A short primer on conservation easements in Wisconsin

Listen to this article

You do not have to be “green” to be interested in conservation easements. More and more landowners are protecting their property with conservation easements in order to further the landowners’ conservation ethic or take advantage of tax breaks. Upwards of 100,000 acres are protected by conservation easements in Wisconsin and almost every county has at least one property protected. In Dane County alone, there are at least 78 conservation easements covering a total of 6,400 acres. If you practice real estate, tax or trust and estate law, you need to be familiar with conservation easements in order to adequately advise your clients on conservation, title and tax issues.

A conservation easement is a legal agreement between a landowner and the conservation easement holder, such as a land trust or government agency, that permanently limits the use of the land in order to protect its conservation values. While the terms of specific conservation easements vary, each conservation easement should identify the purpose of the easement, the duration of the easement, the prohibited uses of the property, the rights of the easement holder, the reserved rights of the landowner, whether access by the public is allowed, the process for enforcing the restrictions, and how the easement may be assigned or amended.

Conservation easements evolved from the common law of easements, real covenants and equitable servitudes. Under the common law, enforcement of conservation easements was problematic. To help overcome these problems and encourage the uniformity of conservation easements, Wisconsin adopted Wis. Stat. Sec. 700.40, the Uniform Conservation Easement Act. The act addresses the creation, acceptance, validity, conveyance, enforcement and duration of conservation easements.

Natural Beauty + Tax Benefits

Landowners may enter into conservation easements for a variety of conservation, financial and tax reasons. The conservation reason may be as simple as wanting to protect the shoreland or natural landscape that has given the landowner so much pleasure. The financial reason may be that the landowner wants to sell the conservation easement to a holder at full value, allowing the landowner to be paid for the development potential of the property without actually developing it. Another reason may be the potential tax benefits.

First, there may be federal income tax benefits available to a landowner who donates a conservation easement to a publicly-supported charity, such as a land trust or a governmental entity. Recently, legislation was passed that increased the federal income tax benefits to individuals and “qualified farmers or ranchers” who donate a conservation easement during 2006 or 2007. For example, an individual may be able to take a charitable contribution deduction for the fair market value of a conservation easement up to 50 percent of his or her adjusted gross income for a donation made in 2006 or 2007.

In addition, if the fair market value of the donated conservation easement is greater than 50 percent of his or her adjusted gross income for 2006 or 2007, the individual may carry forward the excess amount for up to 15 years. The applicable IRS and Treasury Regulations have specific requirements that must be fulfilled to take advantage of the deduction, including:

(1) the conservation easement must be donated with “detached and disinterested generosity”;

(2) the conservation easement must be granted in perpetuity;

(3) the grantee must be a qualified organization; and,

(4) the easement must be granted for conservation purposes and valued with a qualified appraisal.

Second, because the grant of a conservation easement will likely reduce the fair market value of the underlying property, the amount of property taxes owed by the landowner may also be reduced. This is because Wisconsin law requires a local assessor to consider the effect of a conservation easement when assessing the value of property.

Third, estate and gift tax deductions are allowed for testamentary or inter vivos donations of conservation easements. Additionally, a relatively new provision of the Internal Revenue Code allows the executor of the decedent’s estate to elect to exclude from the decedent’s gross estate a portion of the value of property that is subject to a qualified conservation easement.

Conclusion

As natural and scenic places become scarcer due to development pressure, conservation easements will likely become a more popular tool for conserving property and obtaining tax benefits. Accordingly, attorneys need to be prepared to advise clients about conservation easements.

Christopher Hughes is a partner with Stafford Rosenbaum LLP in Madison. His practice focuses on real estate, general municipal law, and corporate law and contract matters. He can be reached at chughes@ staffordlaw.com.

Johanna Allex is a partner with Christenson and Allex LLC in Fitchburg. Her practice focuses on estate planning, nonprofit law and small business planning. She can be reached at [email protected].