Guide to Conservation Easements

8/8/2019 Guide to Conservation Easements

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GUIDE TO CONSERVATION EASEMENTS

Each year,millions of acres are irretrievably alteredworldwide. Today,more than ever,

longtermprotectionofvitalnaturalareas,familyfarms,andranchesdependsinpartonthe

actionsofprivatelandownerswithforesight.

Ofcourse,noteverypropertyisappropriatetosetasideasanatureoragriculturalpreserve.

TheLandConservancyofSanLuisObispoCounty (LCSLO)has specificgoalsconcerning

protectionofimportantnaturalareasandthepreservationofagriculturallands. Becausethe

organizations resources are limited, the lands significancemust furtherour conservation

goalsin

order

for

us

to

participate.

LCSLOusesthefollowingcriteriatoselectprojects.Withinthesecriteriaareadditionalsub

criteria.

Protectspropertythatwillachieveapublicbenefit. Protectslandthathasvalueforconservation,education,orrecreationpurposes. Confines its land protection efforts to San Luis Obispo County and the adjacentsurrounding region. Involvementoutsideof theCountywouldonlybeundertaken

whentheareaispartofalandscapethatcrossesourcountyline.

Protects landusingthosetechniquesthatmostefficientlycommitcurrentandfutureresourcesoftheorganization

Protects land only if we can fulfill whatever stewardship responsibilities, (i.e.monitoring,management,andenforcement),areassociatedwiththeproperty.

The primary tool for protecting land while the landowner retains the ownership is a

Conservation Easement. The Conservation Easement is a voluntary agreement between

LCSLOandthelandownerandiswrittenspecificallyforeachpropertytoaddressprotection

of the conservationvalues.Easements runwith the landmeaning they remain inplace

evenafterthepropertychangesownership.

TheLandConservancyofSanLuisObispoCountyPOBox12206,SLOCA93406(805)5449096LCSLO.org


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Belowaresomefrequentlyaskedquestionsaboutconservationeasements.Howdoesaconservationeasementaffectpropertyrightsandvalue?Landownerswithaconservationeasementstillholdtitletotheirpropertyandtherightsof

ownership,suchastherighttoselltheproperty,leasetheland,leaveittotheirheirs,andthe

right to privacy. Property also has other rights such as the right to harvest timber and

minerals,use

and

divert

water,

till

the

earth,

raise

livestock

or

subdivide

and

develop.

A

conservationeasementdoesrestrictsomeofthesepropertyrights.

By restrictingcertainpropertyrights,conservationeasementsmayreduce thevalueof the

property.Thiscanhelpafamilypasslandtothenextgenerationwithoutsubdividingand/or

developingittopaytheinheritancetaxes.Thisisparticularlyimportantinagriculturalareas

facingtheconversionofagriculturallandstourbanuses.

Doestheeasementhavevalueandhowisitdetermined?Theeasementrestrictscertainpropertyrights,andthevalueoftheconservationeasementis

the

difference

between

the

value

of

the

highest

market

value

for

the

property

before

the

easement,andthemarketvalueofthepropertyaftertheeasementisinplace.Thisiscalled

the beforeandafter approachtovaluation;the after valuetypicallyreflectsthepropertys

restricted value. A qualified, credentialed appraisal is always used to determine the

easementvalue.

Thevalueoftheeasementmaybedonatedoriffundingisavailable,alloraportion(bargain

sale)maybepurchasedbyLCSLOthroughfundingfrompublicorprivategrants. Funding

foreasementsisverylimitedandmustbecompatibletothelandownersusesandgoalsfor

theproperty.Ifsomeoralloftheeasementvalueispurchased,itmaytakeseveralmonthsto

afewyearsforLCSLOtolocateandobtainthefunding,andthereisnoguaranteethatgrant

fundscanbelocated.Donatedeasementshaveincometaxbenefitsthatarediscussedonthe

followingpage.

Doesaconservationeasementcovertheentireproperty?Inmostcasestheconservationeasementcoverstheentireproperty,butalandownercan

excludespecificareas.Anyexclusionwouldbenegotiatedbetweenthelandownerand

LCSLO.

Dolandownersneedanattorneytoplaceaconservationeasementontheirproperty?Placingaconservationeasementonyourpropertycanhavesignificantlanduse,incometax

andestateplanningconsequences. ItisthepolicyofLCSLOtorequirelandownerstohave

qualified legal counsel before completing a transaction to assist in the decisionmaking

processandreviewoflegaldocuments.

