Conservation Easement 101: What Is a Conservation Easement?

IN 1852, KEN CEARLEY'S GREAT-GRANDFATHER CAME TO TEXAS from Georgia. He settled on Walnut Creek in Travis County and grew corn and cotton, had a small herd of milk cows and raised Percheron draft horses. Cearley has fond memories of hanging out on "The Old Place" as a kid - hunting, target shooting, exploring and just generally enjoying the land. Though the acreage is no longer in production, the land is mostly intact open space preserved as a park and owned by the City of Austin.

"I'm luckier than most," Cearley says. "I can still go back there and see a good bit of the Old Place that has not been fragmented and developed."

Cearley, who serves as stewardship director for Texas Agricultural Land Trust (TALT), says that many people have a similar story of family land. They want to keep it together for the sake of heritage and legacy for their descendants.

He says a conservation easement is a tool that can make that happen.

"I hear people say, 'You know, I would really like to keep this country together for my family's sake because I love it so much.' I know exactly where they are coming from and I'm glad to be able to offer them this option. If it fits their needs, a conservation easement will allow them to conserve that country for the future," Cearley says.

As a former rancher and a retired wildlife specialist for Texas A&M AgriLife Extension Service, he says that he has spent years telling people that agriculture isn't just farming or ranching - it's anything the land can produce, including livestock, crops, wildlife, wildlife habitat and recreational activities such as hunting, fishing and wildlife watching. So even if future generations don't go on to have careers in production agriculture, they still could benefit from the family land. And if the land sells outside of the family? At least it can't be split up.

According to TALT's website, a conservation easement is the legal glue that binds a property owner's good intentions to the land in perpetuity.

Four must-knows

Cearley adds there are 4 major must-knows about a conservation easement: It's voluntary; it's an exercise of the owner's private property rights; it's a negotiated document; and it's permanent.

Because of that last characteristic - the permanency - it's especially important to do your homework before signing on.

Cearley says the first step is to talk with your family and thoroughly consider the pros and cons.

"It's not for everyone and it requires a lot of contemplation to make sure your goals are being met," he says.

The pros for most people are preserving the land and a reduction in income and/or estate taxes. According to TALT, the value of the easement as a charitable gift is determined by a qualified appraiser who values the property before and after the easement restrictions are applied. The difference between these 2 values is the amount of the charitable gift for tax purposes. This gift amount is treated as a regular charitable contribution.

Additionally, conservation easements will typically result in a reduction of the property value for estate and gift purposes. This can ease the financial burden of passing the property on to heirs. Conservation easements are a significant and useful estate-planning tool. The amount of value reduction is unique to each property, but is generally the difference between its subdivision development value and its agricultural value.

Three types of easements

Cearley explains there are 3 types of easements: One is donated, another is sold and the third, a bargain sale, is a combination of the first 2 types.

"Depending on what your financial needs are, you may want to gravitate towards one of those or the other. You may want to sell it to make a little money or donate it to get a tax break," he says.

Cearley explains the reason the tax break exists is that the legislature has determined the public gains a benefit from land being kept in agriculture production.

"We all have to eat. We all need to wear clothes. We all need recreation. We all appreciate wildlife," he says. "Those are the benefits of conserving the land. And some people just want to make sure that is provided in the future.

"There may be a financial benefit to them one way or the other, but I think in most cases, that is not the primary motivation for people. It's a heartfelt thing. They have a love for the land and want to see it protected."

One of the downside factors for most who consider a conservation easement is the cost. Cearley explains that the legal fees and appraisal fees (including one appraisal before placing an easement on it and one after the easement is in place), and other expenses associated with creating and filing the easement, can be quite costly.

"The public gets a benefit from the conservation of open space, increased water quality and water volume, scenic views and so forth," Cearley says. "And those benefits are being accepted as an offset for tax not collected. I think it is important people understand that. The tax deduction that is available or the value of the charitable contribution is the difference between the appraised value of land before the easement and after the easement. It has to be justified because you're getting a tax benefit for it or you're getting a credit for a charitable deduction, and the public benefits provided by a conservation easement do just that."

Who holds the conservation easement?

Once a family decides to put their land in a conservation easement, the next step is to find a group to hold that easement. Cearley says there are roughly 30 in the state of Texas. TALT is the only one that is statewide and concentrates on private, working agricultural land.

"Other conservation easement holders have different motivations. Some of them may be more in line with your philosophy than Texas Agricultural Land Trust," he explains. "You just need to decide which one would be your best partner because, in a sense, this holder is going to be a partner with you. In the case of Texas Agricultural Land Trust, we're not a partner in production or management, but we're serving the function to protect that conservation easement through the years."

Next, or even simultaneously, contact a financial planner and an attorney who are familiar with conservation easements.

The holder, along with the legal and financial advisers, will guide the landowner through the rest of the process.

"We encourage you to have your trusted people right there by your side the whole time," Cearley says. "This is a negotiated agreement - not a 'take it or leave it' situation - and we understand it's a big decision to make. When you enter into a permanent agreement, you want to make sure it's right. That it's something you are going to like next year and you're still going to like 20 years from now."

This series continues in the April issue, as we dig deeper into why a landowner may need or want a conservation easement.

4 Must-knows about a Conservation Easement

Voluntary

Exercise of the owner's private property rights

Negotiated document

Permanent