Conservation Easements

The conservation easement is a legal document that guides future land uses as ownership changes, protecting a property’s key features by limiting the type and scope of development that can take place. Easement lands remain in private hands and on local tax rolls while providing such public benefits as open space, scenic vistas and wildlife habitat. Easements allow landowners to help preserve important aspects of their community and contribute to the region’s quality of life. Particularly in areas facing rapid development, easements can complement local zoning by ensuring appropriate growth and protection of sensitive areas.

How Easements Work

Photo: Sara Gray

When you own land, you hold many rights associated with it (such as the right to harvest timber, build structures, extract minerals or farm—subject to zoning and other laws). By placing an easement on your land, you voluntarily limit or relinquish some of those rights. The prospective easement holder (generally a nonprofit land trust or government agency) works with you to tailor an easement that protects the land’s natural and cultural values and meets your land use goals.

Conservation easements enable landowners to permanently protect their cherished properties while retaining ownership.

Potential Benefits that Easements Offer Landowners

  • Easements provide permanent protection, applying to all future landowners. A land trust or government agency upholds the restrictions over time.
  • Landowners retain title to their property and may continue to live on it, sell it, or pass it on to heirs, knowing that it always will remain protected.
  • Easements can aid in estate planning, reducing estate taxes that could force the sale of family lands. Donated easements also can provide a charitable income tax deduction.
  • Easements can reduce property tax by eliminating unwanted but highly valuable development potential.
  • Easements can minimize family conflicts when lands pass to the next generation.

Most easements limit the number and location of future structures and the types of land uses that can take place. Those that allow for future building often dictate that structures be set back from shorelines and be limited in size and visibility. The restrictive covenants in an easement protect the land’s important natural resources. Sensitive wildlife habitat or an old growth forest, for example, might merit a forever wild easement that specifies no future alteration of the land’s natural resources. Farmland or woodlots might have less restrictive covenants that prevent subdivision, limit construction and specify that agriculture or forestry be done in a sustainable manner. Some easements ensure traditional public uses (e.g., hiking, clamming or berry-picking), depending on landowner preference.

If you choose to allow for some development, you can either place an easement on your entire property and limit development to a building envelope(or homestead area), or you can simply place the easement on the undeveloped portions—leaving out that envelope around existing or planned dwellings. While the latter approach is simpler, it is not always advisable. To effectively protect the conservation values of your entire property, it may be necessary to place restrictions on the built portions (and clearly define and mark the parameters of your building envelope).

The easement holder assumes permanent responsibility for enforcing the easement’s terms. One local land trust director, Lucy McCarthy of Vinalhaven, describes the holder’s role as one of “a partner and trusted advisor, helping landowners protect a valued resource.” This stewardship involves an annual inspection of the property and ongoing contact with the landowners. The easement holder is available to discuss any major planned changes and to help answer questions about resource protection. If an easement is violated, the holder takes action to have the violation corrected (including legal measures although these are rarely required). Even routine stewardship can be expensive. Therefore, the land trust must raise funds to support stewardship, and generally requests a stewardship contribution from the easement donor. In McCarthy’s words, it’s important “for the community to see that we have sufficient resources to stand by our protected properties, upholding the landowner’s wishes in perpetuity. It sends a strong signal to other landowners that they can make gifts to us in trust.”

While the easement is a popular and versatile conservation tool, it may not be the best choice for all landowners. Some lands lack sufficient conservation significance to merit protection with an easement. Other lands, such as those that receive extensive public use, might best be owned and managed by a public agency or private land trust.

Tax Benefits of Donating Easements

Placing an easement on your property typically reduces its resale value, but that can be offset partially by tax benefits. Most landowners donate their conservation easement to a nonprofit land trust or government agency. The donation may qualify as a tax-deductible gift if the easement meets requirements of the federal tax code and provides significant public benefits. The potential tax advantages fall into three categories: income, estate and property (see chapters 6 and 7 for further tax discussions).

Income Tax

An appraisal that compares the market value of land with and without the easement reveals the value of an easement donation. Gifts of property worth more than $5,000, including easements, must be substantiated by a qualified appraisal to be eligible for a tax deduction.

Photo: Tom Arter

Assume, for example, that owners of a coastal property worth $500,000 unrestricted place an easement on their land that precludes further development. A qualified appraiser might then determine that the land’s fair market value, without its development potential, is $200,000. The charitable gift of an easement then would be valued at $300,000. (Income & Estate Taxes describes limits on how much a taxpayer can deduct.)

Nearly all conservation easements reduce property values, but no rule of thumb governs what the diminution in value will be. Reductions range from less than 10 percent to more than 90 percent of a property’s fair market value. In general, the reduction tends to be greatest where a highly restrictive easement is placed on prime development land in an area experiencing rapid growth.

Sound conservation planning can reduce taxes, helping to keep land in family ownership over the generations.

Estate Tax

High estate taxes can prevent a family from passing property on to the next generation. When individuals leave land to their family, heirs may find that the property has appreciated so much since its purchase that the estate or family must sell the land to cover estate tax payments.

The federal estate tax—levied at rates between 45 and 50 percent—is based on land’s fair market value. If your land has significant development potential that you never intend to use, removing that value from the land before it passes to family could help minimize the tax burden for your heirs. Reducing estate taxes by restricting future development can be particularly beneficial for landowners with sizeable estates and substantial real estate holdings because federal law currently exempts the first $1 million worth of assets per individual (and this figure is slated to rise gradually to $3.5 million by 2009).

