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Landowner Considerations RegardingConservation Easements

Thomas R. Kelsey

713-968-2217

713-622-6158 (fax)

Tkelsey@blmlaw.netCopyright 2011 Thomas R. Kelsey

All Rights Reserved

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What is a conservation easement?

An agreement between alandowner and a landtrust

Permanently restricts thetype of development Created by Section

170(h) of IRC and

Chapter 183 TexasNatural Resources Code

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How does it work?

1,000 acre hill country ranch valued at $3,500/acre -$3,500,000

before and after value When subdivision potential eliminated value is $1,750/

acre $1,750,000 Charitable deduction -- $1,750,000 No restrictions against agricultural or recreational uses Reserved building sites maintain flexibility No public access State and Federal government have no regulatory

involvement

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Why would one consider a conservation easement?

Preserve conservationvalues

Prevent heirs orsubsequent third

parties fromranchetting familyfarm or ranch

Income tax benefits

Estate tax benefits

Gift tax benefitsAd valorem tax benefitsAll of the above

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What are the income tax benefits? Donor is entitled to charitable deduction for difference between

before and after value

Example of 1,000/acre ranch Need to hire an appraiser Before value -- $3,500,000 valued at $3,500/acre After value $1,750,000 valued at $1,750/acre Charitable deduction -- $1,750,000 Deduction up to 50% AGI for 2011 Holding period issues Deductible in year of donation plus 15 years Net tax benefit approximately $525/acre Proposed Senate and House bills to extend additional tax incentives

beyond 2011.

Audit rate issues

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What are estate tax benefits?

Reduced value from$3,500,000 to $1,750,000

Saves $612,500 estate taxesbased on 35% rate

35% tax rate and $5,000,000exemption for 2010-2012

Section 2031(c) IRC excludes40% of $500,000 or another

$200,000 of value from estatetax calculation

Lowers value for making gifts

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What are ad valorem tax benefits?

Most landowners qualify for ag-useor open space (wildlife

management)

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What are disadvantages of conservation

easements? Perpetual restrictions limit flexibility for landowners and

future generations

May restrict ability to finance requires subordination Elimination of development potential reduces market

value

Expense of completing easement fees from attorneys,accountants, appraiser and maybe surveyor

Stewardship fee mini endowment for land trust No surface mining for gravel, caliche, etc. May have issues with oil and gas production

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What are advantages?

Preserve conservation values for future generations family farm or ranch wont be ranchetted Tax advantages

Income tax deduction ($1,750,000 deduction inexample)

Estate and gift tax benefits Can continue existing uses for agricultural and

recreational purposes

Maintain limited residential use with reserved buildingsites No public access

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Land conservation issues 97% of Texas lands are privately owned Ownership in senior generation Unless planning used, lands will be sold to pay Uncle Sam and

most likely fragmented

Texas A&M Study on land fragmentation http://txlandtrends.org Texas megapolis from Beaumont to San Antonio to Dallas one

metro area

Losing our farms and ranches Loss of agricultural production Loss of wildlife habitat Loss of quail, doves, waterfowl, deer, etc. Decline of hunting as a family heritage

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What can be done to

preserve Texas Open lands? Almost 50 land trusts in Texas now protect acres with

444,309 acres of conservation easements in 160 sites andanother 184,653 acres owned in fee in 191 sites.

Katy Prairie Conservancy protects 18,000 acres Use of PDRs for land-rich cash-poor farmers and ranchers Katy Prairie example Farm Land Protection Policy Act

(USDA) 1,200 acres protected for $900,000 -- $750/acre

Texas Farm and Ranch Conservation Council formed byGovernor Perry

Bayou Land Conservancy operates in 13 county areaaround Harris County www.llt.org

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See website for Land Trust Alliance www.lta.org

See website for Texas Land Trust Council(TLTC) www.texaslandtrustcouncil.org

Call Texas Land Trust Council 512-236-0655or noni@texaslandtrustcouncil.org

TLTC web site Conservation Easements: AGuide for Texas Landowners

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Texas Nature Conservancy www.nature.org/texas

Katy Prairie Conservancy www.katyprairie.org

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Landowner Considerations Regarding

Conservation Easements

Thomas R. Kelsey

713-968-2217

713-622-6158 (fax)

Tkelsey@blmlaw.netCopyright 2011 Thomas R. Kelsey

All Rights Reserved