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The vast majority of easements placed on farmland are easements that the landowner “donates” to a land trust.
The alternative to donating an easement is to sell an easement (which is sometimes referred to as “selling development rights”). MFT refers to all such easements as Purchased Easements.
The advantage of a purchased easement is that the landowner gets directly compensated, usually with funds from the federal and/or state government. The disadvantage of a purchased easement is that there is less government funding allocated for this purpose than is needed to satisfy all requests—so the process is highly competitive and a landowner will need a compelling project to be successful. In addition, many good farm properties don’t even qualify, because they do not possess the specific soils (in adequate proportions) that these funding sources require. Beyond this, purchase easements involve an elaborate governmental process, with various bureaucratic reviews and the need for a specialized appraisal and a full boundary line survey, each of which can be expensive. So the process can take several years, and project costs are usually much higher (though some of these extra costs may be paid for).
The bottom line is that purchased easements are not possible for every piece of property or every landowner; and even where a purchased easement may be possible, it may not be the right fit.
Conversely, donated easements are easier and less expensive to execute, and they are often far better suited to the characteristics of some properties and the needs of some landowners. In addition, donated easements also come with some financial incentives.
One financial benefit of donating an easement is that the donation counts as a charitable deduction that will lower your taxable income. In fact, the donation of an agricultural easement is treated more favorably than any other charitable donation under IRS rules. A landowner donating an easement may “write off” either 50% or 100% of his/her federal adjusted gross income in any given year (with 100% reserved for working farmers), as opposed to 30% for most other charitable deductions. In addition, this benefit can be carried forward for up to 15 years (if the easement value is great enough), as opposed to 5 years for other charitable deductions.
Other financial benefits of donating an easement can result from avoiding capital gains or estate taxes, or from reduced property taxes.
Moreover, it is important to realize that property which abuts preserved land can be worth more. When a farm family owns separate lots abutting the land on which an easement will be donated (as is often the case), and the easement creates additional value for the family.
Finally, many landowners underestimate the value of their land once it is preserved. In truth, there is a large and growing market for preserved land, and sometimes the value is greater than what landowners think.
When all of these financial benefits that may be applicable are added together, a landowner may benefit far more financially than he/she ever expected. In some instances (particularly where large capital gains or estate taxes can be avoided) a landowner might benefit as much financially from donating an easement on a piece of land than selling that land unprotected.
Of course, the principal reason landowners donate an easement is not to gain financially, but to ensure that their land will continue to be available for farming, and in so doing, help ensure that farming in Maine will continue to grow and prosper.
Return to Agricultural Easements
The vast majority of easements placed on farmland are easements that the landowner “donates” to a land trust.
The alternative to donating an easement is to sell an easement (which is sometimes referred to as “selling development rights”). MFT refers to all such easements as Purchased Easements.
The advantage of a purchased easement is that the landowner gets directly compensated, usually with funds from the federal and/or state government. The disadvantage of a purchased easement is that there is less government funding allocated for this purpose than is needed to satisfy all requests—so the process is highly competitive and a landowner will need a compelling project to be successful. In addition, many good farm properties don’t even qualify, because they do not possess the specific soils (in adequate proportions) that these funding sources require. Beyond this, purchase easements involve an elaborate governmental process, with various bureaucratic reviews and the need for a specialized appraisal and a full boundary line survey, each of which can be expensive. So the process can take several years, and project costs are usually much higher (though some of these extra costs may be paid for).
The bottom line is that purchased easements are not possible for every piece of property or every landowner; and even where a purchased easement may be possible, it may not be the right fit.
Conversely, donated easements are easier and less expensive to execute, and they are often far better suited to the characteristics of some properties and the needs of some landowners. In addition, donated easements also come with some financial incentives.
One financial benefit of donating an easement is that the donation counts as a charitable deduction that will lower your taxable income. In fact, the donation of an agricultural easement is treated more favorably than any other charitable donation under IRS rules. A landowner donating an easement may “write off” either 50% or 100% of his/her federal adjusted gross income in any given year (with 100% reserved for working farmers), as opposed to 30% for most other charitable deductions. In addition, this benefit can be carried forward for up to 15 years (if the easement value is great enough), as opposed to 5 years for other charitable deductions.
Other financial benefits of donating an easement can result from avoiding capital gains or estate taxes, or from reduced property taxes.
Moreover, it is important to realize that property which abuts preserved land can be worth more. When a farm family owns separate lots abutting the land on which an easement will be donated (as is often the case), and the easement creates additional value for the family.
Finally, many landowners underestimate the value of their land once it is preserved. In truth, there is a large and growing market for preserved land, and sometimes the value is greater than what landowners think.
When all of these financial benefits that may be applicable are added together, a landowner may benefit far more financially than he/she ever expected. In some instances (particularly where large capital gains or estate taxes can be avoided) a landowner might benefit as much financially from donating an easement on a piece of land than selling that land unprotected.
