What is A Conservation Easement and How Does It Reduce Taxes?

​By Attorney Edward Jesson

For landowners who are concerned about taxes and/or their property being developed after they pass away, whether it be farmland, timberland, or mountain land, a conservation easement can be a valuable tool in estate planning. When properly utilized, conservation easements can protect land from future development, generate meaningful tax benefits at both the state and federal level, and help ease the transfer of property to the next generation.

Conservation easements are voluntary legal agreements between the landowner and a qualifying land trust or government entity that permanently limits certain uses of the land to protect its conservation value as undeveloped land. The landowner still owns the land, and can sell it, lease it, or pass it on to their heirs, but the easement runs with the land, meaning that the specific conservation restrictions bind all future owners, not just the person who granted it. Common restrictions may include limits on subdivision, commercial development, and mineral extraction, while still allowing things like agricultural use, timber management, and various recreational uses.

There can be several tax benefits to using conversation easements in your estate plan.  In North Carolina specifically, a conservation easement can provide a significant reduction in property taxes.  Someone who makes a qualified donation of a real property in North Carolina for an approved public benefit may be eligible for an income tax credit up to 25% of the fair market value of the land.

For high-net-worth individuals concerned about estate tax exposure, conservation easements can reduce a property’s fair market value due to the development restrictions, thus lowering their total net worth. Moreover, when land is donated to an eligible organization, it is usually treated as a charitable donation leading to significant tax benefits.

There are, of course, tradeoffs. Once recorded, a conservation easement cannot be undone by the current or future owner who has a change of heart about the best use of the land.  The specific terms of the easement are negotiated between the landowner and the holding organization, and the drafting stage is critical: a well-drafted easement, properly integrated into the broader estate plan, can protect both the land and the family for generations. On the other hand, a poorly drafted one can create restrictions no one intended and cause disputes among heirs who never agreed to them in the first place.

Anyone considering a conservation easement as part of their estate plan should work with an attorney early in the process, well in advance of signing anything restrictive, to make sure the easement's terms actually reflect the family's long-term goals and that the certification and credit application deadlines aren't missed. The attorneys at Jesson & Rains are ready to assist you in creating a conservation easement and all of your other estate planning needs.