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Title of Presentation Smaller Type. Conservation Easements 101. South Llano Watershed Alliance. The Basics. What Is A Conservation Easement (CE)? Voluntary legal agreement Signed by both landowner & land trust Filed at county courthouse TX Natural Resource Code Chapter 183.

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  1. Title of PresentationSmaller Type Conservation Easements 101 South Llano Watershed Alliance

  2. The Basics • What Is A Conservation Easement (CE)? • Voluntary legal agreement • Signed by both landowner & land trust • Filed at county courthouse • TX Natural Resource Code • Chapter 183

  3. 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

  4. The Basics How Does CE Work? Property ownership = owning a bundle of sticks Examples: - Mineral Rights - Water Rights - Hunting Rights - Access/Easement - Development Rights

  5. The Basics How CE Protects Land: • Permanently restrict intensity • of use or development of land • Give partner organization the • right to enforce restrictions

  6. The Basics How Landowners Are Protected: • All restrictions negotiated • Landowners continue agricultural use & recreational enjoyment • No public use required

  7. The Basics How CE Provides Financial Benefits: • Sale of CE = cash • Donation of CE = tax savings • Tax credit in some states

  8. The Basics How CE Can Be Sold: • Highly Motivated Buyer • Competitive Process • Negotiated Price • Cash or Trade

  9. Sale of Conservation Easement

  10. Dahlstrom Dilemma • 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

  11. Conservation Easement Terms • 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

  12. The Basics How CE Provides Tax Savings: • 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

  13. 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

  14. 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

  15. Profiles Of Donors/Sellers • Urban Owners of Rural Land • Land Rich, Cash Poor Families • Heritage Landowners • Developers marketing rural land

  16. 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) 50% Rule (Incentive) $150,000 MAD $250,000 MAD

  17. 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)

  18. 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

  19. Income Tax Savings 2012 – 2027 Under Incentive Legislation Value of CE (70% FMV) $5,000,000 Donor’s AGI $ 500,000 Max. Annual Deduction (50% AGI*) $ 250,000 Number Years to Use Deduction* 16 Tax Rate 35% Annual Tax Savings $ 87,500 TOTAL TAX SAVINGS $ 1,400,000

  20. Structuring The Deal Transaction Structure: • Donation • Sale • Combination • Phasing in CE over • multiple tax years • Contract or letter of intent • Donate CE after death

  21. Transaction Steps • 1. Establish conservation, • family & financial goals -- analyze outcomes • Select & negotiate with land trust • Create transaction team • 4. Complete all due diligence steps • Record CE, complete any cash gift • Implement & file post-gift state / federal requirements • 7. Monitoring & enforcement

  22. “Qualified Conservation Contribution” Tax Code Sec. 170(h) Requires: • A real property interest (CE) • Exclusively for conservation purposes • To a qualified organization – land trust

  23. 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

  24. Choose a “Qualified” Organization • Governmental agencies with • conservation missions or policies • Non-profit conservation • organizations

  25. Select a Land Trust • Partnership – values fit with landowner • Capacity to do the deal • Long term capacity • Landowner resource • Costs

  26. 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

  27. 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

  28. 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

  29. Possible Restrictions??? • Subdivision • Additional buildings • Commercial activities • Agriculture or grazing • Mineral development • Hunting and fishing • Habitat restoration • Road building • Motorized vehicles • Exotic species • Agency restrictions • 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

  30. Result After Easement • Landowner: • Create a Legacy • Save Tax • Still Use Land • Land Appreciating & Marketable • Unlocked Value • Land Trust: • Conserve • Habitat • Scenic Views • Open Spaces • Historic Sites • Outdoor Recreation • Low Cost

  31. 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 31

  32. “Conservation will ultimately boil down to rewarding the private landowner who conserves the public interest.” • Aldo Leopold Braun & Gresham, PLLC Cassie Gresham www.braungresham.com

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