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an introduction to conservation easements on private land

protected45 propertiesconserved5,909 acres Central Colorado Conservancy was established in 2001 as a charitable entity under the laws of theU.S. and Colorado. The organization is nationally accredited by the Land Trust Alliance andcertified by the State of Colorado to hold conservation easements.Wildlife habitatAgricultural productivityScenic enjoymentPublic recreation (only in some instances, not required) Our conservation priorities includeABOUT CENTRALCOLORADO CONSERVANCYCentral Colorado Conservancy is a nonprofit land trust that works with landowners tovoluntarily conserve agricultural and open lands. Our service area includes Chaffee,Lake, Fremont, Saguache, Park and Gunnison counties.Our Mission is to protect the lands, waters andquality of life of Central Colorado as ourcommunities face pressure and rapidgrowth. Our Visionis a Central Colorado supported bythriving communities that havesafeguarded their rural character, lands,waters and wildlife.Central Colorado Conservancy protects land for the benefit of our natural resources and localcommunities that enjoy and rely upon them. 1www.CentralColoradoConservancy.orginfo@CentralColoradoConservancy.org719-539-7700In the first 20 years, we:protected 13.2miles of waterway

CONSERVATIONEASEMENTSA conservation easement is a voluntary legal agreement between a landowner and aland trust that identifies the conservation values of a property and protects themthrough permanent restrictions on development or land use. Conservation easements can be thought of as both a real estate transaction and a perpetual legalagreement. They are tailored specifically to individual landowners, their priorities and theconservation values on the property. Conservation values include: natural habitat, open space,agricultural land, historical sites and public benefit. Why might a landownerconsider a conservationeasement? People put their land underconservation easement for a varietyof reasons. For many, it is theiremotional connection to the landand their desire to protect what isspecial about it forever. It may alsobe to preserve the character of thearea for the benefit of futuregenerations. Financial benefits toland protection may also play a role.No subdivisionLimit building developmentNo mining activitiesContinued historic use of water rights on propertyTypical restrictions include A conservation easement allows landowners tocontinue to own and use their property. The Conservancy is not involved in the day-to-daymanagement and functions only as a partner forlandowners to manage their property in accordancewith their priorities and conservation values on theland. The Conservancy is responsible for making surethe easement’s terms are followed forever byconducting annual on-the-ground or remotemonitoring. Conservation easements do not allow public accessto the land, unless landowners want to allow access.In fact, the majority of the easements we hold do notallow public access, which is often important toprotect the conservation values, the viability of anoperation on the property and/or landowners’priorities. 2Landowners can sell their property or pass it on to their heirs, and the conservation easement willcontinue to bind all future owners within the restrictions.

What is the value of aconservation easement?Financial benefits are based on theappraised value of the conservationeasement, which is the differencebetween the determined marketvalue of the property with noeasement restrictions and the valueof the property with easementrestrictions. These values aredetermined by a qualified appraiser. The Colorado tax credit is up to90% of the appraised value of thedonated conservation easement, upto a maximum credit of $5,000,000.The landowner may choose to usethese credits towards their ownstate taxes or to sell them through aqualified tax credit broker foraround 83-85% of their value. Theremaining 10% value of the donatedeasement may then be eligible for afederal charitable deduction. (Seean example on the following page.) In addition to protecting the land forever, a conservation easement can also provide afinancial benefit for landowners. The conveyance of a conservation easement can qualify the landowner for Colorado state taxcredits and a federal tax deduction, if it meets strict state and federal tax code requirements. Aconservation easement can also reduce the value of land upon which estate taxes are calculated,which may ease the tax burden on any heirs.The value of an easement is usually donated by the landowner. BENEFITS & COSTS OFPROTECTING THE LAND

Donated Easement ValueExample Benefits of a Donated Conservation EasementLandowner John Brown’s conservation easement was valued at $500,000 by acertified appraiser (the market value of his property without easementrestrictions minus the value with restrictions). As a Colorado taxpayer, his donation qualified for a Colorado state income taxcredit of 90% of the value of the easement. In this example, Brown chose to sellthe credits, the profit from which is subject to income tax. Brown’s conservation easement donation then qualified for federal charitablededuction of the donated value of the easement minus the value of the state taxcredit.In total, Brown donated a conservation easement valued at $500,000, sold hisColorado state tax credits for $373,500 and then qualified for an additional$50,000 in federal tax deductions. $500,0004The Conservancy may be able to raise funds through grant programs to pay landowners for aportion of the value of conservation easement for priority properties. If so, the landowner maythen be eligible for tax benefits based only on the remaining donated value of the conservationeasement. Fundraising significantly lengthens the amount of time needed to complete theeasement. Funding programs may not be appropriate for all projects and are highly competitive.Landowners should consult qualified legal and financial advisors familiar with their particular circumstanceswhen considering a conservation easement on their property.

