for the price a knowledgeable buyer will pay for the land from a willing seller.  If your land is purchased by the Conservancy for its fair market value and it has appreciated in value since originally acquired, you will be liable for income tax on the capital gain.

RETAINED LIFE ESTATE

An individual may wish to donate property to ensure that it will be protected in its natural state, but desire to retain possession and use the property for his or her lifetime or perhaps the lifetimes of others so designated.  Retained possession may also be for a fixed number of years.  To accomplish this goal, the individual may, with the consent of the recipient, donate the property to a charitable organization yet retain an interest in it – a “life estate.”  The interest given to the charitable organization is called a “ remainder interest.”

For income tax purposes, the deduction available for such a contribution is decreased by the value of the life estate retained by the donor, as determined by the actuarial tables published by the Internal Revenue Service.  Reservation of more than one life estate may cause a substantial further reduction in the amount of the deductible remainder interest.  In addition, the holder of the life interest continues to be responsible for all costs of upkeep, including real estate taxes, insurance and maintenance, during the period the life interest.

A deduction for contributions of a remainder interest is permitted if the property is “qualified conservation property” or if the property is the donor’s personal residence or farm.

GIFTS OF LAND BY WILL

The Conservancy often receives property by will.  Those who choose to leave land to the Conservancy in their will do so to ensure that the natural features of the land are protected and will bring enjoyment to future generations, or to provide funds for our conservation mission through a trade land gift.

Please contact the Conservancy before you include a gift of land in your will.  We can discuss with you, in confidence, language that could be used to ensure that your wishes are followed and that you will achieve the desired estate tax results.

TRADE LANDS

The Conservancy accepts gifts of appreciated real estate without significant natural values.  These properties – residential, industrial, and commercial, developed and undeveloped – are called “trade lands” by The Nature Conservancy.  They can be donated outright, by will, or through a retained life estate if the property is a personal residence or farm.  They can also be used to fund a charitable remainder trust.

If you donate such property, you can make a vital contribution to the Conservancy’s land preservation program.  A trade land is not protected as a nature sanctuary.  It is sold, and the proceeds are used to acquire and protect targeted natural areas.  Trade lands can be any kind of real estate.  Homes, ranches, apartment buildings, vacant land, retail centers and office buildings are all examples of the kind of real estate the Conservancy has accepted. 

Identical tax treatment is accorded to gifts of trade land and ecologically important land.

TAX CONSIDERATIONS OF TRANSFERRING TITLE

The provisions of the Internal Revenue Code encourage donations of land to The Nature Conservancy and other publicly supported nonprofit organizations.  Individuals and corporations may deduct the full fair-market value of their gifts of land to The Nature Conservancy on their federal income tax returns, subject to the limitations explained below.  In addition, many states allow for similar tax benefits for state income taxes.

For the individual donor, the full fair-market value of long-term capital gain property (capital assets held for more than 12 months) is deductible, subject to the limitation that it can be deducted against up to 30 percent of your adjusted gross income (AGI) for the year of the donation. You may carry over the balance of the deduction for up to five succeeding years, subject to the same 30-percent-of-AGI limitation in each of those years.

For corporations, the deduction limit is 10 percent of the corporation’s income before taxes.  The same carry-over period applies. 

These rules apply to all long-term capital gain property, including gifts of conservation easements and appreciated securities.  It should be noted that gifts of capital assets held for 12 months or less and gifts of property that would generate ordinary income produce limited tax benefits. While these gifts can be deducted up to 50 percent of your adjusted gross income with the five-year, carry-forward benefit, you lose the benefit of any appreciation in value since the deduction is limited to the basis of the property.

In addition, stringent Internal Revenue Service rules require an appraisal before a person may take a deduction for the donation of property or interests in property other than cash or publicly traded securities.  This appraisal is the responsibility of the donor and must be performed by a qualified appraiser.  Also, the donor must attach an Appraisal Summary (IRS Form 8283) to the tax return for gifts of real estate or other non-cash items (excluding publicly traded securities) having a value of more than $5,000.

This discussion of the tax considerations is necessarily general in nature and should not be considered a complete discussion on this topic.  Tax matters, as well as all aspects of a donation of real estate, should be discussed with your own independent advisor.

To Work With The Nature Conservancy

The Nature Conservancy has chapters in every state.  For further consultation with the Maine Chapter, contact:

The Nature Conservancy

Maine Chapter

Fort Andross, 14 Maine Street, Suite 401

Brunswick, Maine 04011

TEL. 207-729-5181

FAX 207-729-4118

http://nature.org/wherewework/northamerica/states/maine/