Strategies for Using Conservation Easements in Tax and Estate Planning


Conservation easements are extraordinary tax and estate planning tools for clients with recreational or agricultural land they wish to keep undeveloped over many years or generations. Easements result in major income and estate tax savings and sometimes property tax savings, thereby greatly increasing the affordability of undeveloped land. These savings improve flexibility and allow clients to respond to competing planning priorities. The financial implications of easements are complex, and clients committed to long-term ownership of recreational or agricultural land need help assessing this strategy.


This article originally appeared in the November/December 2002 issue of Probate & Property. Below is only an exerpt. 

Tax Savings
A landowner can generate tax savings by donating the easement to the qualified organization, creating charitable deductions from income tax (Code § 170(t) (3) (B) (iii)), and reducing the value of the taxable estate (Code § 2031(a)). The size of the deduction/reduction is equal to the value of the easement, which is equal to the amount that the appraised value of the land has been devalued by the restrictions imposed. Congress has provided for an additional exclusion of up to $500,000 for an estate that has given a conservation easement. Code § 2031(c). Property tax savings can also be achieved through reduction of the taxable value. Altogether, this package of tax and planning tools can create extraordinary opportunities for clients who intend to keep land undeveloped for the long term and who have the income or wealth to use tax deductions and reductions.

Actual tax savings vary widely depending on the location and status of the land and the tax situation of the owners. Estate-planning clients, however, will often be eligible for major tax savings. The biggest factors are:

  • the extent the land value is inflated by development potential;
  • the client’s ability to use Income tax deductions and estate tax protection; and
  • the type and extent of limitations the client Is willing to place on the land.

Donating “Development Value”
The value of open land located near cities is generally increased by its potential to be subdivided and developed. Clients who view the land as long-term recreational or agricultural land are not using this “development value.” A conservation easement allows a landowner to give away this unused value in exchange for tax savings. An easement on land within a city’s development envelope can achieve deduction/reductions from 50% to 90% of the value of the land. Rural land typically can generate deduction/reductions from 30% to 60%. Other types of restrictions usually do not contribute as much to the value of an easement.

Other Restrictions on Use
Besides development limitations, there are many other optional restrictions that a landowner-client can place in a conservation easement. In aggregate, the restrictions may have a significant effect on the client’s tax savings. They range from allowing public access to limits on the type and extent of agricultural timbering, or hunting activities. These restrictions depend a great deal on the individual client’s view of conservation and the qualified organization with whom he or she chooses to work. The full range of possible provisions is covered later in this article.

Ability to Use Deductions
This article will not cover all the issues that can affect a client’s ability to use income tax deductions and estate tax protection. These will be familiar to most practitioners. In short, income tax savings from conservation easements flow from their status as charitable gifts and all the rules of charitable giving and itemized deductions apply

Estate tax savings occur because the easement reduces the total value of an estate. The actual savings depend on the size of the estate and the value of the easement. All normal rules of appraisal and valuation apply with two additions. First, in the absence of sales of comparable easements, the easement value is equal to the appraisal of the land before it is restricted minus the appraisal after it is restricted, Treas. Reg. § 1.170A-14(h)(3)(I). Second, the amount of the special exclusion for estates involving conservation easements is capped at $500,000 in 2002 and is calculated by a formula related to the value of the easement and its proportion to the value of the land. Code § 2031(c).

The estate tax savings accrue whether the easement was created in the client’s lifetime or by action of a trustee empowered by the client’s will. Code § 2055(1). Conservation easements can be used with other estate planning tools, such as family limited partnerships to compound the deductions/reductions. The benefits of converting a “frozen asset” to cash liquidity can be multiplied by using tools like an irrevocable life insurance trust (ILIT).

When and How to Recommend a Conservation Easement
Clients with land that they intend to leave undeveloped should be made aware of conservation easements and be helped to evaluate the potential benefits. The land may be recreational property purchased by clients interested in hunting or as a country home. Or the property may be inherited land that has been in the family for generations. The land does not have to be spectacular or unique, nor does the client have to be an active conservationist. The land can be actively used for ranching or agricultural production. Moreover, the client does not need an independent commitment to leave the land undeveloped forever. That is why there are incentives.

