Vol. 9, No. 5, Pg. 14. Conservation Easements: Now More Attractive by Addition of I.R.C. Section 2031(c).

• Author: By Chalmers W. Poston Jr.

South Carolina Lawyer

1998.

Vol. 9, No. 5, Pg. 14.

Conservation Easements: Now More Attractive by Addition of I.R.C. Section 2031(c)

14Conservation Easements: Now More Attractive by Addition of I.R.C. § 2031(c)By Chalmers W. Poston Jr.After years of lobbying by the conservation community, a modified version of the American Farm and Ranch Protection Act was enacted as part of the Taxpayer Relief Act of 1997 (P.L. 105-34). The addition of § 2031(c) to the Internal Revenue Code (IRC) provides attractive new planning opportunities for some taxpayers. Essentially, the new section provides a reduction in estate tax for certain land subject to a qualifying conservation easement.

Highlights:

* If an easement is placed on the property before death, an additional estate tax deduction is now available. * If all qualifications are met, certain estates can receive estate tax savings of up to $300,000. * A conservation easement can be placed on property after death with an estate tax benefit for doing so (no real benefit for post-death easements placed on large properties though). * The act is effective for decedents dying after December 31, 1997.

The good news is that IRC § 2031(c) provides a significant incentive to grant conservation easements during a donor's lifetime because, if one dies with qualifying land subject to a conservation easement, a "bonus" estate tax exdusion is granted in addition to the reduction in value attributable to the conservation easement. The bad news is § 2031(c) is complex, highly technical, economically restrictive and only applicable in certain situations.

CONSERVATION EASEMENTS IN GENERAL

Simply put, a conservation easement is a restriction on the use of property. The restriction is created in a contract between a landowner and a charitable organization or government agency whereby the landowner gives up certain rights in the land and gives the charitable organization or government agency the right to perpetually enforce the restriction.

In its most basic form, a conservation easement will protect some worthy conservation attribute to real property, such as habitat, open-space or scenic views, while prohibiting most potential commercial uses. Even though most commercial uses may be prohibited, it is not uncommon for landowners to retain certain limited rights for agriculture, forestry or ranching uses, or to retain limited rights for residential and recreational uses. South Carolina law requires that the restriction must be a recorded deed restriction filed in the office of the register of mesne conveyances for each county where the land burdened by the conservation easement lies.

Because of the public benefit...