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articles & updates | article
An Important Tax Incentive for Landowners
by Stephen J. Small, Esq.
Page 5: Back to Diamond Farm
Remember that Sue had donated an easement reserving three house lots and permitting continued agricultural activity, and that the value of Sue's estate, including Diamond Farm so restricted, was $1,000,000. Now it becomes a bit clearer why we needed to cover the other provisions of the new law in the preceding paragraph. If Sue does no further planning before her death, what her executor does will depend on when Sue dies and what the estate tax is that year, what the other tax code rules are at that time, and what Diamond Farm is worth when the decisions have to be made.
Of course, one possibility for the executor is to elect to exclude from the estate 40% of the value of the land subject to the conservation easement. Depending on what year this happens, this might result in no estate tax due!! Another option the family has is to agree to extinguish one or more of the reserved house lots as well as electing the exclusion; this would also result in a lower value. Certainly, by relying on one or more of the new tax provisions, with a conservation easement and with proper planning Diamond Farm can be protected and Diamond Farm will not have to be sold to pay the estate tax.
Planning Observations
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Land that falls outside the geographic limitations of new Section 2031(c) simply will not be eligible for the benefits of that section. However, continued urban sprawl will inevitably result in the addition of new Metropolitan Statistical Areas to the map, and that will mean greater coverage under Section 2031(c). |
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Every single conservation easement must now take into account the provisions of Section 2031(c) as part of the planning process. Retained development rights can be extinguished after the death of the landowner, but more than "de minimis" retained commercial recreational rights can disqualify the easement from Section 2031(c) eligibility. |
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Every single family lands planning situation must now take into account the provisions of Section 2031(c) as part of the planning process. Do the current owners want to gift the property to children over a period of years as part of the estate planning and succession planning process? Does the family want to remain eligible for the Section 2031(c) benefits? There is no "right" answer to these questions, but now we have an important additional planning tool in the landowner's toolbox. |
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Every recorded easement should be reviewed with Section 2031(c) eligibility in mind (to look for a prohibition on commercial recreational activities, for example) if the land is still owned by the same family that donated the easement. |
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One of the "costs" of the new Section 2031(c) benefit is that planning after death becomes much more complicated. Experienced appraisers will need to be available to give the family accurate valuation numbers (land value before and after the easement for purposes of the 30% test, the post-mortem election, and the value of retained development rights) in sufficient time for the family to make an informed judgment about what to do. In connection with the new post-mortem easement provision, a conservation easement that satisfies state law rules and has the agreement of all necessary parties must be successfully completed after the decedent's death. |
New Section 2031(c) is a very important incentive for land conservation. It will take some time to sort out all of the planning issues, and to answer some of the planning questions that have already come up, but landowners and their advisors and land trusts must begin to work with the new law. Saving important land and saving tax dollars is a tough combination to beat!
Note: Stephen Small has written two books on conservation easements and succession planning for family lands. The books are Preserving Family Lands: Book I and Preserving Family Lands: Book II.
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