This memo presents a brief summary of what type of land qualifies for a conservation easement and summarizes with an alternate form of preservation.

Overview. A conservation easement can be a useful tool, both for the individual wanting to preserve certain environmental uses of his or her property and in terms of producing a valuation reduction for the subject property for estate taxation purposes. Where individuals want to preserve their land for family members or others in a primarily undeveloped state, a conservation easement imposes restrictions on development of the subject property. Once such restrictions are imposed, the value of the land is lowered, together with the resultant estate taxes. This has the added benefit of increasing the likelihood that the subject property need not be sold to pay estate taxes. An income tax deduction is also available for qualified conservation contributions.

What is a Conservation Easement? A conservation easement is a grant of the right to impose and enforce restrictions on the use of land owned by the donor, transferred to a governmental unit or certain charitable organizations for “conservation purposes” in perpetuity. IRC § 170(h)(1). The Nature Conservancy is a prime example of such an organization, but there are numerous “land trusts” that may also serve as donees.

Conservation Purposes, Defined. The contribution must meet any one of four “conservation purposes”: (i) public recreation or education; (ii) protection of wildlife habitat; (iii) preservation of open space; or (iv) historic preservation. Each is summarized below.

(i) Public Recreation or Education. An easement may be granted for use by the general public for recreational or educational purposes. Federal regulations provide that an easement preserving land for public use as a nature or hiking trail, or a water area for boating or fishing, will qualify. (Treas. Reg. 1.170A-14(d)(2)).

(ii) Protection of Wildlife Habitat. An easement to protect fish, wildlife, or plant habitat will qualify only if the habitat is “significant.” Significant habitats and ecosystems include habitats for rare, endangered, or threatened species; natural areas that represent high quality examples of a terrestrial or aquatic community; and natural areas that are included in, or contribute to, the ecological viability of a state or federal park, preserve, or wilderness area. The land need not be untouched by human hands, but the fish, wildlife, or plants must exist there in a relatively natural state. (Treas. Reg. 1.170A-14(d)(3)).

(iii) Preservation of Open Space. To qualify for this easement, the use must be for the scenic enjoyment of the general public or pursuant to a clearly delineated governmental policy. (Treas. Reg. 1.170A-14(d)(4)). This is the most regulated category of conservation easement and one of the most useful. “Scenic enjoyment” is present if the development of the property would impair the scenic character of the local rural or urban landscape or would interfere with a scenic panorama that can be enjoyed from a park, nature preserve, road, water body, trail, or historic structure or land area utilized by the public. Whether such an area exists is determined by applying a “facts and circumstances” test that focuses on eight substantive factors, such as compatibility with other land in the area and the contrast and variety provided by the visual scene. Visual (rather than physical) access of the general public is required to satisfy the test. Examples of governmental policies include preservation of a wild and scenic river, preservation of farmland pursuant to a state program of flood control, or the protection or preservation of the scenic, ecological, or historic character of land that is contiguous to existing recreation or conservation sites. With either type of open space easement, a significant public benefit must be yielded.

(iv) Historic Preservation. Must be an important historic or archeological site meeting certain federal standards. (Treas. Reg. 1.170A-14(d)(5)).

Summary. A conservation easement may offer significant and multiple benefits. It can protect property from development while preserving some use of the property for your heirs; provide you with a present income tax deduction, and reduce the value of the property for estate taxation purposes. However, where estate tax deduction is unnecessary, a conservation easement created on death may be overkill. For clients who do not need the benefit of a reduction in estate taxation and who want to preserve the character of their land, making a gift of property, the receipt of which is made subject to the recipient following the client’s desires with respect to the use and sale of the property may be the most cost-effective method of preservation.