When you make a charitable contribution of anything other than money or marketable securities, there will always be a valuation issue. At least, it will usually be clear what it is that you are giving away. A conservation easement is different. You are keeping the property as it is and giving up all the hypothetical possibilities.
Sometimes the greatest charity of all is simply doing zip, nada, and nothing. Well, at least that may be the case when it comes to being charitable with land. Why? Because the charity consists in preserving the land from development instead of capitalizing on its highest and best economic use.
Enter the conservation easement.
The perennial problem with easements, however, is the question of valuation of the “potential value” of the land.
The entire point behind an easement is that the land itself (or the façade, as the case may be with urban-dwellers) has intrinsic value worth saving. This can be hard to put into concrete numbers. But then again, there always remains the risk that certain persons may look to maximize the charitable deduction for an easement through creative valuation.
This theme was picked up in a recent Forbes article titled “Conservation Easement No Deduction For Hypothetical Vineyard.” The lesson is less outlandish than the title suggests – not every problem comes from supposing the remote possibility of a vineyard, a stadium, or a skyscraper. Rather, when asking for the easement you need to settle upon one out of every possible use of the land and the IRS has to agree that potential use is the best and most likely use.
The IRS has a presumption against any big dreams, you might say, and that can be difficult to overcome.
Proper valuation is a key component of any purchase, gift, or act of charity. When it comes to easements, however, the subject of valuation may be more difficult to capture accurately.
Placing an effective easement means building a case and an effective understanding of the true potential to any land given.
Please visit our website for information on elder law and estate planning issues, and sign up for our free monthly e-newsletter. The archive on our website contains numerous blog posts on these legal areas as well. You can also “friend” us on Facebook (R Christine Brown) to receive periodic posts on elder law issues. #estateplanningtorrance
Reference: Forbes (June 5, 2013) “Conservation Easement No Deduction For Hypothetical Vineyard”