Property Tax

Photo: Rich Knox

Placing an easement on your land may result in property tax savings. The property tax assessment must be based on the land’s fair market value and an easement will almost always reduce this value. Taxes should reflect the land’s reduced market value under easement. You should inform the town when you place an easement, and you may wish to provide evidence of reduced value. Alternately, you can apply for tax classification in the State’s farm, open space or tree growth tax programs which are designed to provide a reduced standardized property tax for undeveloped lands (see Property Taxes).

By donating an easement, the previous owners of Bradley Pond Farm ensured that their land always will remain available for farming and timber management.

Donating a Conservation Easement

Forty-five years ago, Frederick and Florence Call went in search of the perfect place to farm. After driving roughly 30,000 miles, they settled on Bradley Pond Farm in Topsham, a 163-acre expanse of meadows and forests along the Cathance River, which flows into Merrymeeting Bay.

Over time, the Calls became concerned that high property taxes would force the sale of their treasured farm. After reviewing their options with Maine Coast Heritage Trust and the local Brunswick Topsham Land Trust (BTLT), they decided that donating an easement would allow them to conserve the land while continuing to farm it. “You have to make a choice in life,” says Florence Call, “either for the big bucks or for something you believe in.”

The Calls donated a conservation easement to BTLT that permits additional buildings only within a 5-acre farmstead. The remaining land will stay undeveloped, available for farming and timber management. While easements do not necessarily guarantee public access, the Calls wanted the public to enjoy their land–a tradition begun years ago when hundreds of area Girl Scouts camped at the farm. BTLT created a trail system for hiking and skiing that it manages as the long-term easement holder.

The Calls recently sold their property to new owners who share their commitment to sustain its beauty and ecological health. Having an easement in place helps to reassure the Calls that the land they have cared for much of their lives will remain protected in perpetuity. “You may own the land,” Florence Call says, “but you don’t really. You’re stewards of it. I really believe you ought to leave it in better shape than you found it.”

Donating an Easement by Will

A conservation easement can be granted in your will (or even at the direction of your heirs, if they consent). With this option, you won’t receive income or property tax benefits, but the estate tax benefits can be even more significant.

If you intend to donate an easement by will, you need—during your lifetime—to draft the easement terms in collaboration with the intended holder. This advanced planning ensures that the easement meets your conservation goals and the holder’s objectives. Since monitoring easements entails significant costs, the proposed holder may encourage you to make a monetary bequest to help cover the property’s long-term stewardship.

Sound conservation planning can reduce taxes, helping to keep land in family ownership over the generations.

Because an easement gift can take time to plan, you may want to amend your will right away, stating your specific intentions for the land and instructing your executor to complete the easement in the event of your death. Your will can be amended later if family or financial circumstances change, or if you decide to grant the easement during your lifetime. In the interim, though, you will have protected the land and taken action to lower estate taxes.

Selling an Easement

Photo: Quoddy Tides

While most easements are granted as gifts, government agencies and nonprofit organizations occasionally do purchase conservation easements. Acquisition funds are limited, though, so most of these purchases are below fair market value (see the bargain sale section in chapter 4). Less commonly, an easement is exchanged for a charitable gift annuity, through which a land trust makes regular, fixed payments to a landowner over time. Selling a conservation easement at full value rules out a charitable deduction and usually triggers a capital gains tax. It can also require more time to complete the transaction, given the fundraising needs of the purchasing organization or agency.

Through the State purchase of an easement on Tide Mill Farm, community members can now enjoy activities there like hiking, picnicking and educational programs.

Selling a Conservation Easement

For eight generations, the Bell family has lived and worked on Tide Mill Farm, an active saltwater farm of 1,500 acres in Whiting. The Bells wanted to keep working their land and have their children do the same. Like so many Maine families, though, they were land-rich and cash poor. “Allowing for traditional use of the land and for the family heritage to remain intact made it hard to survive financially,” explains Terry Bell.“ But we realized that to hand our children the legacy of this place as we know it has a real value beyond any amount of money.”

As much as they wanted to protect their long-time homestead, the Bells could not afford to donate a conservation easement. After meeting with Quoddy Regional Land Trust (QRLT) and Maine Coast Heritage Trust, they realized there might be an opportunity for selling an easement. The land trusts proposed the project to Land for Maine’s Future (LMF), a state program established in 1987 and funded by two public land acquisition bonds totaling $85 million. “Competition for LMF funding was fierce,” recalls QRLT executive director Alan Brooks. “Our faith in Tide Mill Farm’s superlative scenic, ecological and recreational values was borne out when the project scored near the top of LMF’s statewide rankings.”

The LMF Board voted to purchase a conservation easement on Tide Mill Farm that protects its scenic store front vistas, diverse wildlife habitat and traditional public access. The fields, woodlands and tidal flats offer critical habitat for black bear, moose, deer, shorebirds, seals and two nesting pairs of American bald eagles. Under the terms of the easement, visitors can hike, picnic, ski and hunt on portions of the property that do not intrude on the farmstead where the Bell family continues to maintain their working farm and woodlot.

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