1.0 law & legal cle credit a/v approval #1083044 · sell development rights, or do a bargain...
TRANSCRIPT
1.0 Law & Legal CLE Credit – A/V Approval #1083044 Recording Date - October 3, 2018 Recording Availability – October 19, 2018
Meeting Location Date Time Topic
King County Bar Association 1200 Fifth Avenue - Suite 700
Seattle, WA
Wednesday, October 3, 2018
12:00 PM to 1:15 PM
Land Conservation as Part of an Estate Plan
AGENDA 12:00 PM Introduction 12:10 PM Presentation: ‘Land Conservation as Part of an Estate Plan’, by Adam Draper, Forterra 1:15 PM Adjourn
SPEAKER BIOGRAPHY Adam Draper, Forterra - Adam Draper is Forterra's Corporate Counsel and has served as in-house counsel for over seven years. For three of those years he also served as Acting Vice President of Conservation. He has over thirteen years of attorney experience including nine-plus years as counsel at two land conservation organizations, having previously served as Director of Land Protection at the Northern Virginia Conservation Trust. Adam specializes in all manner of fee and conservation easement transactions as well as contract drafting, conservation strategy, and organizational governance.
HOW DO I EARN CREDIT FOR SELF-STUDY
OR AUDIO/VISUAL (A/V) COURSES?
For pre-recorded A/V (self-study) programs, although the sponsor should apply for
accreditation, lawyers need to report the credits earned for taking the course.
To add an approved course to your roster, follow the procedures below:
Go to the "mywsba" website at www.mywsba.org/.
Log in.
Click on the "Access MCLE" link in the "MCLE Info" box on your home profile
page.
Click on "Add Activity." Search to find the approved course in our system. (See
search suggestions on the screen.)
Adding a Recorded Course Select Recorded Course from the Add New Activity screen.
This will prompt you to search for the activity in case the activity has already been
accredited in the MCLE system.
You can search by Activity ID or by specific Activity Details. For the Activity Details
search, you can use keywords for the title, sponsor name and date.
After entering your search criteria and selecting Search at the bottom of the screen, a list
of possible activities will be provided.
You can select the correct one by clicking the Activity ID. This will take you to the
specific activity. Entered the date(s) on which you began and ending viewing this
recorded activity.
Then claim the correct credits for which you attended this activity in the Credits Claimed
fields and click the Submit button at the bottom of the page.
You will receive a confirmation message at the top of your screen stating, “The activity
has been added to your roster.
Land For Good: Conservation, Sustainabilty & Community
INSERT PIC
Adam Draper
Adam Draper, Esq.
Tacoma
Prime Farmland?
Puget Sound
TacomaPuget Sound
A Legacy in Land• Fee
–Sale–Bargain Sale–Gift–Gift w/ Reservation of Life Estate
• Conservation Easement• Transfer of Development Rights
Funding Opportunities
• Local: Conservation Futures, TDR
• State: WWRP, SRFB, RHOS, FbD
• Federal: LWCF, NRCS, Section 6, Forest Legacy
Conservation Easement
Agreement to permanently restrict uses of a property in order to protect conservation values.
Key Features• State-enabled • Negative• In-Gross• Perpetual• Voluntary • Limits Development/Specified Other Uses• Landowner keeps all other rights• Tax Incentives
A Popular Tool
Vital Deed Provisions• Conservation Values/Purpose• Rights Conveyed to Grantee • Uses Consistent with Purpose• Amendment/Mortgage Subordination• Stewardship and Enforcement• Extinguishment and Condemnation
Tax Benefits*Adam Draper is NOT a tax expert, these are mere summaries
• Federal Tax Benefits
– 26 U.S.C. 170(h): deduction for “qualified conservation contribution” – enhanced incentive is now PERMANENT!
– Delivers extra tax deduction to all CE donors, but substantial incentive for farmers and ranchers
– Estate Tax: reduction in value plus 2031(c) exclusion of up to 40% of value of easement-encumbered land
– Value currently capped at $500,000
• Property Tax Relief
IRS Red Flags• Conservation Values • Amendments/Lack of Perpetuity
– Mortgage/Lien Subordination
• Valuation• Condemnation• “Syndicate” Deals
Transfer of Development Rights
TDR: SNOQUALMIE TREE FARM
AND RECREATION:I-90 CORRIDOR
BLETHEN & TITICAEDCREEK OLD GROWTH
JACOBS POINTANDERSON ISLAND
WAYNE GOLF COURSEBOTHELL
DEDICATIONS
MATLOCK FARM
KEEP THIS PLACE WE LIVEA PLACE WE
LOVE.
ResourcesForterra: www.forterra.org; (206) 292-5907Washington Association of Land Trusts: www.walandtrusts.orgLand Trust Alliance: www.lta.orgFederal Tax Code: http://www.law.cornell.edu/uscode/text/26/170#f_8National CE Database: http://www.conservationeasement.us/
Adam Draper: [email protected]; (206) 491-2077
10/1/2018 Conservation Options | Land Trust Alliance
https://www.landtrustalliance.org/what-you-can-do/conserve-your-land/conservation-options 1/2
Conservation OptionsThe most common way to protect land is by “conservation easement.” A conservation easement (also
known as a conservation restriction or conservation agreement) is a voluntary, legal agreement between a
landowner and a land trust or government agency that permanently limits uses of the land in order to
protect its conservation values. It allows landowners to continue to own and use their land, and they can
also sell it or pass it on to heirs. The limits of the conservation easement ‘runs with the land,’ meaning that
even if the land is inherited or sold the restrictions stay in place.
