"Post-mortem" easement donation (easement donation after the death of the landowner). Prior to the new law, if a landowner died without having either donated an easement during lifetime or including an easement donation in his or her will, the estate tax was based on the full, unrestricted, fair market value of the land. The new law includes a very important provision that will allow executors and trustees to elect to donate a qualified conservation easement after the death of the landowner. This is a so-called "post-mortem" or "after-death" easement donation.
I believe this new opportunity to donate a post-mortem easement is terribly important and very poorly understood.
The legal rules on when and under what circumstances an executor or heirs can make such a donation can vary widely from state to state, and may require changes in some state laws under some circumstances. In some states, for example, title to real estate vests in the heirs as of the date of death, while in other states the executor of the estate may hold title. It is important to check with your advisors on this and any other state law issues concerning the post-mortem easement donation.
If state law issues can be satisfactorily addressed, here is the simplest possible example of how the post-mortem donation will work.
John owns land worth $2,000,000. He did not donate an easement during his lifetime and he did not include an easement in his will. He dies in 2003 and leaves the land to his children. The land is valued in his estate at $2,000,000. His executor and his children agree to donate a conservation easement; the easement reduces the value of his land to $1,000,000 and that $1,000,000 of value is subject to estate tax. In addition, his executor elects to take the Section 2031(c) exclusion; an additional 40% of the $1,000,000 land value is excluded from John's estate, with the result that $600,000 of land value is subject to estate tax. (Under these circumstances, even though the easement met the requirements of Section 170(h), the easement rules, apparently neither the estate nor the children will be able to take an income tax deduction for donating the easement.)
Commercial recreational activities. Here is another important post-mortem planning opportunity. Assume Mary dies owning land restricted by an easement that met the requirements of Section 170(h) but that the easement does not prohibit commercial recreational activity and therefore the estate is ineligible for the Section 2031(c) exclusion. If the executor can in fact make a post-mortem easement donation in order to qualify for Section 2031(c), it also appears that the executor can make a post-mortem easement amendment in order to eliminate any prohibited commercial recreational activity so as to be eligible for Section 2031(c).
A note of caution: The post-mortem easement donation and the post-mortem easement amendment are important. However, while these planning opportunities are useful additions to the planner's toolbox, a landowner or a family should not take the position that comprehensive planning during lifetime should be put off because of the availability of post-mortem planning opportunities. For one thing, the law is absolutely clear on the income tax and estate tax savings that are available when an easement is donated during lifetime. All the issues are not clear in the case of a post-mortem donation. In addition, using these post-mortem tools successfully means addressing a complex array of state law and other related questions and reaching agreement among all necessary parties within a relatively short period after the death of the decedent. It is certainly better to see to it that the proper planning is done during the lifetime of the landowner.
