1.0 Law & Legal CLE Credit – A/V Approval #1083044 Recording Date - October 3, 2018 Recording Availability – October 19, 2018

Meeting Location Date Time Topic

King County Bar Association 1200 Fifth Avenue - Suite 700

Seattle, WA

Wednesday, October 3, 2018

12:00 PM to 1:15 PM

Land Conservation as Part of an Estate Plan

AGENDA 12:00 PM Introduction 12:10 PM Presentation: ‘Land Conservation as Part of an Estate Plan’, by Adam Draper, Forterra 1:15 PM Adjourn

SPEAKER BIOGRAPHY Adam Draper, Forterra - Adam Draper is Forterra's Corporate Counsel and has served as in-house counsel for over seven years. For three of those years he also served as Acting Vice President of Conservation. He has over thirteen years of attorney experience including nine-plus years as counsel at two land conservation organizations, having previously served as Director of Land Protection at the Northern Virginia Conservation Trust. Adam specializes in all manner of fee and conservation easement transactions as well as contract drafting, conservation strategy, and organizational governance.

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Land For Good: Conservation, Sustainabilty & Community

INSERT PIC

Adam Draper

Adam Draper, Esq.

Tacoma

Prime Farmland?

Puget Sound

TacomaPuget Sound

A Legacy in Land• Fee

–Sale–Bargain Sale–Gift–Gift w/ Reservation of Life Estate

• Conservation Easement• Transfer of Development Rights

Funding Opportunities

• Local: Conservation Futures, TDR

• State: WWRP, SRFB, RHOS, FbD

• Federal: LWCF, NRCS, Section 6, Forest Legacy

Conservation Easement

Agreement to permanently restrict uses of a property in order to protect conservation values.

Key Features• State-enabled • Negative• In-Gross• Perpetual• Voluntary • Limits Development/Specified Other Uses• Landowner keeps all other rights• Tax Incentives

A Popular Tool

Vital Deed Provisions• Conservation Values/Purpose• Rights Conveyed to Grantee • Uses Consistent with Purpose• Amendment/Mortgage Subordination• Stewardship and Enforcement• Extinguishment and Condemnation

Tax Benefits*Adam Draper is NOT a tax expert, these are mere summaries

• Federal Tax Benefits

– 26 U.S.C. 170(h): deduction for “qualified conservation contribution” – enhanced incentive is now PERMANENT!

– Delivers extra tax deduction to all CE donors, but substantial incentive for farmers and ranchers

– Estate Tax: reduction in value plus 2031(c) exclusion of up to 40% of value of easement-encumbered land

– Value currently capped at $500,000

• Property Tax Relief

IRS Red Flags• Conservation Values • Amendments/Lack of Perpetuity

– Mortgage/Lien Subordination

• Valuation• Condemnation• “Syndicate” Deals

Transfer of Development Rights

TDR: SNOQUALMIE TREE FARM

AND RECREATION:I-90 CORRIDOR

BLETHEN & TITICAEDCREEK OLD GROWTH

JACOBS POINTANDERSON ISLAND

WAYNE GOLF COURSEBOTHELL

DEDICATIONS

MATLOCK FARM

KEEP THIS PLACE WE LIVEA PLACE WE

LOVE.

ResourcesForterra: www.forterra.org; (206) 292-5907Washington Association of Land Trusts: www.walandtrusts.orgLand Trust Alliance: www.lta.orgFederal Tax Code: http://www.law.cornell.edu/uscode/text/26/170#f_8National CE Database: http://www.conservationeasement.us/

Adam Draper: adamosudraper@gmail.org; (206) 491-2077

10/1/2018 Conservation Options | Land Trust Alliance

https://www.landtrustalliance.org/what-you-can-do/conserve-your-land/conservation-options 1/2

Conservation OptionsThe most common way to protect land is by “conservation easement.” A conservation easement (also

known as a conservation restriction or conservation agreement) is a voluntary, legal agreement between a

landowner and a land trust or government agency that permanently limits uses of the land in order to

protect its conservation values. It allows landowners to continue to own and use their land, and they can

also sell it or pass it on to heirs. The limits of the conservation easement ‘runs with the land,’ meaning that

even if the land is inherited or sold the restrictions stay in place.

