What is a Land Trust?
In general, a trust is a legal arrangement where you allow another party to hold title to your property and manage it for your benefit or the benefit of someone else. Transferring title to another party in this type of agreement is called placing property in a trust. A land trust is just one of many varieties of trusts and involves placing your title to real property in a trust. A common alternative is forming an anonymous LLC.
Land trusts can benefit property owners by protecting their privacy and allowing their estates to avoid probate. In addition to these benefits, some land trusts are created for conservation purposes and function as nonprofit organizations that attempt to conserve community land from development
What is a Conservation Easement?
A conservation easement, which is also known as a conservation agreement, is a voluntary and legally-binding agreement between a landowner and a land trust or government agency. Typically, the easement will permanently limit permissible uses of the land to protect a conservation purpose as defined in the Internal Revenue Code (IRC) 170(h).
A conservation purpose can be any of the following:
- The preservation of land for outdoor recreation use by the general public.
- The preservation of land for the education of the general public.
- The protection of a relatively-natural habitat of fish, wildlife, or plants, or another similar ecosystem.
- The preservation of open space (including farmland and forest land) for the scenic enjoyment of the general public, when the preservation will yield significant benefit.
- The preservation of open space according to a clearly outlined Federal, State, or local governmental conservation policy, when the preservation will yield significant benefit.
- The preservation of a historically significant land area or a certified historic structure.
When you donate a conservation easement to a land trust, you retain the title to your property but agree to limit the ways the property can be used. Usually, the primary restrictions are on building additional structures on the property (development) and mining. However, farming, ranching, and general use of the land are typically permitted. If you live on the land, you can usually continue to do so.
While some easements require you to allow public access to the property, many easements do not force you to open your land to the public. You can also decide whether to place an easement on all of your land, or just some of it. If you donate a conservation easement to a land trust, you can work with the trust to help determine what terms are best for both your needs and the conservation of your property.
The majority of conservation easements are permanent. You still own title to the land, so you can sell it or pass it to your heirs. However, to qualify for income and estate tax benefits, the easement and the restrictions included in it must “run with the land”, meaning that the limitations on use will apply to each new owner.
Why Should You Grant a Conservation Easement to a Land Trust?
There are many benefits of donating a conservation easement to a land trust. It is a way to protect your land from future development, preserving it for generations to come. Because the restrictions are permanent, a conservation easement will preserve your property no matter who owns it in the future. Even if the title passes out of your family, you can have peace of mind knowing that the land will be protected.
You can also receive significant tax incentives for donating a conservation easement to a land trust or government agency. If the donation serves a conservation purpose, as defined above, the donation can qualify as a charitable tax deduction on your federal income tax return. This tax incentive was enacted temporarily in 2006 and was made permanent in 2015.
When applicable, the IRS incentive provides the following tax benefits for conservation easement donations:
- All landowners may claim deductions equal to 50% of their annual income.
- All landowners may claim tax deductions for conservation easements for 15 additional years after the first.
- Qualified farmers or ranchers may deduct up to 100% of their income for the first year and the 15 following years.
A conservation easement can also reduce the estate taxes owed on large estates (over $11.4 million for individuals and $22.8 million for married couples). If your land is encumbered by a land conservation easement, it will be valued at its restricted value for federal estate tax purposes instead of the full value of the land. Because of this, a conservation easement can reduce or, in some cases where the property is the primary asset of the estate, eliminate the estate tax that would otherwise be due.
Not only does granting a conservation easement to a land trust allow you to protect the land you love, but there are also financial advantages to a donation as well.
Land Trust’s Responsibility to Conservation Easements
If you grant a conservation easement to a land trust, the trust will be responsible for enforcing the restrictions specified in the easement for the years to come. To ensure that each owner is complying with the restrictions, the land trust will conduct annual visits to inspect the condition of the property and make sure that the rules are being followed. If the conservation easement is not being respected, a land trust may go to court to stop a violation of the easement’s terms.
Granting Conservation Easements to Land Trusts Benefits the Entire Community
Donating a conservation easement to a land trust can benefit the general public as well as the person who owns the land. You can personally benefit by receiving significant tax benefits while still maintaining ownership and use of your property. In addition to the personal incentives for granting a conservation easement to a land trust, Studies have shown that the conservation of green spaces attracts employers, increases property values, and reduces government expenditures. Conservation easements benefit the entire community by providing green open space for recreation, preserving important environmental and ecological functions, improving quality of life, and supporting the local economy.