Considerations When Deciding Whether to Use Fee Ownership or aConservation Easement to Protect a Property
Factors Favorable to Fee Ownership:
Property contains very sensitive natural resources
Public use is a signi�cant conservation objective
Resources on the property require intensive management
Surrounding lands are owned in fee by the land trust or other conservation organization or agency
Factors Favorable to Conservation Easements:
Conservation objectives include productive use
Private ownership is compatible with the conservation objectives
The land trust has the capability and �nances to monitor and enforce the easement
Restrictions that protect the resource
A conservation easement is just one of many options. You may be also donate or sell property, donate or
sell development rights, or do a bargain sale.
Resale of Land
If you need to sell your land but don’t want to see it destroyed by development, a land trust can help. Prior
to the sale, you can work with your local land trust to place a conservation easement on the land before it
goes on the market. Some land trusts can also help identify potential buyers for conserved lands.
NOTE: Because you are selling or donating the development rights, you should expect to receive less
money for your land than if it were sold outright.
Donation of Land for Conservation
10/1/2018 Conservation Options | Land Trust Alliance
https://www.landtrustalliance.org/what-you-can-do/conserve-your-land/conservation-options 2/2
© Copyright 2018 Land Trust Alliance
Donating land for conservation is one of the �nest legacies a person can leave to future generations. If you
choose to donate your land, your land trust can work with you to identify the best arrangement. The land
trust might retain ownership of the property as a permanent preserve or transfer the property to a
suitable owner, such as a government agency. In some cases, the land is sold to a private owner, subject to
a conservation easement held by the land trust. (Proceeds from such a sale could fund the land trust’s
long-term management of the conservation easement and/or help it to protect even more land.) The full
market value of land donated to a nonpro�t land trust is tax deductible as a charitable gift.
Trade lands
Trade lands are properties donated to a land trust that may or may not have signi�cant conservation
characteristics. They can be developed or not, and can be residential, industrial, or commercial. These
trade lands are donated to land trusts speci�cally to be sold (sometimes they are conserved with an
easement and then sold) with the proceeds going to the land trust.
The donation can be outright or devised through a will. Some land trusts may grant a retained life estate if
the property is a personal residence or farm. The proceeds from a trade land can also be used to fund a
charitable remainder trust, an irrevocable trust which pays income to one or more bene�ciaries — often,
the donor or the donor and the donor’s spouse — for life or for a term of up to 20 years. When the trust
ends, the remaining assets go to the land trust. Trade land donations often have tax bene�ts.
Bargain Sale
In a bargain sale, you sell your land to a land trust for less than its fair market value. This not only makes it
more affordable for the land trust, but offers several bene�ts to you: it provides cash, avoids some capital
gains tax, and may entitle you to a charitable income tax deduction based on the difference between the
land’s fair market value and its sale price.
Donation with a Lifetime Income
If you have land you would like to protect by donating it to a land trust, but you need to receive income
during your lifetime, consider a charitable gift annuity or a charitable remainder unitrust. Charitable gift
annuities and charitable remainder unitrusts are most useful for highly appreciated land, the sale of which
would incur high capital gains tax.
10/1/2018 Estate Tax Incentives for Land Conservation | Land Trust Alliance
https://www.landtrustalliance.org/topics/taxes/estate-tax-incentives-land-conservation 1/2
Estate Tax Incentives for Land Conservation
Keeping Land in the Family
For some families, one of the major advantages of donating a conservation easement is that it helps pass
land on to the next generation, by reducing estate taxes. Estate taxes can lead to the land being broken up
or sold off, even when families want to keep the land intact. Estate taxes can make it especially challenging
for families to hold on to working farm, ranch, and forest land.
Changes to the tax code that were made permanent in 2014 raised the threshold for estate taxes from $1
million to $5 million (indexed to in�ation). As of 2015, estates of $5.1 million or more are subject to estate
taxes of 40%. Farm and ranch estates are four times as likely as other estates to be subject to estate taxes,
putting some of the nation’s most productive agricultural land at heightened risk of subdivision and
development.
Estate tax incentives for land conservation give families the option to reduce their estate taxes by
protecting their land, which conveys public bene�t while easing the transition of land from one generation
to the next.
How Conservation Easements Can Lower Estate Taxes
A conservation easement can reduce estate taxes in two ways:
1. It reduces the value of the estate to be taxed. A conservation easement lowers the property value —
and, correspondingly, estate taxes. In some cases, a conservation easement may drop the value of the
estate below the threshold for estate taxes altogether.
