Preserving Family Property as Conservation Land

December 22, 2023 Austin Jarvis
Conservation easements are a powerful and flexible tool for legacy planning, providing tax advantages and helping to ensure that property is not a burden on one's heirs.

Few things in life carry stronger emotional ties than a valuable home or piece of land that has been in a family for many years, becoming a repository of memories and representing the family's achievements. Because of this, questions about how to best preserve and protect the property for future generations will often figure prominently in legacy planning.  

One flexible and powerful tool that can help in the stewardship of family property is the conservation easement, which is a permanent agreement to forego future development rights in exchange for significant tax breaks. This option can offer potential advantages for landowners and their heirs—so long as the risks and consequences are understood.

What is a conservation easement?

A conservation easement is a voluntary legal agreement between a landowner and a nonprofit land trust, government agency, or other qualified group that establishes restrictions on future use of some or all of the land. The purpose is to keep natural lands from being developed to protect wildlife, create more open space, and preserve sites that may have historical or cultural significance. Protected land may even address climate change, for example, by keeping land in a natural state that helps mitigate flooding. (What qualifies as natural land for conservation purposes is defined in the tax code.)

There is wide latitude in how these agreements are written, allowing a family to decide what the land will be used for, whether public access will be allowed, and how the property will be maintained. The tradeoff is that the owner gives up development rights and, as a result, the value of the land may be much lower. This is why donation of a conservation easement is treated as philanthropy and afforded tax advantages. To gain the significant tax benefits that come with these arrangements, the restrictions are permanently attached to the deed and do not go away when the land is sold or inherited. 

What are the tax benefits?

A conservation easement provides two main benefits:

  1. It can significantly reduce income taxes while the landowner is alive. During the original landowner's lifetime, the assessed value of a conservation easement creates an income tax deduction. The deduction cannot exceed 50% of the owner's adjusted gross income (or 100% in the case of a conservation easement for farmland) in a single tax year, but the unused portion of the deduction may be carried over for up to 15 years. Depending on where the property is located, reduced property taxes could be an added benefit.
  2. It can help reduce the value of an estate, avoiding a situation in which property must be sold to pay taxes on an inheritance. For legacy planning, the power of land conservation comes in reducing the estate by the value of the conservation easement, thereby reducing the eventual tax liability. This can be particularly important when a significant part of the family's wealth is in property and if you believe the value of your estate will be high enough to be subject to federal gift and estate taxes—$13.61 million per person in 2024. By lowering the value of the estate, fewer liquid assets will need to go to taxes, more money will be available to heirs, and the need to sell property to pay taxes is not as likely.

However, much of the benefit depends on the valuation of the conservation easement. This is determined based on the difference in what the property would be worth—based on its highest and best use—before and after the restrictions on its development. The commercial potential of the property is also key: If it's located in an area that already has development limits in place, for example, the value of a conservation easement may be less.

What are the potential drawbacks?

Agreeing to permanent restrictions on your property can create unforeseen complications. If the area develops in a way you didn't expect or your family needs change, the lack of flexibility may make it difficult to deal with the changed circumstances. Also, when a conservation easement allows for public access, it may lessen the privacy of your property.

Is one right for you?

Deciding whether a conservation easement is right for your property requires a detailed analysis of the value of your estate, the value of the land in question, and the potential value of the easement. One sensible approach is to consider a conservation easement for a portion of your land, taking into account such things as how the preserved land might affect access to the property, your privacy, or views from a home.

As in any estate planning process, communication is vital. Because a conservation easement can't be revoked or changed once it has been put in place, the landowner needs to be sure that the family is aligned on the preservation goals. The option of selling the property for the highest possible price will be permanently lost. Your financial or wealth consultant can help you navigate the necessary family discussion, and they can help you determine whether a conservation easement is the right solution in your situation.    

When a family is attached to a place, when family members cherish a piece of property and want to preserve it the way it has always been, then a conservation easement is a potentially rewarding possibility.

Contact your financial or wealth consultant to discuss the options that might work best for your unique goals and financial situation.

Contact your financial or wealth consultant to discuss the options that might work best for your unique goals and financial situation.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.