Conservation Easements
Due to urban encroachment, high estate taxes and the lucrative prices paid by developers, Texas is currently losing more arable land and wildlife habitat than any other state in the US. This is especially troubling given that many families in the state are selling the family farms and ranches only because they think they have no other options.
With urban encroachment comes increased land values, but this can be a two-edged sword. If you consider your family farm as simply a financial asset to be sold when prices are high, then this is great. If, however, you are like many families who view the family farm as a real estate heirloom to be protected, then those high land values can be devastating. Many families are selling out because they simply cannot afford the property taxes and estate taxes that come with the high land values.
Even with a comprehensive estate plan, many of these farms and ranches simply cannot get around the burdens that come with high land values combined with a relatively low production value. These are exactly the type of properties that conservation easements were created for.
What are they?
Conservation easements in Texas are guided by chapter 183 of the Texas Natural Resources Code and by Sec. 2031(c) of the Internal Revenue Code. A conservation easement gives a holder, usually a non-profit land trust, a non-possessory interest in the land that places certain restrictions on it. As every property is different, these conveyances are highly specific and individually tailored. These restrictions can be written to protect the land’s natural resources and beauty; protect and enhance the overall quality of the environment; and to preserve any cultural heritage that may be present on the property. They can also allow a family farm to continue functioning, including growing crops and building a house.
Because the future development of the land is restricted the value of the property will decline, which will help lower the property taxes on the land. The IRS also allows the conveyance to be made by the executor of the estate. This is very attractive for large family farms and ranches, as the conveyance allows the executor to reduce the amount of the estate by 40% of the value of the farm, sometimes saving tens of thousands of dollars in estate tax.
What’s the catch?
The catch is a big one, the transfer must be in perpetuity. This means that in order to be used for estate tax purposes the development rights of the farm or ranch will forever be restricted. For some this can be a deal breaker, it depends on how the property is viewed by the family.
Does that mean you can never sell the property? No. You can sell the property just as you normally would. The buyer will still be restricted from developing the property, but they can enjoy the use of it as a farm, ranch or simply as open land.
Want to know more?
Conservation easements are not for everyone. If you want to know more, there are several links on my resources page which you might find useful—just look under the Estate Planning Section.
And as always you can call me to set up a free consultation at (214) 519-8448.
