STEPS TO DONATING AN EASEMENT
Overview of steps:
|
Step 1: Initial contact
The landowner contacts the Bluegrass Conservancy and indicates an interest in placing a conservation easement on his or her property. The Bluegrass Conservancy's mission is to conserve farmland in the seven-county inner Bluegrass region of Bourbon, Clark, Fayette, Jessamine, Madison, Scott, and Woodford Counties. However, the Conservancy may be interested in accepting easements on parcels of land outside this area depending on the particular attributes of the land in question. After receiving an indication of interest from the landowner, the Bluegrass Conservancy schedules an on-site tour of the property with the landowner (and possibly his or her professional advisors).
Step 2: Meet with the Bluegrass Conservancy to tour property
The Bluegrass Conservancy will tour the property with the landowner in order to gain an understanding of the landowner's goals and the conservation values of the property. This visit will provide an opportunity to discuss the following questions:
- What does the landowner wish to accomplish with the easement?
- What features and resources of the property should be protected?
- What future needs does the landowner or family have?
- What restrictions are necessary to protect the significant resources of the property?
This visit also provides an opportunity to continue building a strong working relationship between the Conservancy and the landowner. Because the easement donation must be perpetual to qualify as a charitable contribution, the relationship between the Conservancy and the landowner is of utmost importance. The Easement Manager also obtains a letter from the landowner to the Conservancy Board of Directors stating his or her interest in conveying an easement to the Bluegrass Conservancy.
Step 3: The Bluegrass Conservancy Board of Directors votes to pursue/not pursue preparation of the easement
The easement director prepares a brief report for the Board of Directors of the Bluegrass Conservancy which votes whether or not to pursue the easement donation. This vote is only to pursue preparation of the easement and not to accept the easement, the terms of which are not yet developed in detail. If the Board votes to proceed with preparing the easement, then the easement work continues. The Bluegrass Conservancy then submits a proposal to the landowner outlining the anticipated costs of both donating an easement and establishing an endowment for the perpetual monitoring of the easement. Because each easement in tailored to the individual property and the specific needs of the landowner, the costs associated with preparing an easement vary.
Step 4: Landowner consults with advisors
The landowner should consult with professional advisors in order to discuss and analyze the implications involved in placing a conservation easement on his or her property. The advisors may include the following: estate planner, accountant, attorney, real estate appraiser, timber and mineral consultants, and wildlife biologist. Reasonable expenses incurred by the landowner related to the easement donation may be tax deductible. While the Bluegrass Conservancy is pleased to work closely with the landowner throughout the process, the Conservancy does not provide individual tax or legal advice; the landowner must rely on his or her own professional advisors.
Step 5: Baseline inventory of the property
The landowner commissions the preparation for a baseline inventory of the property. The purposes of the inventory are both to identify important resources of the property and to establish the condition of the property at the "time of the gift," as required by the Internal Revenue Code. By defining the property's important resources, the inventory will help the easement drafter determine what restrictions need to be included in the document. Compiling baseline data is generally an IRS requirement for donors who want to deduct their gift. Both the landowner and the Bluegrass Conservancy must acknowledge that the baseline inventory is a "true representation" of the property at the time of the gift. Finally, the baseline inventory serves as a basis for IRS required monitoring of the property after the easement restrictions are agreed upon.
Step 6: Landowner provides title information
The landowner provides the Bluegrass Conservancy with evidence of legal ownership of the property. A title search is requested, and, in some cases, a survey may also be required. The title information identifies the legal owner(s) of the property, provides the legal property description that must be included in the easement document and the baseline inventory, and identifies any liens or encumbrances on the property, such as mortgages. (If the property to be placed under easement is not a separate legal parcel, a survey may be necessary.)
Step 7: Landowner provides mortgage subordination
If any mortgages or other liens have been placed against the property, the landowner provides the Bluegrass Conservancy with documentation demonstrating subordination of these interests by the mortgage or lien holder, meaning that the easement takes precedence over these interests. Subordination is a requirement of the tax rules if the easement is a donation and the donor wishes to deduct the gift. If requested, the Conservancy assists the donor in this process be meeting with the lender to explain the purpose of the easement and the IRS requirements.
Step 8: Easement agreement is drafted, reviewed and finalized
In most cases, the first draft of the easement is prepared by the Bluegrass Conservancy. The landowner and his or her advisors then provide input and comments on the first draft of the easement. Because the document sets forth the restrictions that will be followed in perpetuity, it is essential that the document provide a full and clear understanding of what rights the landowner is relinquishing and what rights he or she is retaining. The Bluegrass Conservancy works with the landowners and his or her advisors to review the easement restrictions, revise the draft easement, as needed, and finalize the agreement.
Step 9: Landowner obtains qualified appraisal
The IRS requires the donor to obtain a qualified appraisal to support the deduction of the easement gift if the value of the gift is more that $5,000. As the recipient of the easement donation, the Conservancy is prohibited from representing the value of the easement. It is the donor's responsibility to engage an appraiser to determine the value of the easement. The donor should begin the process as soon as a working draft of the easement document explaining the restrictions and retained rights is prepared. The donor may want to consult an appraiser, at least informally, even earlier in the process in order to heave a realistic idea of the value of the easement. Appraisal of the easement must be completed no earlier than sixty days prior to the date of the donation and no later than the due date for the tax return in the year in which the deduction is first claimed. The cost of an appraisal depends on the complexity of the easement, the size of the property and the fee schedule of the individual appraiser.
Step 10: The Board of Directors of the Bluegrass Conservancy reviews final easement and adopts a formal resolution to accept the easement
After the easement agreement has been finalized and the landowner has approved it, the Board of Directors of the Bluegrass Conservancy reviews the easement agreement and votes whether to accept of reject the easement. Because of the Conservancy's active role in facilitating the easement terms and other documentation, the vote should be a formality. After the Board votes to accept the easement, the landowner and the Conservancy agree on a signing and recording date.
Step 11: Sign and record the easement
The landowner and the Bluegrass Conservancy sign the easement and record the executed easement agreement. At this point, the landowner contributes an endowment for future monitoring costs. Both the landowner and the Conservancy should retain copies of the document and the baseline inventory for future reference. With the landowner's permission, the Conservancy publicizes the donation.
Step 12: Annual easement inspections
With the landowner's cooperation, the Bluegrass Conservancy makes annual inspections of the property to guarantee that the terms of the easement are being observed. The endowment funds are used to defray the Conservancy's ongoing monitoring and enforcement expenses.