Central Colorado Conservancy project coordination fee $7,500 to $10,000Total estimated costs$60,000 to $70,000Qualified conservation easement appraisal$15,000 to $30,000Baseline report$3,500 to $5,000Mineral report$2,500 to $3,500Title insurance policy$1,500 to $5,000Closing and recording costs$250 to $500Central Colorado Conservancy legal costs up to $10,000Stewardship endowment$15,000 to $25,000Colorado tax credit application fee$2,900Estimated Transaction Costs for Landowners Completing a Conservation EasementIn some cases, the Conservancy may be able to raise funds through grant programs to partially orfully pay the transaction costs for a donated conservation easement. Fundraising significantlylengthens the amount of time needed to complete the easement. Funding programs may not beappropriate for all projects and are highly competitive.5Does not include landowners' personal legal and financial advisor fees.

COMPLETING ACONSERVATION EASEMENTIt typically takes 12 to 18 months to complete a donated conservation easement ortwo to three years to complete a partially funded conservation easement. TheConservancy works with landowners and any other partners to facilitate the process. Discuss the Potential Conservation Easement Agree to the Easement ProjectPrepare the Conservation EasementDetermine the Approximate Value of the Conservation EasementGather the Required DocumentationAccept the Conservation EasementClose and RecordSteward the Conservation Easement12345678

1Discuss the Potential ConservationEasement123 4 5 6 7 821 23 4 5 6 7 8Meet with Conservancy staff to discuss the property, the landowner’s vision forthe future of their land and conservation easements in general. The landownershould talk with their family, legal counsel and financial advisor about conservationeasements and working with the Conservancy. Conservancy staff visits the land and talks with the landowner about how theproperty may or may not meet the Conservancy’s conservation priorities and thelegal criteria for conservation easements. The easement must protect recognizedconservation values including wildlife habitat, scenic open space and/oragricultural productivity. This is a mutual process, where both landowner and the Conservancy determineif the priorities and goals are complementary and requirements are met toestablish an easement on the land.Agree to the Easement ProjectMembers of the Conservancy’s staff and Board of Directors complete a site visitto the property. Information from this visit, in conjunction with a staffrecommendation on the potential conservation easement on the land, are used forthe board decision on whether or not to move forward with the easementproject. If both the landowner and the Conservancy agree to move forward, thelandowner signs the Conservancy’s letter of intent and pays the first $1,500 ofthe non-refundable project coordination fee. Conservancy staff then help thelandowner work through the process and due diligence of completing aconservation easement tailored to the property. Completing a conservation easement can take 12 to 18 months.Some of the steps may happen concurrently.

Conservancy staff works with the landowner to draft a conservation easementtailored to the landowner’s wishes for the property. This legal agreement betweenthe landowner and the Conservancy describes all of the permitted and prohibiteduses of the land under easement, as well as the process and remedies for anyfuture violations of the agreement. The landowner should review the draft with their attorney and allow plenty oftime to discuss any possible changes with Conservancy staff. A qualified appraisal establishes the monetary value of the conservationeasement, which determines the value eligible for Colorado state income taxcredit and federal tax deductions. The appraisal must be completed by anappraiser who is qualified to prepare easement appraisals and uses UniformStandards of Professional Appraisal Practice. 8“[This] is a special place and weare pleased to be able toprotect a small piece of it fromfuture development. We arealso proud to partner withCentral Colorado Conservancy.It’s a great organization doingimportant work.”-Trey Rogers, Ruby Mountain Ranch31 2 34 5 6 7 8Prepare the Conservation Easement41 2 3 45 6 7 8Determine the Approximate Value ofthe Conservation Easement

