For over 20 years, some property owners have been able to take certain income and estate tax breaks if they've put part or all of their property into a "conservation easement." A conservation easement is when the property owner agrees co limit-usually for perpetuity either the type or amount of development of the property, while still retaining ownership and significant control of the property. The agreement must be with either a government agency or qualified conservation organization-who will take the land owner to court to enforce the agreement, if necessary. An easement is designed to protect open space from development. However, the owner and the owner's decedents typically can still enjoy use of the property, such as continuing to ranch or use it as vacation property, and can even restrict or prohibit public access to the property.

The latest wrinkle in the conservation easement program is that the owner may now exclude up to 40 percent of the value of the preserved land from the owner's gross estate. As with most tax laws, there are a lot of ifs, ends and buts; however, for some property owners, the new law may prove co be a tax-saver as well as a way co keep the land in the family or simply preserve it for the benefit of the public. (For example, Robert Redford recently put 850 acres of Utah property under conservation easement; however, owners can put as little as one acre into easement.)

First, to qualify for a conservation easement, the land must, at the time of the owner's death

• Be within 25 miles of a metropolitan area or ten miles of an urban national forest
• Be within 25 miles of a national park or wilderness area (unless the IRS determines there is no significant development pressure)
• Have been in the family for at least three years before the owner's death
• Be preserved for outdoor recreation, natural habitat or scenic enjoyment by the public (this doesn't necessarily mean access by the public)

Second, to receive the full 40 percent exclusion, the protected land must be valued at a minimum of 30 percent of its fair market value before the easement. In a rather complicated formula, the 40 percent is reduced by 2 percent for each 1 percent the value of the land falls below 30 percent of its former fair market value. That easement value is determined in part by any rights the owner retains. For example, an owner can put land into conservation easement, yet retain limited development rights or timber rights, for example. However, if the value of the easement falls below ten percent of the fair market value of the land before the easement, none of the land can be excluded from estate taxes. (Keep in mind, though, that the land will have a lower fair market value to be taxed simply because it was put into conservation easement.)

The maximum dollar amount of the exclusion, in the year the owner dies, is only $100,000 in 1998. It rises $100,000 a year until it maxes out at $500,000 in the year 2002 or thereafter.

Although the land can be excluded from the owner's estate, it does not receive a step-up in basis at death. However, the easement exclusion may be taken in addition to the new estate tax exclusion the owner can take for a family-owned business.

Qualifying land for a conservation easement is complicated, so you will want to consult experts before making any decisions. However, it can be a valuable way to help keep property in the family or ensure that the property will not fall to development in succeeding generations.

July -30- l998