Conservation Easement 101

Conservation Easement 101: What is a conservation easement?

TALT News

By Katrina Huffstutler

In 1852, Ken Cearley’s great-grandfather came to Texas from his native Georgia. He settled on Walnut Creek in Travis County and grew corn and cotton. Cearley has fond memories of hanging out on the place as a kid — hunting, fishing and just generally enjoying the land. Though the acreage is no longer in production, the land is mostly intact preserved as a park and owned by the City of Austin.

“I’m luckier than most,” Cearley says. “I can still go back there and not see too much fragmentation and development.”

Cearley, who serves as stewardship manager for Texas Agricultural Land Trust, says so many people have a similar story of family land. They want to keep it together for the sake of heritage and legacy for their descendants.

He says a conservation easement is a tool that can make that happen.

“I hear people say, ‘You know, I would really like to keep this country together for my family’s sake because I love it so much.’ I know exactly where they are coming from and I’m glad to be able to offer them this option. If it fits their needs, a conservation easement will allow them to conserve that country for the future,” Cearley says.

As a former rancher and a retired wildlife specialist for Texas A&M AgriLife Extension Service, he says he’s spent years telling people that agriculture isn’t just farming or ranching — it’s anything the land can produce, including wildlife habitats or recreational activities. So even if future generations don’t go on to have careers in production agriculture they still could benefit from the family land. And if the land sells outside of the family? At least it can’t be split up.

According to Texas Agricultural Land Trust’s website, a conservation easement is the legal glue that binds a property owner’s good intentions to the land in perpetuity.

Cearley adds there are four major must-knows about a conservation easement:

It’s voluntary; it’s an exercise of the owner’s private property rights; it’s a negotiated document; and it’s permanent.

Because of that last characteristic — the permenancy — it’s especially important to do your homework before signing on.

Cearley says the first step is to talk with your family and thoroughly consider the pros and cons.

“It’s not for everyone, and it requires a lot of contemplation to make sure your goals are being met,” he says.

The pros for most people are preserving the land, and a reduction in income and/or estate taxes. According to Texas Agricultural Land Trust, the value of the easement as a charitable gift is determined by a qualified appraiser who values the property before and after the easement restrictions are applied. The difference between these two values is the amount of the charitable gift for tax purposes. This gift amount is treated as a regular charitable contribution.

Additionally, conservation easements will typically result in a reduction of the property value for estate and gift purposes. This can ease the financial burden of passing the property on to heirs. Conservation easements are a significant and useful estate planning tool. The amount of value reduction is unique to each property, but is generally the difference between its subdivision development value and its agricultural value.

Cearley explains there are three types of easements: One is donated, another is sold and the third, a bargain sell, is a combination of the first two types.

“Depending on what your financial needs are, you may want to gravitate towards one of those or the other. You may want to sell it to make a little money or donate it to get a tax break,” he says.

Cearley explains the reason the tax break exists is the legislature has determined the public benefits from land being kept in agriculture production.

“We all have to eat. We all need to wear clothes. We all need recreation. We all appreciate wildlife,” he says. “Those are the benefits of preserving the land. And some people just want to make sure that is provided in the future.

“There may be a financial benefit to them one way or the other, but I think in most cases, it is not the primary motivation for people. It’s a heartfelt thing. They have a love for the land and want to see it protected.”

The only downside for most considering a conservation easement is the cost. Cearley explains the legal fees and appraisal fees (including one appraisal before placing an easement on it and one after the easement is in place) can be quite costly.

“The public benefits from the conservation of open space, water quality and water volume, scenic views and so forth,” Cearley says. “And those benefits are being accepted as an offset for tax not collected; for that tax deduction. I think it is important people understand that. The tax deduction that is available or the value of the charitable contribution is that difference between the appraised value of land before the easement and after the easement. It has to be justifiable because you’re getting a tax benefit for it or you’re getting a credit for a charitable deduction.”

Once a family comes to the decision to put their land in a conservation easement, the next step is to find a group to hold that easement. Cearley says there are roughly 30 in the state of Texas, though Texas Agricultural Land Trust is the only one that is state-wide and concentrates on agricultural land.

“Other conservation easement holders have different motivations. Some of them may be more in line with your philosophy than TALT,” he explains. “You just need to decide which one would be your best partner. In a sense, this holder is going to be a partner with you. In the case of TALT, we’re not a partner in the sense of production or management but we’re serving the function to protect that conservation easement through the years.”

Next, or even simultaneously, contact a financial planner and an attorney who are familiar with conservation easements.

The holder, along with the legal and financial advisers, will guide the landowner through the rest of the process.

“We encourage you to have your trusted people right there by your side the whole time,” Cearley says. “This is a negotiated agreement — not a ‘take it or leave it’ situation — and we understand it’s a big decision to make. When you enter into a permanent agreement, you want to make sure it’s right. That it’s something you are going to like next year and you’re still going to like 20 years from now.”

Special thanks to The Cattleman magazine (www.thecattlemanmagazine.com) for permission to post this article. This article is the first installment of a six-part series, printed in The Cattleman magazine, focusing on conservation easements as a tool that can help keep ranches intact and facilitate their passage to the next generation of land stewards.  This particular article appears in the February 2016 issues. This series continues in the April issue, as we dig deeper into why a landowner may need or want a conservation easement.

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