2012.09.21 CE101 CGr South Llano Water Alliance

Report
Title
of
Presentation
Conservation Easements 101
Smaller Type
South Llano Watershed Alliance
The Basics
What Is A Conservation Easement (CE)?
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Voluntary legal agreement
Signed by both landowner & land trust
Filed at county courthouse
TX Natural Resource Code
Chapter 183
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The Basics
What Conservation Easements Do:
• “Partnership” between landowner & land trust
to accomplish goals of both
• Permanently protect land’s intrinsic values
• Provide income or tax savings to landowners
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The Basics
How Does CE Work?
Property ownership = owning a bundle of sticks
Examples:
- Mineral Rights
- Water Rights
- Hunting Rights
- Access/Easement
- Development Rights
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The Basics
How CE Protects Land:
• Permanently restrict intensity
of use or development of land
• Give partner organization the
right to enforce restrictions
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The Basics
How Landowners Are Protected:
• All restrictions negotiated
• Landowners continue
agricultural use & recreational
enjoyment
• No public use required
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The Basics
How CE Provides Financial Benefits:
• Sale of CE = cash
• Donation of CE = tax savings
• Tax credit in some states
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The Basics
How CE Can Be Sold:
• Highly Motivated Buyer
• Competitive Process
• Negotiated Price
• Cash or Trade
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Sale of Conservation Easement
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Dahlstrom Dilemma
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Owned a Ranch worth $30M
Looming federal estate tax liability
Need to provide financial stability for family
Wanted Ranch to be preserved forever
Desire to share Ranch with public
Current quarry operations on Ranch
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Conservation Easement Terms
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2,275 acre ranch; includes quarry
Protect archeological sites
Water quality and quantity is the priority
No subdivision
Limited building
Allows agricultural and eco-tourism business
Allows existing quarry operations until 2060
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The Basics
How CE Provides Tax Savings:
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Income tax deduction when donated
Lower appraised value of land in estate
Exclude part value from estate tax
Property tax relief in some cases
Tax credit in some states
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The Basics
RULE OF THUMB -- How CE Impacts Land Value:
Near cities reduction/deduction
can be 50-90% of land’s
appraised value
Rural land reduction/deduction
can be 30-60% of land’s
appraised value
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Who Should Consider A CE?
• Desire to preserve land or “keep in the family”
• Land with conservation value/public benefit
• Location - Development “pressure” drove up
value; unused value locked in the land
• Concerned about increasing ownership costs
• Sufficient income to use large tax deduction or
ranch big enough for estate taxes
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Profiles Of Donors/Sellers
• Urban Owners of Rural Land
• Land Rich, Cash Poor Families
• Heritage Landowners
• Developers marketing rural land
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TAX LAW:
For CE Charitable Gifts in 2012
30% of AGI Rule. Sec. 170(b)(1)(C)
Limits annual charitable deductions to 30%
of the donor’s AGI.
$500,000 AGI
X 30% (2012)
$150,000 MAD
50% Rule (Incentive)
$250,000 MAD
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TAX LAW:
For Charitable Deductions
30% of AGI Rule. Sec. 170(b)(1)(C)
5 Year Carryover Rule Sec. 170(d)(ii)
For contributions that exceed the 30% of AGI
limitation, there is a 5 year carryover, which
allows unused deductions in the first year to
be carried over up to 5 years (Incentive 15 yrs)
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Income Tax Savings 2012 - 2017
Donor’s AGI
$ 500,000
Tax Rate
35%
Value of CE (50% FMV)
$ 5,000,000
Max. Annual Deduction (30% AGI*) $ 150,000
Annual Tax Savings
$
52,500
Number Years to Use Deduction*
6
TOTAL TAX SAVINGS
$
315,000
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Income Tax Savings 2012 – 2027
Under Incentive Legislation
Value of CE (70% FMV)
Donor’s AGI
Max. Annual Deduction (50% AGI*)
Number Years to Use Deduction*
Tax Rate
Annual Tax Savings
$5,000,000
$ 500,000
$ 250,000
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35%
$ 87,500
TOTAL TAX SAVINGS
$ 1,400,000
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Structuring The Deal
Transaction Structure:
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Donation
Sale
Combination
Phasing in CE over
multiple tax years
• Contract or letter of intent
• Donate CE after death
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Transaction Steps
1. Establish conservation,
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family & financial goals -- analyze outcomes
Select & negotiate with land trust
Create transaction team
Complete all due diligence steps
Record CE, complete any cash gift
Implement & file post-gift state / federal
requirements
Monitoring & enforcement
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“Qualified Conservation Contribution”
Tax Code Sec. 170(h) Requires:
• A real property interest (CE)
• Exclusively for conservation
purposes
• To a qualified organization –
land trust
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Identify Conservation Purpose
Treasury Regulation Sec. 1.170A-14 describes 4
“Qualified Conservation Purposes:”
• Protection of relatively natural habitat
• Open Space: scenic enjoyment or
government policy
• Outdoor recreation or education
with public access required
• Historical preservation with public
visibility or access required
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Choose a “Qualified” Organization
• Governmental agencies with
conservation missions or policies
• Non-profit conservation
organizations
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Select a Land Trust
• Partnership – values fit
with landowner
• Capacity to do the deal
• Long term capacity
• Landowner resource
• Costs
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Texas Perspective
• Texas land trusts - Helped conserve more than
1.5 million acres of Texas land
• TLTC Directory - 49 Texas land trusts in operation
• TLTC at www.texaslandtrusts.org
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Creating the Transaction Team
• Appraisal – Appraiser substantiates value
• Baseline Report – Biologist, ecologist documents
conservation values
• Survey – Surveyor prepares legal descriptions, maps,
exhibits, marks boundaries
• Land Planning – Land use planner for development
plan
• Financial Planning & Analysis – CPA, CFP, etc.
• Legal Advice & Negotiation – Client’s attorney
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Basic Goals of Drafting
 Protect client’s future rights in the property
 Maximize client’s financial benefit
 Protect conservation values
 Meet organization’s needs
and goals
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Possible Restrictions???
• Subdivision
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Additional buildings
Commercial activities
Agriculture or grazing
Mineral development
Hunting and fishing
Habitat restoration
Road building
Motorized vehicles
Exotic species
Agency restrictions
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Recreation
Outdoor education
Care of scenic features
Care of water features
Care for historic features
Land Trust monitoring & access
Public access
Trash & dumping practices
Timber management
Management plan
Development plan
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Result After Easement
Land Trust:
• Conserve
Habitat
Scenic Views
Open Spaces
Historic Sites
Outdoor Recreation
• Low Cost
Landowner:
• Create a Legacy
• Save Tax
• Still Use Land
• Land Appreciating &
Marketable
• Unlocked Value
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Stay informed and connected…
• Like us on Facebook
www.facebook.com/BraunGresham
• Follow us on Twitter
twitter.com/BraunGreshamLaw
• Join our Landowner Alert System
http://www.braungresham.com/contact-us/#contact
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“Conservation will ultimately boil
down to rewarding the private
landowner who conserves the
public interest.”
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Aldo Leopold
Braun & Gresham, PLLC
Cassie Gresham
www.braungresham.com
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