2. Heirs can exclude 40% of the value of land under conservation easement from estate taxes. Section
2031(c) of the Internal Revenue Code provides an estate tax exclusion of up to 40% of the encumbered
value of land (but not improvements) protected by a “quali�ed conservation easement.” That exclusion
is capped at $500,000. The cap is lower if the easement reduced the land’s value by less than 30% at
the time it was donated. To qualify, the easement must serve one or more of the conservation purposes
recognized in Section 170(h) of the tax code. It must limit commercial recreational use to a minimum
and it cannot qualify soley for the purpose of historic preservation. Only members of the original
easement donor’s family, including spouses and descendants, can claim this exclusion.
Conservation Decisions in Estate Planning
Families can bene�t from these estate tax advantages if the landowner donates an easement during life,
or by will, or if the heirs donate a posthumous easement. However, if the easement is donated by will or
posthumously, the family foregoes the opportunity for an income tax deduction.
10/1/2018 Estate Tax Incentives for Land Conservation | Land Trust Alliance
https://www.landtrustalliance.org/topics/taxes/estate-tax-incentives-land-conservation 2/2
© Copyright 2018 Land Trust Alliance
Landowners should note that conservation easements must meet speci�c criteria to qualify for tax
bene�ts and that the tax implications of their decision will depend on their speci�c circumstances. Anyone
considering a conservation easement is advised to consult with independent, quali�ed �nancial and tax
advisors.
Improving Estate Tax Policy
The Alliance’s policy advocacy led to the creation of the �rst estate tax incentives for land conservation in
1997. The Alliance continues working to improve estate tax laws so that they provide opportunities for
conservation, rather than forcing families to sell their land, which often leads to development.
One major issue is that property values have gone up signi�cantly since 1997, making the $500,000 cap
on the estate tax exclusion increasingly inadequate. Farmland values, in particular, have more than
doubled. In many cases, the estate taxes on working farms, ranches, and forests come to many millions of
dollars — so a half-million dollar exclusion isn’t enough to keep the land in the family.
The Alliance supports policy solutions that include raising the cap or excluding working farm, ranch and
forest lands from estate taxes altogether, as long as they remain in the family and in production.
IRS Notice 2017-10: What Landowners Need to Know
The Internal Revenue Service recently took action against certain conservation donations. But
landowners contemplating donating land or a conservation easement should not fear IRS Notice 2017-
10 (the “Notice”), published Dec. 23, 2016. The IRS action is narrowly targeted to a handful of unusual
transactions and will not affect traditional donations. The Notice imposes no new requirements for
traditional easement donors and it will not result in more scrutiny of traditional donations.
What does the Notice mean for landowners?
The Notice has no effect on landowners making a traditional donation of land or a traditional donation
of a conservation easement. It imposes no new requirements for – and brings no more scrutiny to –
such donations. Audits of traditional conservation donations remain a possibility, but audits are no more
or less likely now.
So the Notice wouldn’t affect my donation?
Easement or land donations where the land is owned by an individual, a family or a family partnership
that hasn’t recently sold partnerships are not affected by the IRS action. Donations from most other
partnership entities, too, are unlikely to be subject to the Notice, because it so narrowly defines the
transactions it covers.
What are the unusual transactions covered by the Notice?
IRS Notice 2017-10 targets transactions in which very high tax deductions are deliberately and explicitly
“promoted” to potential investors. These transactions generally involve investors who otherwise have
little or no interest in the specific property.
Section 2 of the Notice explicitly lists the elements of a “listed transaction.” To qualify as being subject
to the Notice, potential investors in an LLC or other “pass-through” entity must receive promotional
materials that offer the possibility of a federal tax deduction for a conservation donation that is at least
2.5 times the investor’s investment. If the donation is then made, and the entity passes-through the
promised deduction to the investor who uses it on their federal tax return, the transaction qualifies as a
“listed transaction.”
A transaction that meets these requirements is what the IRS wants to review more closely. And rightly
so. An investor can only realize this sort of deduction if the value of the property has dramatically
increased in value between the time of their investment and the donation – which in many of these
transactions is only a year or so.
The Notice requires participants in these transactions to file a report to the IRS or face severe fines.
What does the Notice mean when it talks about “substantially similar” transactions?
When the IRS identifies a “listed transaction,” the listing applies not just to the exact transaction
described, but also to transactions that are “substantially similar.” A syndication of deductions from the
donation of land in fee, where investors are promised the potential of a deduction more than 2.5 times
their investment, is very likely to be seen by the IRS as “substantially similar” to the conservation
easement donation described in the Notice.
What’s the conclusion to all this?
An easement donor should always take great care to comply with all of the complex regulatory
requirements the IRS has set up for conservation donations. Using an experienced legal advisor and
working with an experienced land trust are always a good idea in any conservation donation. The new
Notice changes none of these best practices. The Notice is an IRS initiative carefully aimed at some very
unusual transactions and does not affect the vast majority of easement donors.
The Land Trust Alliance furnishes materials as tools to help land trusts with the understanding that the Land Trust Alliance is not rendering legal,
accounting or other professional counsel. This article is not tax or legal advice. If a land trust requires legal advice or other expert assistance,
seek the services of competent professionals. The Land Trust Alliance is solely responsible for this content. (Sources and additional resources
available upon request.)