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Whatare the tax implicationsfora landownerplacingaconservationeasementon theirproperty?It is important for the landowner to secure theadviceofaqualified taxadvisor toobtain

information regarding the specific tax consequences for either the donation or sale of an

easement.

EstateTax:

Conservation

easements

may

help

reduce

estate

taxes

by

excluding

the

easement

value from the taxable value of the estate. This can help a family pass land to the next

generationwithouthaving to sell, subdivideordevelop their familys land topay for the

estate taxes.TheFederalTaxpayersReliefActof1997allowsbeneficiaries toexclude from

the taxable estate up to 40% of the value of land for qualifying conservation easements

subjecttolimits.Thisisinadditiontothereductioninthevalueofthelandresultingfrom

theeasementitself.

IncomeTax: Thelandownermaybeabletotakeanincometaxdeductioniftheeasementis

permanentanddonatedasabonafidecharitablecontribution.

PropertyTax: Thepropertytaxescouldbesignificantlyloweredoncetheeasementisplacedontheproperty,howeverifthelandownersbasisinthepropertyislowerthantheeasement

value, theremaybenoproperty tax reduction realized. In some cases,depending on the

circumstances, theassessorhasnot loweredproperty taxes, and thereforenoguarantee is

offered. It is always best to speak directly to the county tax assessor regarding your

situation.

CapitalGainsTax: Sellinganeasementisconsideredasasaleofacapitalassetandistreated

ascapitalgaintotheextentthattheproceedsexceedthebasisintheproperty.Thesaleofan

easementmay qualify for a 1031 inkind exchange to defer capital gains taxes while

allowing thepropertyowner to acquire additionalproperty. It is strongly recommendedthatanattorneyexperiencedin1031exchangesisconsultedifconsideringthismethodoftax

deferralofcapitalgains.

LCSLO of San LuisObispoCounty strongly urges all landowners to seek out their own

counselontaxandlegalissues.

Doesaconservationeasementaffectborrowingpower?Notnecessarily.Theeasementitselfdoesnotrestrictuseofthepropertyascollateralfor

borrowing;andthepropertymaystillhavesignificantvalueevenwithaconservation

easement.

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Isamortgageaffectedbyaconservationeasement?Yes, anymortgage,deed of trust, or othermonetary lien on the propertymustbe either

discharged prior to the easement or subordinated to the easement. In the case of

subordination,itisadvisabletotalktoyourlenderwellinadvanceofplacinganeasement

onthepropertytodeterminewhat,ifany,requirementstheymayhave.

Howistheamountoftheeasementprojectandstewardshipfundingdetermined?Aconservationeasementisaperpetualobligationandresponsibility,anditisimportantthat

fundsareavailabletoLCSLO toensure theconservationeasement isupheld.Funding isa

necessityforthemonitoringandenforcementofeasementsalongwiththerelatedeasement

projectcosts.

LCSLOrequestsadonationforeachconservationeasementitacquires.Theamountcanvary,

but it is usually 3% of the easement value for purchased easements, and aminimum of

$10,000fordonatedeasements.

Howlongdoestheconservationeasementprocesstake?Itdependsonwhethertheeasementthatiscontemplatedisbeingdonatedorsold. Locating

and obtaining funding may be a multiple year process. A donated easement may be

accomplishedovera fewmonths,although still requiresappropriate time tonegotiate the

easement, secure an appraisal, title documents, prepare abaseline conditions report and

obtainlegalreview.

Whataretheassociatedcoststoaconservationeasement?Potentialcostsareallorpartoftheappraisalcosts,stewardshipendowmentdonation,and

attorneyfeesforthelegalreview.

Howistheconservationeasementmonitored?LCSLO visits each of its easementprotected properties at least once each yearwith the

landowner. Theseplannedvisitsprovideanopportunitytoexchangeinformation,toanswer

questions about the easement, and to compare the condition of the property with the

baselineconditionsreport.

Whatisthenextstep?LCSLO staff visits thepropertywith the landowner todiscuss thepotential conservation

easement,evaluatetheproperty,andthenprepareareporttobepresentedtotheBoardof

Trustees. UponapprovaloftheprojectbytheBoardofTrustees,LCSLOsendsanapproval

lettertothelandowneroutliningtheprocess.

Documents

Guide to Conservation Easements