Estate Taxes and Land Conservation

Estate taxes can lead to the break-up, sale and development of family-owned farm, ranch and forest lands, even when landowners would prefer to keep these lands intact.

2010 Update

The estate tax has expired. Democratic leaders had said they would reinstate an estate tax in early 2010, but as time has passed it's become increasingly unclear what they'll be able to achieve, and whether it is a long-term or short-term solution, is anyone’s guess.  Unless Congress acts prior to 2011, the estate tax will return with a $1 million unified credit and a top rate of 55%.  In addition, without congressional action, the geographic limits that were removed from the 2031(c) exemption (discussed below) will return. Click here for our campaign page.

A Powerful Conservation Tool

Thanks to the Land Trust Alliance's advocacy with Congress, a tax bill enacted in 1998 expanded an important conservation tax incentive. (Download Conservation Options for Heirs to Land for more detailed information on the law.) Section 551 of the law removes the geographic limits from IRC 2031(c), the American Farm and Ranch Protection Act. Now, a conservation easement donor is eligible for an additional exclusion from estate tax of up to $500,000, beyond the the value of the easement itself - regardless of where the land is situated. Previously, the exclusion was limited to land within 25 miles of a metropolitan statistical area, a national park, or a federal wilderness.

So long as the estate tax is in place, heirs can use 2031(c) to make a post-mortem election to donate a conservation easement, which could save them considerable estate taxes.

Will there be an Estate Tax in the Future?

The Economic Growth and Tax Relief Reconcilation Act of 2001 phases down estate taxes by gradually moving the unified credit (amount of an estate that is not subject to tax) from the previous $675,000 to $3.5 million in 2009. For tax year 2010, there is no estate tax at all (although there continues to be a gift tax).

However, if Congress fails to enact a change between now and 2010, the 2001 law will expire and in 2011, the estate tax will be reinstated with a $1 million unified credit and 2001 tax rates (up to 55 percent). As such, it is likely that the Congress will take up estate tax reform this year.  In the course of that reform, it is very likely that the unified credit against estate tax will be raised to $3.5 million per person, meaning that, for the most part, estates of less than $7 million will not be affected by the estate tax at all.

That means that relatively few people will be affected by the estate tax at all – although clearly, those few may own important properties.  Several members of Congress are working on reforms that provide special treatment for lands protected by conservation easements.  The Piedmont Environmental Council is advocating for an expansion of the existing estate tax incentive for conservation easements, IRC 2031(c).  There will also be proposals to exempt all agricultural lands from estate tax.

Click here to learn more about these efforts to improve conservation incentives in the estate tax.

Amidst Uncertainty, Many Reasons to Donate

There is no guarantee what Congress will do -- remove all estate tax, keep a tax with different unified credit level, or do something entirely different. Obviously, this makes estate planning a matter of speculation.

What we can say is, that if a person wants to conserve their family's land, they should donate a conservation easement on it, and do it while they are alive. They can receive a substantial income tax deduction (which you do not get if it is donated in a will or post-mortem); they will have done the right thing; and if there is an estate tax due when they die, their heirs will be glad they did.