Eleven Point River Conservancy
Estate Tax Benefits

Protecting Family Lands

Land can be valuable in many ways. To an investor, the value of a parcel of land is in the profit to be made from its sale. To an owner of commercial property, the property's value is in the rents which can be collected for its use. But to some, the value of land is more deeply rooted: in family memories and commitments; in a clearing by a brook or on a wildflower prairie hilltop; in the goodness which land has brought to human lives. There is thus a bond between people and land, a bond which can be passed on from generation to generation. However, the ownership of prime property as a family asset creates the need for careful and specialized estate planning.

Due to the dramatic increase in property values in many areas in recent years, a family of otherwise modest means may own land of considerable appraised value. Upon the death of the last surviving parent, the heirs may face the obligation to pay state and federal estate taxes without having the financial resources to meet that obligation. Their only recourse may be to sell all or part of the land that was left to them, despite their own desires and the expressed wishes of their parents. In short, the failure to plan for the future of valuable family land after death may grant control over that land to the taxing agencies of government. Fortunately, there are alternatives.

The Conservation Easement

By reducing the appraised value of land, the donation of a conservation easement to the Eleven Point River Conservancy can reduce estate taxes. If the appraised value is reduced sufficiently, estate tax obligations can be avoided altogether. Since most of the appraised value of land is in its potential for development, the donation of development rights to EPRC leaves only the remaining value as taxable. Thus, the donation of a conservation easement can protect land in two ways.

First, it protects the conservation values of the land according to the specific restrictions contained in the conservation easement. And, second, it might protect the integrity of the land from the threat of sale to satisfy estate taxes. Furthermore, this protection option can reduce income taxes for the current title-holders while still living.

Since each conservation easement is individually written to address both the personal needs and the intentions of the donating landowner, land protected by a conservation easement can continue to be used by the donor's heirs as the family has been accustomed. A family farm, for example, can be used, in perpetuity, for the production of crops and the pasturing of livestock. And, every bit as important, it can provide a home for the future generations of the family which has cared deeply about its land.

A conservation easement can be donated via a will. It has the same effect on estate taxes as a lifetime donation. The negotiation of the easement should occur prior to inclusion in the will. In some circumstances, heirs may be able to reduce estate taxes by increasing an easement's restrictions or by placing a new easement on land passed down in an estate.

Gift of a Remainder Interest

In some instances, a landowner may wish to donate ownership of land to a land trust, while retaining the right to use the land until death. The act of making the donation of the land prior to death, to take effect after death, is called a gift of a "remainder interest," and the retained right of use is called a "life estate." Ownership is relinquished upon death. In some instances, the combined gift of a conservation easement with a remainder interest may address the needs and desires of a landowner.

Donating Land By Will

Donating ownership of land by will enables a landowner to own and control land during his or her lifetime and assure its protection after death.

Land Donations That Establish a Life Income

With a charitable gift annuity, a landowner transfers certain property to a land trust, and the organization agrees to make regular annuity payments to specified beneficiaries for life. This gift of land usually qualifies for a charitable income tax deduction at the time of the gift, based on the value of the land less the expected value of the annuity payments.

Another income option is a charitable remainder unitrust. Land is placed in a trust account, with a conservation easement, if it is to be protected. The trustee sells the land and invests the proceeds of the sale. Specified beneficiaries receive annual payments for a fixed term or for life. Then, the trustee delivers remaining funds in the trust over to the land trust. This type of gift qualifies for a charitable income tax deduction when the land is put in the trust account, based on the value of the land less the expected value of the payments.

Charitable gift annuities and charitable remainder unitrusts are most useful for highly appreciated land, the sale of which would incur high capital gains tax.

Estate Planning Without Land

Even without donating a conservation easement or land, friends of the Eleven Point River Conservancy can help protect land for future generations. This can be accomplished by including a donation to the Eleven Point River Conservancy in a will, whether money, securities, real estate, or other valuables. This type of gift will live forever in the land that it helps to protect.

Formalization of any protection plan must be guided by an attorney and a tax planner experienced in estate planning.