Each land trust agreement is unique. By offering a wide variety of transfer strategies, trusts can offer landowners a choice of tools for achieving their desired goals. This page reviews the most common methods used by land trusts to acquire property rights and/or titles.
Purchase by the Trust
Fair market value sale. The land trust buys the land for the same price the owner could get on the open real estate market; the purchase includes all associated rights (fee simple ownership). This is a strategy of last resort, when a landowner has high interest in developing a property, and the trust is committed to permanent protection. It is an expensive tactic for the land trust, because the seller will want full value for the property and may also want compensation for the value of the proposed development.
Example: The Home-Builders Company owns a hilltop next to a state park. The builders plan to create a high-priced subdivision on the hilltop. The Land Trust buys the land at fair market value, plus 2% to compensate the builders for their time and effort in finding new land for their subdivision.
Bargain sale. The landowner sells the property to the trust at a price below fair market value (at a bargain price)-essentially donating part of the property to the trust. If an agreement can be reached, the trust will buy the land and all development rights. In exchange, the landowner will receive some cash for the land, a tax deduction equal to the difference between the fair market value and the bargain price, and a break on capital gains tax.
Example: Along with other pieces of property, Otto Green has just inherited some marshland by a river. He has no use for the swampy area and doesn't really want it-but he does need to liquidate part of the estate to pay inheritance taxes. If he sells the marsh to a land trust, at a discounted price, he will get cash to pay his taxes and also get some tax deductions. Fortunately for Otto, the trust wants the land because the marsh will add considerably to the trust's long-term plan for restoration of riparian habitat on the river.
Donation by Landowner|
Outright donation. The landowner gives their property, and all associated rights, directly to the land trust. The trust takes on all responsibilities for property liability and management. The landowner receives no financial compensation from the trust -- but they will enjoy a charitable contribution tax deduction based on the property's fair market value.
Example: Sam Smith is 90 years old. His original valley homestead is now worth over $1 million, partly because a river runs through the property. Sam doesn't have any heirs and taking care of the land is just too much work for him. The local land trust would be glad to have the property because it contains important wetlands. Sam donates 90% of his land to the trust (keeping his house and favorite fishing hole). The trust takes on management responsibilities. Sam gets some immediate tax deductions because of the property's conservation value.
Donation by bequest. The landowner gives property to the land trust through a will. The property transfer doesn't actually occur until after the donor is deceased, and the donor does not benefit from income tax deductions during life.
Example: Continuing the example started above, Sam Smith (who has no heirs) decides to include a special bequest in his will, donating the remaining 10% of his land to the trust. Before making the bequest, he talks to the trust to make sure they are prepared to take on the extra responsibility. By using a bequest, Sam will be able to control the land during his lifetime and assure its protection after his death.
Remainder interest with life estate. In this arrangement, the landowner donates the property during his or her lifetime, but continues to use the property as before. The act of making the donation now, to take effect after death, is called the gift of a remainder interest; the retained right of use is called a life estate. When the owner dies, the land trust will receive full title to the property. Meanwhile, the owner gets to continue enjoying the land and probable tax deductions.
Example: Sam Smith could have chosen this method of donating to the trust. The end result would be very similar: Sam would continue to live on the old homestead and also receive some tax benefits during life. Above all, as with the other types of donation, he knows that the land will be protected by the trust.
A conservation easement is an agreement between the landowner and the trust, restricting the type and degree of any future development on the property. Although conservation easements are usually donated, trusts will occasionally purchase an easement if the reasons are compelling enough.
Conservation easements are the most flexible instrument for transferring rights according to the wishes of the landowner. And future buyers of the land will be bound by the easement's terms. For example, an easement on a farm might prohibit the construction of any new buildings while preserving the right to grow crops. An easement on land that includes wildlife habitat might exclude any type of development. Easements can also be designed to apply to just a portion of the property. In some cases, if the conservation value is high enough, an easement doesn't even need to provide for public access to the property.
Depending on the terms of a conservation easement, the landowner may also receive a variety of tax benefits, ranging from lower property taxes to a deduction for charitable contributions.
Example: Sam Smith's cousin, Janet, does have heirs. She wants to keep her land in the family, and she knows that developers would love to get their hands on her wooded acres at the edge of town. Unfortunately, the value of Janet's land has increased tremendously during the 60 years she's owned it. The estate tax on the land might be so high that her heirs will have to sell the land to developers just to pay the inheritance taxes. By choosing to donate a conservation easement, Janet can:
- Remove development potential, reducing the land's tax value.
- Reduce the estate tax so her heirs can afford to keep the land.
- Go on living on the property -- and her heirs can too, if they like.
- Guarantee that the old trees planted by her grandfather can never be logged, even if her heirs get tempted.