By: Christopher B. Johnson
One tool for estate planners is the conservation easement, by which a landowner voluntarily restricts his or her land from being developed, restricts the amount of development or protects existing features, like a building facade with historic value.
This may be particularly useful for families with a valuable family retreat they'd like to pass on to future generations, but whose value might mean a large estate tax. With a conservation easement, the restrictions reduce the value so the estate tax is lowered, but the family members can still use the land as they always have and leave enough leeway for their future needs.
It can also be useful for owners of historic properties concerned about preserving them for the future--something like this may have saved one of my favorite properties, the Maslon house in Rancho Mirage, California, by architect Richard Neutra. The original owners' children had to sell after the owners' deaths, and raised the price above market to attract what they thought would be an appreciative owner. Indeed, the buyer swore he was truly in love with the house and would be a good steward, but less than 30 days later, he'd bulldozed the place to put up the Palm Springs equivalent of a McMansion. I guess "good steward" is open to interpretation. Actually, I've seen the same set of facts many times in my own practice--the buyers can promise all they want, but rarely are promises like keeping a house intact enforceable.
Had the original owners used a conservation easement, they may have been able to prevent the sale in the first place (as the need for cash to pay estate taxes would have been less or none at all) and also future destruction. Trust, but verify.
The easement may also qualify for other tax benefits, but it should be carefully considered, as it's a permanent restriction on the land.
To determine the easement value, the land would be appraised at its fair market value without the easement restrictions, and also at its fair market value with the easement restrictions.
On a different note, those living in historic properties in California should see whether they qualify under the Mills Act for lower property taxes--if so, they may see large reductions in their property tax.
Article courtesy of Christopher B. Johnson, Attorney at Law