Estate Planning With Conservation Easements

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Texas is changing. A 2019 report by Texas Land Trends found that 83% of Texas lands are privately owned “working lands,” i.e. lands utilized for ranching and agriculture. Such lands provide vital wildlife habitat and incalculable aesthetic value. The study found that between 1997 and 2012 roughly 1.1 million acres of working lands were converted to other uses, such as residential development. In order to prevent such future conversion some landowners are turning to conservation easements. Under federal law, a conservation easement is a “qualified real property interest” contributed to “a qualified organization” exclusively for conservation purposes and that is perpetual in nature. For landowners concerned with keeping lands in the family and maintaining their present use, conservation easements offer attractive benefits.

Land trusts, such as the Texas Agricultural Land Trust and the Texas Land Conservancy, among many others, as well the state and federal government, may serve as the qualified organization. Appropriate conservation purposes include the preservation of land for the general public’s recreation, habitat protection, and maintaining open space for the public’s scenic enjoyment. Each conversation easement should be drafted to reflect the unique conservation goals of the particular client.


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Given that the unified estate, gift, and generation skipping transfer tax credit is $11,400,000 for 2019, reducing income tax is often a greater client concern than estate tax. (Please note that planning in light of the disappearing exemption amount is beyond the scope of this article.) A conservation easement is an exception to the general rule that a taxpayer may not deduct a charitable gift of a partial interest in real property. Accordingly, various income tax deductions are available, including a charitable deduction of up to 50% of an individual’s adjusted gross income (the recent increase to 60% only applies to cash contributions). Another benefit is that property taxes may be lowered due to the use limitations, although this may not be true in some cases. An estate tax deduction is possible where the executor makes an irrevocable election on the estate tax return on or before the due date (including any extensions) for filing the return.

Often landowners worry that a conservation easement will limit oil and gas development. While surface drilling is generally prohibited, an exception exists where the minerals have been severed if the probability of surface mining is “so remote as to be negligible.” Horizontal drilling is permitted where wells may be located offsite and the lateral crosses the conservation easement property at a subsurface level. A landowner may also reserve drilling areas that do not interfere with conservation purposes. In some scenarios, subordinations or surface waivers may be obtained from the owners of outstanding mineral interests.

One factor weighing against conservation easements is that a landowner may be awarded less in a condemnation because the use restrictions limit the “highest and best use of land.” Also, a destitute relative down the line will have less ability to sell the property to pay for debts and expenses. The counterargument to this point is that many families wish to instill a work ethic in their descendants in which selling the family lands should never be an option.


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Another potential issue concerns the utilization of the charitable deduction where land is owned in trust. Section 642(c) of the Internal Revenue Code requires that a contribution must be made out of the gross income of the trust to qualify as a charitable deduction. In Revenue Ruling 2003-123, a trust that had granted a conservation easement was denied a charitable deduction because the land was trust principal and not income.

Care must be taken in properly appraising any property subject to a conservation easement. The IRS has actively challenged dubious appraisals of conservation easements. It is essential that the client maintains records of the property’s value before and aft er the creation of the conservation easement. In at least one instance the IRS successfully argued a conservation easement did not meet the federal requirements because it contained a substitution power where a taxpayer could switch out the land subject to the easement for other land.

In the right situation, conservation easements offer a method to reduce taxes while protecting habitat and wildlife, preventing the fragmentation of land, and preserving the integrity of a family property for generations to come. Ultimately a client must weigh the use restrictions against the tax benefits and land preservation benefits allowed by a conservation easement. Joseph Koehl


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Joseph L. Koehl

Joseph L. Koehl, of Duncan Bressler & Williamson, practices in the areas of estate planning and probate, as well as oil and gas and real estate matters. He is board certified in oil, gas and mineral law and is a member of the State Bar College. Joseph received his Bachelor of Arts from the University of Texas at Austin and his law degree from Baylor Law.

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