Considerations When Deciding Whether to Use Fee Ownership or aConservation Easement to Protect a Property

Factors Favorable to Fee Ownership:

Property contains very sensitive natural resources

Public use is a signi�cant conservation objective

Resources on the property require intensive management

Surrounding lands are owned in fee by the land trust or other conservation organization or agency

Factors Favorable to Conservation Easements:

Conservation objectives include productive use

Private ownership is compatible with the conservation objectives

The land trust has the capability and �nances to monitor and enforce the easement

Restrictions that protect the resource

A conservation easement is just one of many options. You may be also donate or sell property, donate or

sell development rights, or do a bargain sale.

Resale of Land

If you need to sell your land but don’t want to see it destroyed by development, a land trust can help. Prior

to the sale, you can work with your local land trust to place a conservation easement on the land before it

goes on the market. Some land trusts can also help identify potential buyers for conserved lands.

NOTE: Because you are selling or donating the development rights, you should expect to receive less

money for your land than if it were sold outright.

Donation of Land for Conservation

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© Copyright 2018 Land Trust Alliance

Donating land for conservation is one of the �nest legacies a person can leave to future generations. If you

choose to donate your land, your land trust can work with you to identify the best arrangement. The land

trust might retain ownership of the property as a permanent preserve or transfer the property to a

suitable owner, such as a government agency. In some cases, the land is sold to a private owner, subject to

a conservation easement held by the land trust. (Proceeds from such a sale could fund the land trust’s

long-term management of the conservation easement and/or help it to protect even more land.) The full

market value of land donated to a nonpro�t land trust is tax deductible as a charitable gift.

Trade lands

Trade lands are properties donated to a land trust that may or may not have signi�cant conservation

characteristics. They can be developed or not, and can be residential, industrial, or commercial. These

trade lands are donated to land trusts speci�cally to be sold (sometimes they are conserved with an

easement and then sold) with the proceeds going to the land trust.

The donation can be outright or devised through a will. Some land trusts may grant a retained life estate if

the property is a personal residence or farm. The proceeds from a trade land can also be used to fund a

charitable remainder trust, an irrevocable trust which pays income to one or more bene�ciaries — often,

the donor or the donor and the donor’s spouse — for life or for a term of up to 20 years. When the trust

ends, the remaining assets go to the land trust. Trade land donations often have tax bene�ts.

Bargain Sale

In a bargain sale, you sell your land to a land trust for less than its fair market value. This not only makes it

more affordable for the land trust, but offers several bene�ts to you: it provides cash, avoids some capital

gains tax, and may entitle you to a charitable income tax deduction based on the difference between the

land’s fair market value and its sale price.

Donation with a Lifetime Income

If you have land you would like to protect by donating it to a land trust, but you need to receive income

during your lifetime, consider a charitable gift annuity or a charitable remainder unitrust. Charitable gift

annuities and charitable remainder unitrusts are most useful for highly appreciated land, the sale of which

would incur high capital gains tax.

 

10/1/2018 Estate Tax Incentives for Land Conservation | Land Trust Alliance

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Estate Tax Incentives for Land Conservation

Keeping Land in the Family

For some families, one of the major advantages of donating a conservation easement is that it helps pass

land on to the next generation, by reducing estate taxes. Estate taxes can lead to the land being broken up

or sold off, even when families want to keep the land intact. Estate taxes can make it especially challenging

for families to hold on to working farm, ranch, and forest land.

Changes to the tax code that were made permanent in 2014  raised the threshold for estate taxes from $1

million to $5 million (indexed to in�ation). As of 2015, estates of $5.1 million or more are subject to estate

taxes of 40%. Farm and ranch estates are four times as likely as other estates to be subject to estate taxes,

putting some of the nation’s most productive agricultural land at heightened risk of subdivision and

development.

Estate tax incentives for land conservation give families the option to reduce their estate taxes by

protecting their land, which conveys public bene�t while easing the transition of land from one generation

to the next.    

How Conservation Easements Can Lower Estate Taxes

A conservation easement can reduce estate taxes in two ways:

1.  It reduces the value of the estate to be taxed. A conservation easement lowers the property value —

and, correspondingly, estate taxes. In some cases, a conservation easement may drop the value of the

estate below the threshold for estate taxes altogether.

2. Heirs can exclude 40% of the value of land under conservation easement from estate taxes. Section

2031(c) of the Internal Revenue Code provides an estate tax exclusion of up to 40% of the encumbered

value of land (but not improvements) protected by a “quali�ed conservation easement.” That exclusion

is capped at $500,000. The cap is lower if the easement reduced the land’s value by less than 30% at

the time it was donated. To qualify, the easement must serve one or more of the conservation purposes

recognized in Section 170(h) of the tax code. It must limit commercial recreational use to a minimum

and it cannot qualify soley for the purpose of historic preservation. Only members of the original

easement donor’s family, including spouses and descendants, can claim this exclusion.    

