Conservation easements: an estate planning tool
Learn more about the tax benefits, legal processes and long-term value of conservation easements as part of your estate.
How can conservation easements help with estate and legacy planning?
Conservation easements can provide landowners and their families with several benefits, including:
- Reduced estate taxes
- Keeping family land intact for subsequent generations
- Protecting land's innate value, and ensuring future owners remain committed to the land, its water and wildlife.
How can easements reduce estate taxes?
Many rural landowners with larger tracts of land are subject to estate taxes on the value of their land.
When calculating the value of land to an estate, the IRS considers what it's value would be if it were maximally developed to its “highest and best use” When the owner(s) of the land pass away, if that maximally developed value of the land and other assets exceed the inheritance tax (i.e., the “estate tax”) threshold, their heirs will be faced with a 40% tax on the value of the estate that exceeds the threshold.
With a conservation easement, a landowner chooses to limit the development potential and thus the value of their land. As a result, conservation easements can be a valuable tool for reducing estate taxes by reducing the value of the land for which the estate is taxed.
Additionally, the IRS allows estates to altogether exclude a portion of a conservation easement's value from the total estate -- up to 40% of the value of land within the easement or $500,000, whichever is less.
Why landowners use easements
Landowners who want to pass their land down to future generations -- whether family or future owners -- do not plan to develop that land. However, because the IRS values land based on its maximally developed potential, estate taxes may force landowners' families to sell off precious land.
In many cases, this means the loss of cherished places where their family conducted agricultural operations, cared for water and wildlife, held family weddings and holidays, and hunted, swam and fished for years or even generations before. A conservation easement provides a viable option for those looking to keep the land intact and healthy rather than selling it to the highest bidder, and future owners may also benefit from income tax reductions.
Before engaging in a conservation easement transaction, landowners are advised to discuss with their estate or trust attorney and tax advisor whether a conservation easement might be of help. More information on the income tax benefits, contact Hill Country Conservancy