DCG Blog

Conservation easements are one of the least known and most powerful conservation and charitable planning tools available to California landowners. A conservation easement is a permanent legal agreement by which a property owner voluntarily donates, or sells, his or her development rights to a qualified conservation organization, otherwise known as a Land Trust.

The landowners and the land trust work together to develop the conservation easement language that will accomplish the landowner’s goals and satisfy the requirements of the IRS. There can also be flexibility within the document to provide the landowner with specific rights. For example, a landowner can reserve the right to construct homes, or commercial buildings, on a certain part of the land. Or a portion of the land could simply not be subject to the easement. Of course, these decisions impact the value of the easement.

The value of the easement is determined by a qualified appraiser who appraises the property before and after the proposed donation, or sale, of the conservation easement. The difference between the two appraisals is the value of the easement. It is, in essence, the value attached to the loss of the right to develop on the property. The more rights, to the property, that are given up the more valuable the easement. For example, assume that the fair market value of a property, without a conservation easement, is $2 million to a developer who would subdivide the land and sell lots or completed homes. If the property were subject to a conservation easement, that prohibited residential construction, the value might drop to $1 million. The value of the conservation easement in this example would be $1 million. This is also the amount from which income tax, and estate tax, deductions would be based.

When the conservation easement language and the value are established, the transfer of the easement progresses as a typical transfer of real property interest. After the transaction, the landowner maintains all other rights to the property and may sell, bequest or encumber the property subject to the easement.Conservation easements are used by landowners interested in the stewardship of open space. Every easement is a unique, and tailored, agreement between the landowner and a qualified conservation organization that serves the dual purpose of preserving land as well as providing attractive income tax and estate planning benefits to the landowner. Additional tax savings can be realized if the landowner donates the land itself to a charitable organization. In some cases, depending on the landowners’ income and estate tax bracket, these tax advantages can equal the value of the conservation easement that is “given up.”

Please view a few hypothetical examples (PDF download) of the income and estate tax benefits that could potentially be derived from a conservation easement. Any interested party should seek their own tax and legal counsel and should NOT base their decision upon the information enclosed or attached. The examples are for illustrative purposes only.

Our firm is currently marketing for sale a large open space property on Hecker Pass Road just outside of Watsonville CA. The Land Trust of Santa Cruz County has confirmed their willingness to sponsor Hecker Pass Road for the donation of a conservation easement.