Conservation Decisions in Estate Planning

Families can bene�t from these estate tax advantages if the landowner donates an easement during life,

or by will, or if the heirs donate a posthumous easement. However, if the easement is donated by will or

posthumously, the family foregoes the opportunity for an income tax deduction.

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© Copyright 2018 Land Trust Alliance

Landowners should note that conservation easements must meet speci�c criteria to qualify for tax

bene�ts and that the tax implications of their decision will depend on their speci�c circumstances. Anyone

considering a conservation easement is advised to consult with independent, quali�ed �nancial and tax

advisors.

Improving Estate Tax Policy

The Alliance’s policy advocacy led to the creation of the �rst estate tax incentives for land conservation in

1997. The Alliance continues working to improve estate tax laws so that they provide opportunities for

conservation, rather than forcing families to sell their land, which often leads to development.

One major issue is that property values have gone up signi�cantly since 1997, making the $500,000 cap

on the estate tax exclusion increasingly inadequate. Farmland values, in particular, have more than

doubled. In many cases, the estate taxes on working farms, ranches, and forests come to many millions of

dollars — so a half-million dollar exclusion isn’t enough to keep the land in the family.

The Alliance supports policy solutions that include raising the cap or excluding working farm, ranch and

forest lands from estate taxes altogether, as long as they remain in the family and in production.

IRS Notice 2017-10: What Landowners Need to Know

The Internal Revenue Service recently took action against certain conservation donations. But

landowners contemplating donating land or a conservation easement should not fear IRS Notice 2017-

10 (the “Notice”), published Dec. 23, 2016. The IRS action is narrowly targeted to a handful of unusual

transactions and will not affect traditional donations. The Notice imposes no new requirements for

traditional easement donors and it will not result in more scrutiny of traditional donations.

What does the Notice mean for landowners?

The Notice has no effect on landowners making a traditional donation of land or a traditional donation

of a conservation easement. It imposes no new requirements for – and brings no more scrutiny to –

such donations. Audits of traditional conservation donations remain a possibility, but audits are no more

or less likely now.

So the Notice wouldn’t affect my donation?

Easement or land donations where the land is owned by an individual, a family or a family partnership

that hasn’t recently sold partnerships are not affected by the IRS action. Donations from most other

partnership entities, too, are unlikely to be subject to the Notice, because it so narrowly defines the

transactions it covers.

What are the unusual transactions covered by the Notice?

IRS Notice 2017-10 targets transactions in which very high tax deductions are deliberately and explicitly

“promoted” to potential investors. These transactions generally involve investors who otherwise have

little or no interest in the specific property.

Section 2 of the Notice explicitly lists the elements of a “listed transaction.” To qualify as being subject

to the Notice, potential investors in an LLC or other “pass-through” entity must receive promotional

materials that offer the possibility of a federal tax deduction for a conservation donation that is at least

2.5 times the investor’s investment. If the donation is then made, and the entity passes-through the

promised deduction to the investor who uses it on their federal tax return, the transaction qualifies as a

“listed transaction.”

A transaction that meets these requirements is what the IRS wants to review more closely. And rightly

so. An investor can only realize this sort of deduction if the value of the property has dramatically

increased in value between the time of their investment and the donation – which in many of these

transactions is only a year or so.

The Notice requires participants in these transactions to file a report to the IRS or face severe fines.

What does the Notice mean when it talks about “substantially similar” transactions?

When the IRS identifies a “listed transaction,” the listing applies not just to the exact transaction

described, but also to transactions that are “substantially similar.” A syndication of deductions from the

donation of land in fee, where investors are promised the potential of a deduction more than 2.5 times

their investment, is very likely to be seen by the IRS as “substantially similar” to the conservation

easement donation described in the Notice.

What’s the conclusion to all this?

An easement donor should always take great care to comply with all of the complex regulatory

requirements the IRS has set up for conservation donations. Using an experienced legal advisor and

working with an experienced land trust are always a good idea in any conservation donation. The new

Notice changes none of these best practices. The Notice is an IRS initiative carefully aimed at some very

unusual transactions and does not affect the vast majority of easement donors.

The Land Trust Alliance furnishes materials as tools to help land trusts with the understanding that the Land Trust Alliance is not rendering legal,

accounting or other professional counsel. This article is not tax or legal advice. If a land trust requires legal advice or other expert assistance,

seek the services of competent professionals. The Land Trust Alliance is solely responsible for this content. (Sources and additional resources

available upon request.)