Estate Tax Planning
Conservation Easements - Estate Tax Planning Overview
In addition to income tax benefits, conservation easements can be effectively used to both reduce estate taxes and enforce the objectives of the grantor on the future use of the land. Easements are unique in their capacity to reduce the estate tax burden on an important asset without (in many cases) significantly affecting the current use of the land or its utility to the owner’s family.
The Taxpayer Relief Act of 1997 provided for two distinct estate tax benefits from the donation of conservation easements. The first allows the reduction in value of property, which is then further taken into account in valuing property included in the estate so that estate tax is paid on a lower valuation.
The second benefit enacted as part of this act, provides additional estate tax benefit for the beneficiaries in the form of an “exclusion” of a portion of the value of the land encumbered with a conservation easement. Depending on the magnitude of the easement’s value as compared to market value, beneficiaries may deduct up to 40% of the remaining value of land subject to a permanent conservation easement.
Through the easement process, by defining the activities permitted following the placement of easement restrictions on a property, the owner can establish permanent guidelines on the allowed use of that property in perpetuity.
Some of these economic benefits may also be realized post-mortem by the beneficiaries through the placement of an easement on the bequeathed property. The combination of these benefits can result in a substantial reduction of the estate tax burden on this property. These benefits in combination can result in a net tax savings well in excess of the valuation of the donation. However, certain requirement and limits apply to these benefits and require the assistance of qualified tax professionals to evaluating and maximize the specific benefits available in a particular situation.
Contact Forever Forests to find out more about estate tax planning using conservation easements, or for a complimentary evaluation of the suitability of your property for a conservation-oriented strategy.