Even when the commitment to keeping the land undeveloped is as little as ten years, it is worth evaluating the financial benefits of an easement, because the tax incentives can be great enough to make the client consider a permanent commitment. For example, a client who intends to keep land during his lifetime or until his children grow up, then treat it like any other investment, may find that the easement with its current tax incentives gives a better financial result than selling or developing the land later.

The result depends on the time value of money, and that can only be evaluated in the context of each individual situation. Clients who hold land undeveloped for a decade or more may lose a financial opportunity if they are not helped to evaluate the financial benefits of a conservation easement. The loss of opportunity is compounded for clients who are motivated by their desire to preserve the land. They lose a financial reward for doing what they were already emotionally inclined to do anyway.

Recapturing Stranded Capital
In many parts of the country, the price of undeveloped land has grown beyond its value as an agricultural investment. Most of this value represents the development potential of the land. Someone who is committed not to subdivide or develop has an asset that they are not using, and therefore a large amount of capital that is poorly invested. Most recreational and agricultural landowners think that this is simply the price one pays for owning land. But the income tax savings from conservation easements make it possible for landowners to regain some of the unused capital and continue to use that part of the land that really interests them.

A landowner may be able to recapture 10% to 30% of the value of the land through income tax savings alone, without giving up any of the intended uses. The money saved can be invested in higher-return investments, which even if conservative and taxable can eventually replace the value given away. And, of course, the landowner still owns the restricted land, which continues to appreciate and can be sold if the need arises, In many parts of the country; the market for restricted land is at least as strong as the market for other recreational or agricultural land.

If clients plan to leave the land to their heirs the tax incentives are even more valuable. The income tax savings can be used to fund an irrevocable life insurance trust. The life insurance policy can be structured to immediately replace the value given away, or more, with nontaxable death benefits payable to the heirs. Estate tax savings can dwarf the income tax savings, preserving much of the estate that would have been paid to the government. In families without sufficient liquid assets, the conservation easement can save the heirs from selling all or part of the land in order to pay taxes

Conservation easements must be presented to clients in the context of these financial concepts, unless they are motivated only by conservation and are simply looking for a means of preserving the land. Otherwise, they will tend to see an easement as unduly giving away value and imposing restrictions on future owners of the land. Once they understand the financial benefits for themselves, their heirs, and other future owners of the land, they may find themselves willing and excited about extending their commitment to leave the land undeveloped.

Client Profiles
The most likely profiles of clients who will be able to use the benefits of conservation easements are:

  • successful, urban owners of rural land,
  • cash-poor, land-rich families in agriculture, and
  • well-to-do families with “heritage” land.

These clients will either be highly motivated to keep the land undeveloped or they will be able to take advantage of the tax deduction/reductions that incentivize even moderate interest in long term conservation.

Best Case Scenario
The best case scenario for conservation easements will involve most if not all the following elements:

  • undeveloped land near an urban area that has high development value,
  • a wealthy landowner with sufficient income to use deductions over six years
  • a landowner highly motivated to preserve the land, and
  • land with unique natural or historical attributes that provides strong public benefit,

Introducing Clients to Conservation Easements
The recommended steps for introducing conservation easements to clients include:

  • Have a face-to-face meeting at which easements and their financial implications can be explained and questions thoroughly answered.
  • Ask for permission to develop a “rough estimate” of the client’s potential tax savings, assuming simple restrictions on future development and subdivision.
  • Consult on an hourly basis with an MAI-certified appraiser, experienced with conservation easements, to estimate the value of an easement on the client’s land.
  • Consult with the client’s accountants or financial advisors to estimate the size of charitable deductions the client would he able to use.
  • Present the rough estimate of the client’s tax savings along with other estate planning tools that can multiply the benefits, such as ILITs or family limited partnerships.
  • If the client is interested, explore desirable restrictions and compatible qualified organizations.

It is important to note that legal fees for tax advice on a conservation easement are deductible and that other costs may be added to the client’s basis in the property.


This article provides a basic introduction to conservation easements and strategies for using them. For case studies and examples of successful use of easements please feel free to contact the author at