Conservation Easements

What is a Conservation Easement?
What are the Terms of a Conservation Easement?
What are the Legal Requirements?
What are the Steps in Donating a Conservation Easement?
What are the Potential Tax Benefits?
What Happens after the Easement is in Place?

What is a Conservation Easement?

A conservation easement is the legal glue that binds a property owner’s good intentions to the land in perpetuity. Donors of conservation easements retain title to their property. They grant conservation easements to protect their land from inappropriate development. A conservation easement runs with the title to the property regardless of changes in future ownership.

Granting an easement can yield tax savings. Think of land ownership as holding a bundle of rights that may include the right to subdivide, construct buildings, irrigate, harvest timber or restrict access. A landowner may sell or donate the whole bundle of rights or just one or two of those rights. To give away certain rights for the purpose of conservation, while retaining others, a property owner grants a deed of conservation easement to a land trust like the Montana Land Reliance (MLR). The donation of an easement may qualify as a charitable contribution. As such, it may reduce income, estate and gift taxes.

What are the Terms of a Conservation Easement?

A conservation easement spells out the uses that are consistent and inconsistent with the conservation values desired by the landowner. It is a voluntary agreement between a landowner and the Montana Land Reliance. No two conservation easements are alike. Each is tailored to the unique character of the land and the conservation desires of its owner(s).

The following are general examples of the types of uses that can be allowed by a conservation easement:

  • Continued agricultural and silvicultural use
  • Construction of buildings, fences, water improvements, etc., necessary for agriculture and compatible with conservation objectives
  • Sale, devise, gifting or other method of transferring parcels, subject to terms of the easement
  • Landowner control of access
  • Additional family and employee residences compatible with conservation objectives
  • Wildlife and fisheries protection, restoration and enhancement projects
  • Any and all uses not specifically prohibited

Types of uses that are generally restricted by a conservation easement include:

  • Subdivision for residential or commercial activities
  • Construction of non-agricultural buildings
  • Nonagricultural commercial activities
  • Dumping of non-compostable or toxic waste
  • Surface mining

A conservation easement assigns three “positive rights” to MLR:

  1. The right to preserve and protect the property according to mutually agreed upon terms.
  2. The right (with proper advance notification to the landowner) to enter the property to monitor activities (usually once a year).
  3. The right to “enjoin and restore,” which assures that the landowner’s desires, as spelled out in the easement, are enforceable.

The terms of the easement do not in any way negate or modify state or federal law. Specifically, a conservation easement cannot prevent condemnation.

What are the Legal Requirements?

Montana law authorizes the grant of conservation easements to qualified private organizations. It requires that the county planning authority review the easement and give non-binding advice about the easement’s effect on the county’s comprehensive plan, if one exists. Finally, the law requires that the deed of conservation easement be duly recorded.

Like all other types of easements, conservation easements are governed under Montana real property law, but federal tax law determines whether the donation of a conservation easement qualifies as a tax-deductible charitable gift. While parties interested in a conservation easement should consult an attorney or other professional with knowledge of the federal requirements, in general, the following major rules apply in order to receive a tax benefit:

  1. The conservation easement must be granted in perpetuity, meaning it is of perpetual duration, runs with the land and applies to all future owners, and takes priority over the rights of mortgage and/or contract-for-deed holders, who must agree to subordinate their rights to the easement.
  2. The easement must provide at least one of the following four conservation purposes:
    • Protection of relatively natural habitat for fish, wildlife, plants or similar ecosystems,
    • Preservation of open space (including farmland or forest land) that will yield a significant public benefit for the scenic enjoyment of the general public and/or pursuant to a clearly delineated government conservation policy,
    • Preservation of land areas for the education of or outdoor recreation by the general public, or
    • Preservation of an historically important land area or structure.
  3. The easement must be granted to a qualified organization, such as a nonprofit land trust or government entity.
  4. The easement must prohibit uses which would destroy the conservation values protected by the easement, including all surface mining. If the easement donor does not own all of the mineral rights, the possibility of surface mining must be determined “so remote as to be negligible.”
  5. Resource data documenting the condition of the property must be collected prior to donation of the easement.

What are the Steps in Donating a Conservation Easement?

Once the decision has been made to donate a conservation easement, the landowner and the Montana Land Reliance agree on the specific terms of the easement. MLR prepares a resource report to document the condition of the property at the time the easement is donated. If the landowner intends to apply for a charitable income tax deduction, he or she must secure a subordination of any mortgage or contract holders, procure an appraisal and assure that mineral right ownership does not inhibit the placement of the conservation easement.

What are the Potential Tax Benefits?

When a conservation easement meets federal requirements to qualify as a charitable gift, and the donor of the easement demonstrates the value of the easement by a detailed appraisal performed by a qualified appraiser, the donor may be entitled to a reduction in income and/or estate taxes.

Income Tax
The value of the easement as a charitable gift is determined by a qualified appraiser who values the property before and after the easement restrictions are applied. The difference between these two values is the amount of the charitable gift for tax purposes. This gift amount is treated as a charitable contribution. Landowners donating conservation easements may deduct the value of the easement against 50 percent of their adjusted gross income (AGI) for 15 years, in addition to the year in which the easement is completed. Agricultural landowners—landowners earning more than 50 percent of their income from agricultural operations—donating easements may deduct the value of the donated easement against 100 percent of their AGI for 15 years, in addition to the year in which the easement is completed.

There may also be benefits to corporate income taxes, depending on how property ownership is structured. Farm and ranch corporations may also be eligible for the 100 percent deduction available to agricultural landowners.

Estate and Gift Taxes
Conservation easements will ordinarily result in a reduction of the property value for estate and gift tax purposes. The amount in value reduction is unique to each property, and can ease the financial burden of passing the property on to heirs, making conservation easements are a significant and useful estate planning tool. An additional estate tax incentive for conservation easements can further reduce the taxable estate by up to $500,000.

Corporate Income Tax 
In the event that the property is a C-corporation, the easement gift may be deducted against 100 percent of the corporation’s annual net income before the year of donation with any unused balance limited to 100 percent of the annual net income each year for the next fifteen years.

What Happens after the Easement is in Place?

Once a conservation easement is signed, MLR and the landowner begin a working relationship to assure that the intended conservation becomes a reality. MLR is not in the day-to-day land management business. Landowners continue to make all of their property management decisions while the easement limits only the broad parameters of land use, such as subdivision, commercial development, construction and surface mining. Annual monitoring visits are conducted by MLR stewardship staff. These visits foster good communication with the landowner and an opportunity to answer questions or respond to concerns. In many ways the conservation easement is a working partnership for the land. Mutual respect and clear understanding of easement terms have helped avoid potential conflict. Over our history, this system has served landowners well. Only a few minor easement infractions have occurred, and they have been resolved by voluntary compliance.

Need More Information?

This page is intended to provide an overview of the conservation easement process. It is not intended to provide definitive legal or tax advice. If you need more specific information or would like to discuss a conservation easement donation, contact our office.