Estate Planning: Protecting Family Land
LAND CAN BE VALUABLE TO US IN MANY WAYS. To an investor, the value of a parcel of land is in the profit to be made from its sale. To an owner of commercial property, the property's value is in the rents which can be collected for its use. But to some of us, the value of land is more deeply rooted: in family memories and commitments; in our cultural heritage tied to the land; in a clearing by a stream or a forest's rich solitude; in the integrity which our land has brought to our lives. There is thus a bond between people and land, a bond which can be passed on from generation to generation. However, the ownership of prime property as a family asset creates the need for careful and specialized estate planning.
Due to the dramatic increase in property values in recent years, a family of otherwise modest means may own land of considerable appraised value. Upon the death of the last surviving parent, the heirs may face the obligation to pay state and federal estate taxes without having the financial resources to meet that obligation. Their only recourse may be to sell all or part of the land which was left to them, despite their own desires and the expressed wishes of their parents. In short, the failure to plan for the future of valuable family land after death may grant control over that land to the taxing agencies of government. Fortunately, there are alternatives.
The Conservation Easement
The donation of a conservation easement to a Land Trust can reduce estate taxes by reducing the appraised value of land. If the appraised value is reduced sufficiently, estate tax obligations can be avoided altogether. Since most of the appraised value of land is in its potential for development; the donation of development rights to a land Trust leaves only the remaining value as taxable. Thus, the donation of a conservation easement can protect land in two ways.
First, it protects the conservation values of the land according to the specific restrictions contained in the conservation easement. And, second, it protects the integrity of the land from the threat of sale to satisfy estate taxes. Furthermore, this protection option can reduce income and property taxes for the parents while still living.
Since each conservation easement is individually written to address both the personal needs and the intentions of the donating landowner, land protected by a conservation easement can continue to be used by the donor's heirs as the family has been accustomed. A family farm, for example, can be used, in perpetuity, for the production of crops and the pasturing of livestock. And, every bit as important, it can provide a home for the future generations of the family which has cared so deeply about its farmland.
Gift of a Remainder Interest
It is also possible to donate land but continue to live on it by donating a "remainder interest" in the property and retaining a "reserved life estate". They way this works is that you donate the property during your lifetime, but reserve the right for yourself and any other named persons to continue to live on and use the property during their lifetimes (call a "reserved life estate"). You have donated to the land trust a "remainder interest" in the property. When you or those you've specified die or release their life interests, the land trust will have full title and control over the property.
The gift of a remainder interest to a Land Trust for conservation purposes enables landowners to satisfy their wishes to protect their land, reduce the estate tax obligation of heirs, and usually entitles the donor to an income tax deduction when the gift is made.. In some instances, the combined gift of a conservation easement with a remainder interest may best address the needs and desires of a landowner.
For More Information
These are two options available to landowners who wish to protect both their land and their estates. If these issues are important to you, gathering information is essential before you take any action. After informing yourself regarding the choices available to you, it is imperative that the formalization of your protection plans be guided by an attorney and a tax planner with experience in estate planning.
Other Donor Options
Even if you do not choose to donate a conservation easement or a remainder interest in land which you own, you still can help the North Shore Community Land Trust protect land for future generations. Please consider including in your will a donation to the North Shore Community Land Trust, whether that donation be in money, securities, stock, commercial real estate, or other valuables. Your gift will live forever in the lands which it helps to protect.