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Law Offices of Ronald W. Rutz
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April 24, 2004: Open Space & Conservation Easements

Q: Over the years, I have been asked to write about conservation easements and open space issues but have not done so because this is such an emotionally charged, "politically correct" area. For the record, I am for open space and have helped put together a number of these arrangements, but due to some recent columns and stories containing distortions, misinformation, and downright myths, letÕs take a contrarianÕs legal look at conservation easements because folks will be harmed if recent public pronouncements go unexamined.

A: First, conservation easements are not a "take it or leave it" arrangement. If you encounter an individual representing a trust who maintains the contrary, then that person either does not know how to navigate in the real world of law and taxes, or is not being candid with you. Either way, anyone seeking to convey a conservation easement needs to pick another trust with which to work. Once a conservation easement has been set up, there is no going back. Therefore, without careful consideration, you could make a mistake with lasting implications for your loved ones. Donors have a right to be told their options and then negotiate with the trust accordingly.

Secondly, many of us view these conservation easements as an estate tax planning "fad" whose time has come and gone, although one of many remaining tools to be used if necessary. Just a few years ago when a person could only pass on $600,000 or less tax-free ($1,200,000 for a couple with tax wills) and with no limited liability company (LLC) available to use, many land trusts, planners, and organizations were claiming that conservation easements were the only way to keep the ranch or farm in the family and prevent estate taxes from destroying everything. Of course, that was wrong back then, when with just a little inexpensive, relatively non-intrusive planning in place, the farm or ranch could stay in the family tax-free and yet retain the flexibility to change as time, taxes, and the law changed.

Today that supposition is still wrong. The estate tax exemption is now $1,500,000 for an individual and with planning, $3,000,000 for a couple (in a year and a half the exemption will be $2,000,000 for an individual and $4,000,000 for a couple with tax wills). LLCs are also now used, which provide an additional discount of from ten percent (10%) to as much as forty percent (40%). (Yes, I have been involved in two estates where the IRS has gone along with more than a 30% discount in estate values for estate taxes.)

Thus, although available if needed, conservation easements are not an indispensable estate tool. Many land owners who did them are happy with them. Many other land owners (and heirs) are not happy and feel betrayed. But there is not much that can be done to help those folks now because the proper restrictions were not inserted or other more flexible estate techniques besides conservation easements were not put in place.

Most of us living in town have no idea how hard farmers and ranchers work for very little economic reward. The benefits usually only come about at retirement or death. But having stripped off the chance to sell appreciated assets, many agricultural families are now sadly mourning a greatly reduced legacy.

But wonÕt that mean cheaper land so young agriculturalists can get started? NOT!! Right now some acreage (and more in the future I predict) are turning into "white elephants". Key consideration in agriculture is annual operating costs regardless of the price of land. (I know several farm widows who have had a hard time finding tenants because a profit cannot be made farming.) Production cost often equals or exceeds receipts year after year after year. Thus, after years of losing money, any of us would be anxious to sell. But who is going to buy an asset for the privilege of losing money with little prospect of making money and getting less back than what was paid for it? Remember there are fixed expenses in owning real estate, such as taxes, assessments, repairs, weed control, soil erosion, etc.

Because I am out of space, but not out of significant points, I need to stop. Drive around this summer and I bet you will see vacant fields. Yes, some of them are lying fallow because of a lack of water. Others will be left unattended because no tenant could be found or is in CRP, where at least an effort will be made to keep the weeds down and stop the soil from blowing. But in the future, it may be possible to see empty fields because the owners just walked away.

But please, if a conservation easement makes sense and you do want to preserve open space, do so. But negotiate something that ends up doing more good than harm to the family. And stay away from trusts and people who seem to operate from the perspective of the end (preserving open space) justifying the means (distortions, misinformation and myths), or folks who do not tell the whole story when dealing with you.

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