5Gather the Required DocumentationA lot goes into establishing an easement, and Conservancy staff assists thelandowner on understanding the steps for due diligence along with their attorneyand accountant. Documents needed may include: Baseline reportThis report includes an inventory and description of the values and biologicalresources that justifies conservation of the property and characteristics, currentuse and improvements on the property. The report serves two purposes: first, tofulfill an IRS requirement to document the physical and environmental condition ofthe property at the time of easement conveyance; and second, as a benchmarkagainst which any future violations of the easement terms are measured. Title commitment & insurance policyThe title commitment will identify any known exceptions to the title, including anyliens, access easements, severed mineral rights or other conditions. TheConservancy also requires a title insurance policy to protect the Conservancy fromlosses due to any unrecorded defects in the title or mistakes in the titlecommitment. SurveyIf the title indicates any unknowns about the legal boundaries of the property, asurvey may be necessary. Mortgage subordination agreementIf a mortgage exists on the property, the subordination document states that thebank accepts that the mortgage is junior in priority to the conservation easement.Mineral reportIf the landowner does not own all of the mineral rights on or under the property,the IRS requires that a mineral remoteness letter be prepared, which indicates thatthe probability of extraction or removal of minerals from the property by surfacemining is “so remote as to be negligible.”91 2 3 4 56 7 8

Every conservation easement isunique and tailored to eachproperty and landowner'sneeds. The easement is mutuallydeveloped between theConservancy, the landownerand their advisors.

6Accept the Conservation EasementA copy of the entire package of the deed of conservation easement, appraisal,reports and other documentation is submitted to the Conservancy’s Board ofDirectors for final acceptance. The board votes for final acceptance of theconservation easement at this time. If the deed of easement has already beenagreed to and the accompanying documentation is present, acceptance should beassured. "Conservation easements areone of the most impactfullegacies a landowner cancreate to protect our homeforever."- Bryce HoweConservation Program Manager1 2 3 4567 8

781 2 3 456 781 2 3 45678Close and RecordThe landowner and the Conservancy sign the deed of conservation easement. Thedeed is recorded with the county clerk and both the Conservancy and thelandowner retain a copy. The landowner then works with their appraiser and accountant to complete allnecessary IRS and Colorado Department of Revenue forms. Finally, the landownercan work with their tax credit broker to sell their credits if desired. Steward the Conservation EasementLandowners continue to use their property within the terms outlined in theconservation easement. Each year, the Conservancy will monitor the property tomake sure that the terms of the conservation easement are being upheld. TheConservancy contacts the landowner before entering or remotely monitoring theproperty. Landowners should contact the Conservancy if they have questions regarding theconservation easement or are concerned about a possible violation. TheConservancy also defends the conservation easement should it ever be challengedby outside entities aiming to reduce or remove the protections on the property.14This process takes time andeffort, but dedicated landownerscan join thousands of othersacross Colorado in protectingour lands and waters forever. This is a great gift to futuregenerations.

Thank you for your interest inprotecting the lands andwaters of Central Colorado.www.CentralColoradoConservancy.org | info@CentralColoradoConservancy.org | 719-539-7700

Total Easement Value$500,000In total, Brewer donated 75% and sold 25% of a conservation easement valued at$500,000. She sold her Colorado state tax credits for $280,125 and qualified foran additional $37,500 in federal tax deductions. Landowners should consult qualified legal and financial advisors familiar with their particular circumstanceswhen considering a conservation easement on their property. Example #2 - Partially Funded Conservation EasementLandowner Jane Brewer’s conservation easement was valued at $500,000 by acertified appraiser. The Conservancy raised funds to purchase 25% of the valueof the easement. Brewer donated the remainder. As a Colorado taxpayer, her donation qualified for a Colorado state income taxcredit of 90% of the value of the donated portion of the easement. In thisexample, Brewer chose to sell the credits, the profit from which is subject toincome tax. Brewer’s conservation easement donation then qualified for federal charitablededuction of the donated value of the easement minus the value of the state taxcredit.Donated Easement Value$375,000

Donated Easement ValueExample #1 - Donated Conservation EasementLandowner John Brown’s conservation easement was valued at $500,000 by acertified appraiser (the market value of his property without easementrestrictions minus the value with restrictions). As a Colorado taxpayer, his donation qualified for a Colorado state income taxcredit of 90% of the value of the easement. In this example, Brown chose to sellthe credits, the profit from which is subject to income tax. Brown’s conservation easement donation then qualified for federal charitablededuction of the donated value of the easement minus the value of the state taxcredit.In total, Brown donated a conservation easement valued at $500,000, sold hisColorado state tax credits for $373,500 and then qualified for an additional$50,000 in federal tax deductions. $500,000The Conservancy may be able to raise funds through grant programs to pay landowners for aportion of the value of conservation easement for priority properties. If so, the landowner maythen be eligible for tax benefits based only on the remaining donated value of the conservationeasement. Fundraising significantly lengthens the amount of time needed to complete theeasement. Funding programs may not be appropriate for all projects and are highly competitive.Landowners should consult qualified legal and financial advisors familiar with their particular circumstanceswhen considering a conservation easement on their property.