We’ve all heard the stories, and it may have happened to someone close to us. Untold numbers of family lands are needlessly carved up, or landowners feel compelled to liquidate their forests, just to pay inheritance taxes. This does sometimes happen, but not for the reasons the Bush administration would have us believe. The real tragedy is that in many cases, these landowners had real conservation options that could have prevented those unfortunate outcomes while addressing their personal needs.
Donations or bargain sales of conservation easements, which can even be done posthumously by one's heirs, can deeply reduce or even eliminate inheritance tax burdens for many families.
These deductions were once a prime motivator for gifts of easements to conservation organizations and had a very positive impact in conserving significant lands from liquidation cuts and development. Ironically, gifts of easements have fallen off dramatically in recent years as the estate tax threshold has risen to $1,000,000 in 2002 and $1,500,000 in 2004. That number will rise again to $2,000,000 next year and $3,500,000 in 2009, and will be repealed for only one year in 2010, making it far more likely that those easements that are put in place in this period are sold at or near full fair market vale rather than donated or sold at a reduced rate. Conservation organizations will not be able to afford to protect as many acres (their land acquisition pots are not increasing accordingly).
There has been a failure, broadly shared among the land trust community, estate planners, tax attorneys and other qualified conservation entities, to adequately conduct the effective outreach and communication work needed to bring these options to the attention of owners of family lands facing estate tax issues and provide the tools they need to take advantage of them.
For any with an interest in this subject, I recommend Preserving Family Lands, Book III, by Stephen J. Small, available on-line for $20 from the author. Attorney Small literally wrote the IRS tax code providing for deductions for gifts or bargain sales of conservation easements.
Land protection is a very personal issue, so here is an example from my family’s experience. My grandmother's property in Wareham, Massachusetts was purchased in 1947 for $11,000,which at that time was all my Grandfather could afford after he came back from the Pacific and started to rebuild his obstetrical practice. It is now worth over $2,500,000. The property tax on that property has been as high as $24,000, but I was able to work with my aunts, uncles and cousins to decide to enroll it in Massachusetts Chapter 61B, a tax abatement program for recreational open space.
In Massachusetts, Chapters 61, 61A and 61B are the only certain ways to reduce your property taxes. You might have an enlightened or lenient assessor who decides from time to time your permanent conservation restriction that does away with potential development entitles you to a tax reduction but there is nothing that absolutely compels them to do so under State law.
Because of the shore frontage and configuration of the residential structures, placing 24 acres in 61B knocked off about $6,000 a year from the property tax bill on my Grandmother's property. We placed ownership of the property in an irrevocable trust over ten years ago so the estate tax burden is now addressed, even if the property value exceeds the tax threshold in the year my Grandmother passes. But if we had not gone that route, a conservation restriction or easement over the property would in all likelihood have accomplished the same end while allowing her heirs to enjoy those uses and activities that we and the easement holder agree do not significantly impair the conservation purpose of the restriction. We know of no current or likely use that we might consider for the property that would not be possible under a conservation easement.
One often misunderstood aspect of Chapter 61B is that a property can qualify as Recreational Open Space for its condition alone and need not provide public access or recreational opportunities to be classified. The major land protection priority maps used by the Commonwealth of Massachusetts,BioMap and LivingWaters, collectively identify more than 1 million acres as ecologically significant and can be a real help in making the case for designation based on condition.
If you live in Massachusetts, have more than 5 acres of open space and want to enroll your land in 61B, the deadline each year is October 1. There are all sorts or rollback penalties if you withdraw from the program, and in some situations, the Town has 120 days to exercise an option to purchase to meet any bona fide offer for sales outside one's family where the property will not remain classified but will be otherwise used by the new owner. Other states have similar programs and vary widely in what they permit and the terms and conditions that apply. Read the fine print, as always.