Of course, the principal reason landowners donate an easement is not to gain financially, but to ensure that their land will continue to be available for farming, and in so doing, help ensure that farming in Maine will continue to grow and prosper.
Return to Agricultural Easements
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| FAQs about Donated Easments
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Different land trusts have different policies about what costs the land trust picks up and what costs are paid by the donor.
If MFT is working with a donor, we cover many costs, including these:
• all staff time involved in working with a landowner
• the cost of preparing a draft easement for the donor’s review
• the cost of finalizing that easement after the donor’s review
• title insurance or attorney’s certification of title
• preparation of baseline data (as required for any easement)
• filing fees at the registry of deeds
However, other costs will be borne by the donor. For one thing, the donor will want to engage an attorney to review the draft easement. A donor may also want to engage an accountant to advise on any tax consequences. In addition, if the donor plans to take advantage of the tax benefits of donating an easement (which counts as a charitable contribution under IRS rules), the donor will need to pay for an IRS-approved appraisal that determines the value of the easement.
Beyond this, land trusts require that each easement comes with a “stewardship contribution,” which is often—though not always—provided by the donor. MFT and most other land trusts use a stewardship contribution to generate annual revenue to cover the ongoing costs of monitoring the easement. Having these funds in the land trust’s accounts are to the benefit of the donor, as they ensure that the easement will be monitored and enforced in perpetuity.
MFT aims to collect a $10,000 stewardship contribution for each easement it holds. However, MFT recognizes that some landowners are not in a position to contribute in this way. For this reason, MFT will at times raise some or all of these funds through other sources, in order to make a good project happen. (Different land trusts have different policies about stewardship contributions.)
In addition to everything that is noted above, there may be unexpected or special issues that arise during the development of an easement. For instance, perhaps there are boundary uncertainties that need to be clarified with a boundary line agreement or even a full blown survey. Doing so would result in additional costs. The landowner and the land trust will need to discuss any such items and then determine how they will be addressed and paid for.
Property that is permanently protected by easement will generally qualify for reduction in property taxes under one of the state’s tax reduction programs. Sometimes landowners refrain from enrolling land in the Tree Growth or Farmland/Open Space programs, because they want to avoid the possibility of recapture of taxes if they were to later remove the property from the program. When land is protected by a permanent easement, there is no option to later change the use of the property, and hence, no reason not to place the property in a tax reduction program. Some towns give a larger tax reduction on permanently protected land than they do on land which can be withdrawn from the program. Consequently, landowners placing an agricultural easement on their property already enrolled in one of these programs should notify their town’s tax assessor to see if any further tax savings might be realized.
Because the cost of services for developed land is generally higher than the amount of taxes paid by the owner of the developed land, towns ultimately benefit from permanently protected land.
Each easement is drafted to meet the needs of the landowner (Grantor) and the requirements of the land trust (Holder). Agricultural easements are drafted to be as flexible as possible, in order to promote continued use of the land for agriculture, while still protecting the agricultural values and preventing development.
MFT is a statewide organization that holds easements itself, but which prefers that easements be held by local and regional land trusts (wherever acceptable to both the land trust and the landowner). To this end, MFT works closely with local and regional land trust to help them understand how to develop good farmland projects and craft appropriate agricultural easements.
In some instances, a landowner will approach MFT first, and then MFT will reach out to a local or regional land trust to establish a good three-way partnership. In other instances, a local or regional land trust that has been already talking with a landowner will approach MFT for help making the project happen.
Every easement must contain language specifying that the easement can be transferred to another entity that meets certain requirements as defined by statute and IRS regulation. Holder land trusts have an obligation to monitor and enforce their easements. If they are unable to do so they must transfer the easement to an entity that is capable and willing. This could be a local land trust, a statewide land trust, or the State of Maine.
Easements permanently restrict the uses permissible for a property, and hence the land’s market value is reduced. Any development or division not addressed in the easement will not be permitted, and uses not contemplated at the time of creation of the easement may not be permitted. Options to bring in some money by selling off a lot or setting up a non-farm business will no longer exist, unless that possibility was accounted for in the original easement.
If the farm is sold, the new owners take it subject to the restrictions in the easement. The Holder land trust will want to establish a working relationship with the new owners to ensure continued compliance with the easement.
Eminent domain can apply, although the easement creates and supports a public policy argument against taking the land for other uses. If protected land is taken by eminent domain, the compensation paid by the governmental entity is split proportionately between the landowner and the Holder.
In addition to being fully advised as to the legal effects of an easement, the donor should discuss with family and anyone else who might believe he or she has a future interest in the property. Family members may have different perspectives on the value and potential of the property, an understanding of which will allow the donor to make a fully informed decision as to whether or not to proceed.
Feel free to contact us. Alternatively, if you live in an area with an active local or regional land trust that has an interest in farmland preservation, you could start by contacting them. If that group is not familiar with MFT’s services, urge them to contact us.
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