ESTATE TAX BENEFITS

Reduction of Taxes

Estate taxes may prevent a family from passing land easily from one generation to the next. When landowners die and leave land to their children, the heirs may find that the property has appreciated dramatically since it was purchased, making it difficult to pay inheritance and estate taxes. This may force heirs to sell all or part of the land to pay the estate tax.

The federal estate tax and state inheritance tax are based on the fair market value of a property at the time of a landowner’s death. Because conservation easements reduce the appraised fair market value of the land, an easement donated by a landowner prior to death, or by will, reduces the total value of the estate. While annual income tax deductions for such gifts are limited, as discussed, the reduction in federal and state estate taxes can provide significant additional tax savings.

Estate Tax Exclusion

Estates are entitled to exclude from taxation a portion of the estate net assets equal to a percentage of the value of a qualified conservation easement placed on the property by the decedent or his/her family. The maximum exclusion of $500,000 potentially represents substantial tax savings. The qualification for and calculation of this exclusion is dependent upon a number of intricate considerations which should be carefully reviewed by the landowners and their advisors.

Donating an Easement by Will

This option results in an estate tax benefit but not an income tax benefit. If the landowner intends to donate an easement by will, it is necessary during his/her lifetime to agree upon the terms of the easement with Willistown Conservation Trust. This collaborative planning ensures that the easement meets the conservation goals as well as the objectives of WCT. The proposed easement may be added as a codicil to the landowner’s will, with specific instructions to the executor to complete the easement in the event of the landowner’s death. The will can be amended later if family or financial circumstances change, or if the landowner grants the easement in his/her lifetime. This results in protected land and potentially lowered estate taxes.

Lifetime Gift Tax Benefits

The donation of a conservation easement reduces the appraised value of the land, and thus may reduce federal gift taxes associated with a gift of land to others during the donor’s lifetime.

PHOTO BY JENNIFER MATHES