Land Preservation
HOW CAN THE LENOX LAND TRUST ASSIST LANDOWNERS
IN PRESERVING THEIR LANDS?
I. DONATING LAND TO A LAND TRUST FOR CONSERVATION PURPOSES
This
is a straightforward method of permanent
land conservation.
The landowner gives a parcel of land to
a conservation organization, thereby transferring
ownership
and management responsibilities and the
burden
of property taxes.
The landowner is not paid any money for this gift.
The gift provides maximum income tax and/or estate tax benefits and avoids capital gains taxes.
The Land Trust may ask the owner to give it an amount of money in addition to the gift of the land which the Land Trust can use over time to manage the land and maintain it. Sometimes that money is given by someone other than the landowner.
What and when can a Landowner Give?
A Landowner can give land during the owner's lifetime or upon the owner's death as provided for in a will. It is now possible for heirs and executors to make post-death gifts of land and of restrictions on land, even though they are not provided for in a will. The decision must be made within 9 months of the owner's death. Such gifts are deductible from the Landowner's estate tax.
A Landowner can give the entire property, a portion of the property, or an undivided interest in a parcel. One might give an undivided interest at the rate of 10% a year: each year the Landowner will own a lesser interest in the land, and the conservation organization will own a greater interest until the gift is complete.
A Landowner can keep a life estate in the property and transfer the remainder interest to the land trust. The life estate can be for the owner and for the owner's children, if desired.
What is the amount of the Landowner's income tax deduction?
In principle, the full fair market value of the parcel of land which is donated is tax deductible as a charitable contribution from one's federal income taxes. Massachusetts does not currently have a charitable contribution deduction.
Usually there is a 30% of income limitation on charitable contributions in any one year, but you may spread the deduction over six years.
If the Landowner retains a life estate or other rights in the property, the income tax deduction will be less than 100%. Sometimes if only a portion of one's property is given, the remaining property will have added value because it is next to conserved land. That will lessen the value of the gift fox tax purposes.
How does a Landowner know that the Land Trust will manage the land well?
It is possible to give the land to the Land Trust and at the same time put a conservation restriction on it to be held by another conservation organization. That sets up a permanent watch to be sure the land is maintained as the owner would have wanted.
What
are the disadvantages of making such a gift?
The Landowner no longer owns
or controls the property and
can't
pass it on to children or
other heirs,
and the gift is permanent
and not subject to a change of mind
or heart.
What are the advantages of making such a gift?
A Landowner has preserved the land for the common good and knows that it will be free from development or change forever. For instance, if there are rare and endangered species on the land, they will be permanently protected. Since a Landowner cannot know that heirs or other subsequent owners will keep the land in its natural state, such a gift protects land permanently when it might otherwise not be protected. There are tax advantages—as outlined above—both income tax benefits and estate tax benefits. The Landowner has transferred the responsibilities for management of the land to the Land Trust.
II. CONSERVATION RESTRICTIONS
What is a Conservation Restriction?
A conservation restriction is a legal agreement between a landowner and a conservation organization that permanently or for a stated period limits specified uses and development of the property to protect its natural and scenic features.
The document which contains the agreement is recorded in the appropriate Registry of Deeds and conveys to the conservation organization the right to go onto the land to monitor the property and enforce the terms of the restriction. the landowner continues to own the restricted land and can sell it, transfer it to heirs by will, or give it to a charitable organization.
Because the conservation restriction is usually permanent, it is important that the landowner and the conservation organization define clearly what uses are permitted and what uses are not permitted and the boundaries of the property covered by the restriction. A conservation restriction usually forever prohibits development of the property. Sometimes one or more building lots are exempted from the terms of the restriction so that family members will be able to build houses for themselves in the future. For a landowner to qualify for tax benefits, the conservation organization holding the restriction must be a qualified organization, mostly commonly one qualifying as a “"501c3" charitable organization. Or it can be a governmental body.
Commonly, uses like farming and timber harvesting may be permitted uses on the restricted land. Or the restriction may specify that the land be left entirely in its natural state.
What is the authority for placing a conservation restriction on land in Massachusetts?
For some years, Massachusetts has had a general law in place which provides for several kinds of permanent restrictions on land: agricultural preservation restrictions, historic preservation restrictions, watershed preservation restrictions and conservation restrictions—which may include scenic easements. The part of the general laws governing these restrictions is MGL Chapter 184, Sections 31 through 33.
To qualify as a permanent enforceable conservation restriction, the legal agreement between the landowner and the conservation organization must be approved by the Secretary of Environmental Affairs. In the case of private restrictions, the Selectmen in the town in which the land is located must also assent to the imposition of the restriction. Municipal approval is not required if the conservation organization is a state or federal agency. The Secretary's review of the restriction is accomplished through the Department of Conservation Services, and passing muster requires that the restriction serve a conservation purpose and yield significant public benefit.
