title of presentation smaller type conservation easements 101 south llano watershed alliance

Title of Presentation

Smaller Type

Conservation Easements 101South Llano Watershed

Alliance

2

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

3

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:

4

The Basics

Property ownership = owning a bundle of sticks

How Does CE Work?

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

5

The Basics

How CE Protects Land:

• Permanently restrict intensity of use or development of land

• Give partner organization the right to enforce restrictions

6

The Basics

• All restrictions negotiated

• Landowners continue agricultural use & recreational enjoyment

• No public use required

How Landowners Are Protected:

7

The Basics

• Sale of CE = cash

• Donation of CE = tax savings

• Tax credit in some states

How CE Provides Financial Benefits:

8

The Basics

• Highly Motivated Buyer

• Competitive Process

• Negotiated Price

• Cash or Trade

How CE Can Be Sold:

9

Sale of Conservation Easement

10

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

11

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

12

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

13

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

14

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

15

Profiles Of Donors/Sellers• Urban Owners of Rural Land

• Land Rich, Cash Poor Families

• Heritage Landowners

• Developers marketing rural land

16

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

17

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)

18

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

19

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

20

Structuring The Deal

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

intent• Donate CE after

death

Transaction Structure:

21

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

22

“Qualified Conservation Contribution”

• A real property interest (CE)

• Exclusively for conservation purposes

• To a qualified organization – land trust

Tax Code Sec. 170(h) Requires:

23

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

24

Choose a “Qualified” Organization

• Governmental agencies with

conservation missions or policies

• Non-profit conservation

organizations

25

Select a Land Trust

• Partnership – values fit with landowner

• Capacity to do the deal

• Long term capacity

• Landowner resource

• Costs

26

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

27

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

28

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

29

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

30

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

31

31

Stay informed and connected…

• Like us on Facebook

www.facebook.com/BraunGresham

• Follow us on Twittertwitter.com/BraunGreshamLaw

• Join our Landowner Alert Systemhttp://www.braungresham.com/contact-

us/#contact

32

Braun & Gresham, PLLCCassie Gresham

www.braungresham.com

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

• Aldo Leopold