1. Title of Presentation Smaller Type Conservation Easements 101 South Llano Watershed Alliance

2. 2 What Is A Conservation Easement (CE)? Voluntary legal agreement Signed by both landowner & land trust Filed at county courthouse TX Natural Resource Code Chapter 183 The Basics

3. 3 “Partnership” between landowner & land trust to accomplish goals of both Permanently protect land’s intrinsic values Provide income or tax savings to landowners What Conservation Easements Do:

4. 4 The Basics Property ownership = owning a bundle of sticks How Does CE Work? Examples: - Mineral Rights - Water Rights - Hunting Rights - Access/Easement - Development Rights

5. 5 The Basics How CE Protects Land: Permanently restrict intensity of use or development of land Give partner organization the right to enforce restrictions

6. 6 The Basics All restrictions negotiated Landowners continue agricultural use & recreational enjoyment No public use required How Landowners Are Protected:

7. 7 The Basics Sale of CE = cash Donation of CE = tax savings Tax credit in some states How CE Provides Financial Benefits:

8. 8 The Basics Highly Motivated Buyer Competitive Process Negotiated Price Cash or Trade How CE Can Be Sold:

9. 9 Sale of Conservation Easement

10. 10 Dahlstrom Dilemma Owned a Ranch worth $30M Looming federal estate tax liability Need to provide financial stability for family Wanted Ranch to be preserved forever Desire to share Ranch with public Current quarry operations on Ranch

11. 11 Conservation Easement Terms 2,275 acre ranch; includes quarry Protect archeological sites Water quality and quantity is the priority No subdivision Limited building Allows agricultural and eco-tourism business Allows existing quarry operations until 2060

12. 12 The Basics How CE Provides Tax Savings: Income tax deduction when donated Lower appraised value of land in estate Exclude part value from estate tax Property tax relief in some cases Tax credit in some states

13. 13 The Basics RULE OF THUMB -- How CE Impacts Land Value: Near cities reduction/deduction can be 50-90% of land’s appraised value Rural land reduction/deduction can be 30-60% of land’s appraised value

14. 14 Who Should Consider A CE? Desire to preserve land or “keep in the family” Land with conservation value/public benefit Location - Development “pressure” drove up value; unused value locked in the land Concerned about increasing ownership costs Sufficient income to use large tax deduction or ranch big enough for estate taxes

15. 15 Profiles Of Donors/Sellers Urban Owners of Rural Land Land Rich, Cash Poor Families Heritage Landowners Developers marketing rural land

16. 16 TAX LAW: For CE Charitable Gifts in 2012 30% of AGI Rule. Sec. 170(b)(1)(C) Limits annual charitable deductions to 30% of the donor’s AGI. $500,000 AGI X 30% (2012) 50% Rule (Incentive) $150,000 MAD $250,000 MAD

17. 17 TAX LAW: For Charitable Deductions 30% of AGI Rule. Sec. 170(b)(1)(C) 5 Year Carryover Rule Sec. 170(d)(ii) For contributions that exceed the 30% of AGI limitation, there is a 5 year carryover, which allows unused deductions in the first year to be carried over up to 5 years (Incentive 15 yrs)

18. 18 Income Tax Savings 2012 - 2017 Donor’s AGI $ 500,000 Tax Rate35% Value of CE (50% FMV) $ 5,000,000 Max. Annual Deduction (30% AGI*) $ 150,000 Annual Tax Savings $ 52,500 Number Years to Use Deduction* 6 TOTAL TAX SAVINGS$ 315,000

19. 19 Income Tax Savings 2012 – 2027 Under Incentive Legislation Value of CE (70% FMV) $5,000,000 Donor’s AGI$ 500,000 Max. Annual Deduction (50% AGI*) $ 250,000 Number Years to Use Deduction*16 Tax Rate35% Annual Tax Savings$ 87,500 TOTAL TAX SAVINGS $ 1,400,000

20. 20 Structuring The Deal Donation Sale Combination Phasing in CE over multiple tax years Contract or letter of intent Donate CE after death Transaction Structure:

21. 21 Transaction Steps 1. Establish conservation, family & financial goals -- analyze outcomes 2.Select & negotiate with land trust 3.Create transaction team 4. Complete all due diligence steps 5.Record CE, complete any cash gift 6.Implement & file post-gift state / federal requirements 7. Monitoring & enforcement

22. 22 “Qualified Conservation Contribution” A real property interest (CE) Exclusively for conservation purposes To a qualified organization – land trust Tax Code Sec. 170(h) Requires:

23. 23 Treasury Regulation Sec. 1.170A-14 describes 4 “Qualified Conservation Purposes:” Protection of relatively natural habitat Open Space: scenic enjoyment or government policy Outdoor recreation or education with public access required Historical preservation with public visibility or access required Identify Conservation Purpose

24. 24 Choose a “Qualified” Organization Governmental agencies with conservation missions or policies Non-profit conservation organizations

25. 25 Select a Land Trust Partnership – values fit with landowner Capacity to do the deal Long term capacity Landowner resource Costs

26. 26 Texas Perspective Texas land trusts - Helped conserve more than 1.5 million acres of Texas land TLTC Directory - 49 Texas land trusts in operation TLTC at www.texaslandtrusts.org

27. 27 Creating the Transaction Team Appraisal – Appraiser substantiates value Baseline Report – Biologist, ecologist documents conservation values Survey – Surveyor prepares legal descriptions, maps, exhibits, marks boundaries Land Planning – Land use planner for development plan Financial Planning & Analysis – CPA, CFP, etc. Legal Advice & Negotiation – Client’s attorney

28. 28 Basic Goals of Drafting  Protect client’s future rights in the property  Maximize client’s financial benefit  Protect conservation values  Meet organization’s needs and goals

29. 29 Possible Restrictions??? Recreation Outdoor education Care of scenic features Care of water features Care for historic features Land Trust monitoring & access Public access Trash & dumping practices Timber management Management plan Development plan Subdivision Additional buildings Commercial activities Agriculture or grazing Mineral development Hunting and fishing Habitat restoration Road building Motorized vehicles Exotic species Agency restriction s

30. 30 Result After Easement Land Trust: Conserve Habitat Scenic Views Open Spaces Historic Sites Outdoor Recreation Low Cost Landowner: Create a Legacy Save Tax Still Use Land Land Appreciating & Marketable Unlocked Value

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32. 32 Braun & Gresham, PLLC Cassie Gresham www.braungresham.com “Conservation will ultimately boil down to rewarding the private landowner who conserves the public interest.” Aldo Leopold