Conservation Easements and the Family Farm


Volume 3 • Issue 8 • September 2013

The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business succession planning and charitable planning issues.  This month's issue will discuss conservation easements.  If you are interested in learning more about the ideas discussed in this newsletter please contact us for a free initial consultation.

One oft-stated goal of farmers and ranchers in planning for the succession of the farm or ranch is the desire to preserve the land for use as a farm or ranch for generations into the future.  The conservation easement is a tool that provides private landowners with the financial motivation and the legal framework to conserve their lands in perpetuity.  Additionally, conservation easements also provide important tax and estate planning opportunities.  While historically conservation easements were used to protect “wild” lands, increasingly conservation easements are used to protect the current economic use of the land, such as farming or ranching.

How it Works

Traditionally, an easement is a right of one to use the land of another for a specific purpose.  A common example would be a “right-of-way” for the owner of Property A to cross Property B to get to Property A.  The owner of Property B is going to be prohibited from interfering with the right of the owner of Property A to use the easement.   With a conservation easement, the landowner sells or donates the easement to a qualified organization subject to the terms of an Easement Agreement.  The Easement Agreement prevents the landowner from using his or her property in a manner that is contrary to the terms of the easement.  Usually development rights are extinguished and the qualified organization monitors compliance with the Easement Agreement.  The Easement Agreement should comply with the law of the state where the easement is granted as well as applicable federal law.

Tax Benefits

In addition to meeting the goal of preserving land for farm use, the creation of a conservation easement may result in significant tax benefits.

Income Taxes

One of the present benefits to the landowner for a donated easement is a charitable income tax deduction.  Subject to certain limitations, the “value” of the easement can be deducted from the donor’s income.  Many of the current disputes with the IRS center on the value of the easement.  To qualify for the federal charitable income tax deduction, the conservation easement must meet three key requirements:

  1. The donation must be a “qualified real property interest.”

  2. The donation must be given to a “qualified organization.”

  3. The donation must be “exclusively for conservation purposes.”

Qualified Real Property Interest

A qualified real property interest means “a restriction granted in perpetuity on the use which may be made of real property--including, an easement or other interest in real property that under state law has attributes similar to an easement (e.g., a restrictive covenant or equitable servitude).”

Qualified Organization

The qualified real property interest must be donated to a qualified organization.  To be a qualified organization, an organization must (i) be either a local, state, or federal governmental agency, or a public charity qualified under IRC § 501(c)(3); (ii) have a commitment to protect the conservation purposes of the donation; and (iii) have the resources to enforce the restrictions imposed by the easement.

Exclusively for Conservation Purposes

To be valid, the conservation easement must be exclusively for conservation purposes. The IRS allows four conservation purposes:

  1. The preservation of land areas for outdoor recreation or education of the general public;

  2. The protection of a relatively natural habitat of a fish, wildlife, or plant community or similar ecosystem;

  3. The preservation of certain open space (including farmland and forest land) areas; and

  4. The preservation of a historically important land area or a certified historic structure.

Estate Taxes

A conservation easement may also lower the value of the landowner’s taxable estate in two ways: (1) the easement reduces the value of the property, resulting in lower estate taxes; and (2) if certain requirements are met, the executor of the landowner’s estate may elect to exclude from the taxable estate up to 40 percent of the value of any land subject to a qualified conservation easement.  The maximum exclusion is limited to  $500,000.

Now what?

If a person is interested in donating land for a conservation easement the following steps should be followed:

  • Retain qualified advisors who can assist you in meeting the legal requirements.

  • Identify your goals and consider the impact of the potential restrictions.

  • Determine if any real property is eligible for an easement.

  • Determine whether you will sell the easement or donate the easement.

  • Determine if any qualified organization would be interested in the easement.


When available, conservation easements can be an excellent way to meet preservation goals as well as receive an estate and income tax benefit.  However, given the number of Tax Court cases in the last several years, it is clear that donations will draw IRS scrutiny.  Additionally, the easement is permanent and subsequent owners take the property subject to the easement. Therefore, serious thought should be given to the long term impact.  Qualified advisors can help you navigate the land mines and achieve your planning objectives.


Above: a Cache County, Utah tree farm protected by a conservation easement.

This Newsletter is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.