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Why do people establish Land Preservation Agreements on their properties?
Some combination of:
- A love of the land; the satisfaction of knowing
that it will not be subdivided and developed
- The desire to leave a legacy for future generations
to remember and enjoy
- Income tax savings
- Estate tax savings
I do not want to give up control of my land;
how do land preservation agreements work?
We work with you to establish the terms of the agreement.
You continue to own and manage your land, enjoy its use, and have
complete control of the property within the limits of the land preservation agreement terms. To a considerable degree, you specify the permitted
uses and restrictions that will be written into your agreement.
For example, can I keep the right to have one or
more additional home site(s) on my property?
Yes. Although most land preservation agreements eliminate home sites,
it is not a requirement to do so. Some limited development may
be allowed.
What are the income tax advantages
of a land preservation agreement? Can you give an example of the
income tax savings?
You may receive a federal and state income tax deduction for the
difference in the value of the property before the agreement is
granted and its after-easement value (often the difference between
the current fair market value of the land and the fair market value
of the land with fewer allowed home sites).
Example: Land with four underlying home sites might be
worth $4 million. With three of the home sites eliminated, the
land might
appraise at $2.2 million, generating a $1.8 million charitable
donation. This $1.8 million income tax deduction can be used in
the year of the donation, and can be carried forward for an additional
fifteen years until fully utilized (under the current law which goes through 2009). The deduction is subject to limitations
based on the donor’s adjusted gross income.
What are the estate tax savings of a land preservation agreement?
Can
you give an example?
For 2004, estate taxes begin at 45% for amounts over $1,500,000
and rise to 48% at the $2 million level and above. (The $1,500,000
exclusion is scheduled to rise to $2,000,000 in 2006, to $3,500,000
in 2009, and revert to $1,000,000 in 2011). Thus under present
law, the effect of the Estate Tax is being reduced annually until
2010, in which year there is no estate tax. Then in 2011 the old
laws again become effective (exclusion of $1,000,000 and tax rates
from 37% to 55%). Although the timing may be a factor in the amount
of savings, if you place a land preservation agreement on your land the
land value can be reduced and thus your estate taxes can be lower.
A land preservation agreement can be a powerful tool to
enable land to be passed on within a family. With the very high
estate tax rates,
in many families that have considerable land holdings, some land
may need to be sold in order to raise cash to pay the estate
taxes. But if you place a land preservation agreement on your land, the
value
of the land can be reduced for estate tax purposes, perhaps reducing
the taxes to zero or to a level at which no land will need to
be sold in order to pay the taxes.
Example: Using the same $4 million land value from the
previous example, and other assets in the estate of $1 million,
the estate
taxes would be $1,660,000 (2004 calculations). If the owner had
a land preservation agreement on the property, its value would be $1.7
million (after deducting the value of the conservation easement
and also including the $500,000 exclusion for conservation easement
lands), lowering the estate taxes to $561,000. These figures
are for a single taxpayer. For a married couple with a bypass
trust,
the combined estate taxes would be $945,000 without the land preservation agreement, but lowered to $0 with the land preservation agreement. Certain
limitations apply. Of course, you should consult your tax advisor
regarding your own situation. What do you mean when you say the
land might have to be sold?
Although there are some exceptions for qualified “family
farms” and eligible “closely held businesses,” in
many cases the estate taxes must be paid within nine months regardless
of the composition of the assets in the estate. Many wealthy people,
especially people owning large amounts of land, have the bulk of
their assets in a form that makes the assets difficult to sell.
Example: Again using the same $4 million land value, if
there was no land preservation agreement, the estate taxes would be approximately
$1,665,000 (2004 calculations) for a single taxpayer or $945,000
for a married couple. Thus if there were not at least $1,665,000
(or $945,000) in available liquid assets, the heirs might be forced
to sell at least a portion of the land to raise the cash for the
estate taxes due.
Will a land preservation agreement reduce my property
taxes?
It may, depending upon how recently the property was purchased,
the purchase price, and the value of the land after the conservation
easement is placed. There may be an opportunity, especially for
recent buyers, to get a reduced assessment (and reduced taxes)
based on the diminished value of the land after the placing of
the land preservation agreement on the land.
Is a land preservation agreement
a permanent decision? Can I, my heirs, or future landowners overturn
my land preservation agreement restrictions?
It is a relatively permanent decision; neither you nor your heirs
can change it unless the land preservation agreement holder (e.g. The
Land Trust of Napa County) agrees. However, it is highly unlikely
that modifications would be made unless these changes would enhance
the land preservation agreement’s conservation values.
I know The
Land Trust has several properties on which members and others can
hike. Must my property be open to hikers and/or others?
No, the properties on which we allow hikers are open only in accordance
with donors’ wishes. The only required access on land preservation agreement properties is an annual monitoring visit by a staff member
or qualified Land Trust volunteer.
How do I begin setting up a
land preservation agreement?
First, we will work with you and your advisors, or we will help
you assemble a team of advisors. We will discuss with you the
restrictions you wish to include in your agreement. You will contract
for an
appraisal to determine the value of the land preservation agreement.
This will establish the amount of your income tax donation. The
final steps are drafting, signing, and recording the land preservation agreement.
We have gone through this process many times; we will work with
you and your team to meet your objectives and make the process
run smoothly.
After my agreement is recorded, what do I need to
do?
Nothing other than welcome an annual monitoring visit from a
representative of The Land Trust, follow the terms of your land preservation agreement,
and enjoy the wonderful legacy you have created.
What costs will I incur?
The Land Trust pays for the preparation of all the usual legal
documents (e.g., the land preservation agreement itself). You pay the
fees of your attorney and tax advisor to review these documents.
The cost can vary, but is typically around $2,000. You will also
pay for the cost of the appraisal, normally in the range of $2,000
to $5,000. The Land Trust pays recording and any other incidental
fees. You may also make a tax deductible contribution to The
Land Trust to defend your agreement from future legal challenges
should
they occur. This amount may be from $3,000 to $20,000 and is
based on the rights that you retain in your land preservation agreement.
This
contribution to our Land Preservation Agreement Defense Fund recognizes the obligation
of The Land Trust to defend your agreement forever. There is no
cost to you for the annual monitoring.
What do you mean by “defend”? I
thought you said the land preservation agreement was permanent?
Very occasionally,
a landowner (usually not the owner who originally donated the land preservation agreement) may attempt to challenge the
agreement's restrictions. These challenges are virtually never successful,
but they must be defended, and the defenses may be costly to
The Land Trust.
Who else in the Napa community
has made land preservation agreement donations to The Land Trust
of Napa County?
You are certainly not alone in your desire to protect special lands.
There are over three million acres of land in the U.S. covered
by land preservation agreements. Locally, The Land Trust of Napa County
has placed land preservation agreements on over 19,000 acres in 67 transactions.
Approximately half of the land under these land preservation agreements
is agricultural and about half is forever wild land.
For more information:
Contact Executive Director John
Hoffnagle or Land Protection Coordinator Elizabeth Wroblicka at (707)
252-3270.
updated 7/08
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