For families whose land has significant conservation value, as wildlife habitat or open space for example, donating a “conservation easement” offers an important tool for reducing estate taxes while preserving the character of the property for future generations. To give private landowners an incentive to voluntarily protect their property, the tax code offers valuable benefits to landowners who restrict the use of their land for a conservation purpose. For example, a landowner who places a conservation easement preventing development on property to maintain a scenic ocean view from an adjacent public highway could obtain significant income tax and estate tax benefits.

A conservation easement does not have to prohibit all personal or business uses of the land to qualify for tax benefits. Of course, any permitted use must be consistent with the conservation purpose of the easement. For example, a farmer who wishes to preserve the open space of his farm from encroaching development could donate a conservation easement that allowed him to continue his agricultural activities and build a house for each of his two children. However, the same farmer could not take a charitable deduction for an easement that protected riparian habitat but allowed the farmer to operate the farm in such a way that endangered the watershed. Because each piece of land and the possible conservation purposes are unique, an appropriate conservation easement on one property may not be suitable for another property. An experienced tax professional or the organization that will receive the easement can help a landowner develop an easement that is appropriate for both the land and the landowner.

Although the rules are complex enough to require professional advice, the idea of a conservation easement is really quite simple. Essentially, the landowner gives up certain rights to develop his property by donating those rights to a tax-exempt organization, typically a land trust, that agrees to see that the property will never be developed in violation of the easement. Since the development restrictions will last forever, the conservation easement usually reduces the market value of the land significantly. Consequently, the landowner gets an income tax deduction equal to the amount his property value has gone down. In addition, it is the land’s new lower value that is subject to estate tax. So, that tax bill goes down, too.

Check out A simple example illustrates how a conservation easement works in practice.