It is not necessary that there be public access to the restricted land, although a state or federal agency will most usually provide for public access, and providing public access is often a good indication of public benefit. In the case of restricted lands where there are rare and endangered species, the lack of public access on private land may be of more public benefit than public access might provide.
What is a “"Conservation Purpose"?
The Internal Revenue Service has set standards for defining a conservation purpose, and the Massachusetts Division of Conservation Services uses the same guidelines:
A Conservation Purpose is any one of the following:
- The preservation of land areas for outdoor recreation by, or the education of, the general public.
- The preservation of a relatively natural habitat for fish, wildlife, or plants, or similar ecosystems.
- The preservation of open space (including farmland and forest land) where such preservation is for the scenic enjoyment of the general public, or is pursuant to a clearly delineated federal, state, or local conservation policy, and will yield a significant public benefit.
- The preservation of a historically important land area or a certified historic structure.
It is necessary to meet one of these tests to have the Secretary sign off on the conservation restriction and also in order for it to qualify for a tax deduction for the landowner.
What are the tax benefits of a conservation restriction?
The tax benefits are similar to those for a donated piece of land as explained above, except that because the landowner retains the underlying ownership of the land, they are proportionately less.
A qualified appraiser establishes the fair market value of the property before the imposition of the conservation restriction and the fair market value of the property after the imposition of the restriction. The value of the gift--for which a landowner may take income and/or estate tax deductions—is the difference. The development rights which have been surrendered permanently make a big difference is the subsequent value of the property. That difference is also reflected in the local assessment for real estate taxes which is proportionately lower, and that is a permanent difference.
As in the case of donated land, the remaining unrestricted land may take on a higher value because it is now next to land which is forever preserved and cannot be developed, and that may reduce the amount of the tax deduction.
III. SELLING LAND OR RESTRICTIONS FOR CONSERVATION PURPOSES
If a landowner can't afford to give parcels of land outright for conservation or permanently restrict the land, there are ways for a conservation organization to assist in reaching its aims and allowing the landowner to receive some money in exchange.
What is a "bargain" sale?”
The landowner sells the land or the restriction to the conservation organization at less than fair market value. The landowner realizes some money, and makes it more likely that the conservation organization can find the money to buy the land or the restriction than as if it had to pay or raise the full price. The landowner can take the tax deduction on the difference between the fair market value and the amount of money he receives. Careful appraisal work is necessary in the case of a bargain sale.
How about a Right of First Refusal?
A landowner can give or sell to a conservation organization a written agreement that in case the landowner decides to sell the property in question, the conservation organization will have a right to match the price the landowner is offered. (The rights of first refusal that a town acquires when, for instance, a landowner converts land with a forest lien on it to developable property are similar in nature.) A right of first refusal is significant when the conservation organization believes that the property is not going to be developed as long as the present landowner owns it, and the organization lacks the money to buy it at the present time or feels there are higher priorities for the use of the money it does have.
How can an Option to Purchase help?
Sometimes it is possible that a state or federal agency is interested in purchasing the property in question or putting a conservation restriction on it. But state and federal agencies have a hard time moving quickly because of the their bureaucratic nature. If a conservation organization can, usually without spending a lot of money, get the landowner to sign an option to purchase the property, even though the conservation organization doesn't see a way to come up with the purchase price, it may be able to protect the land until the state or federal agency or a private donor can provide the funds to take an assignment of the option and purchase the land or the conservation restriction. If the money does not materialize, there will be some loss to the conservation organization, but if the deal goes through, the benefits may be very great indeed.
IV. ANOTHER OPTION
What if a Landowner wants to restrict land but not permanently?
It is always possible for a landowner to put a deed restriction on land, and its life can be as much as thirty years with a possibility of renewal at the expiration of that period for subsequent twenty year periods, if both parties agree at that time. This kind of restriction is often contained in the deed of conveyance to a buyer and restricts the buyer from certain kinds of activities during its term. This kind of restriction is usually not eligible for tax benefits, but it may have positive conservation benefits, and may preserve land until someone in another generation may choose to preserve it permanently.
Note: This is a summary of a number of conservation options. There are many others—and combinations of options—which a land trust can use to achieve its purposes and those of the landowners it works with. For lots of the information in this memorandum, I am heavily indebted to The Trustees of Reservations and its publication called Land Preservation Options: A Guide For Massachusetts Landowners. Copies are available from The Trustees of Reservations and would be useful for us to provide to landowners with whom we work. Another useful publication is “Thy Neighbor's Land” published by the Berkshire Natural Resources Council, Inc. a few years ago. Sally Bell