Land trusts are local, regional and national, nonprofit organizations that work with landowners, in order to protect open tracts of land, increasingly threatened by development and sprawl. The first land trust was founded more than 100 years ago in New England. The first conservation easement in America, which permanently limits development of land, was written in the late 1880s to protect parkways in and around Boston. Lands trusts, typically staffed by volunteers or a few employees, are helping communities save our land heritage without relying exclusively on governmental tax dollars. Using a variety of legal mechanisms to permanently restrict the uses of the designated property, land trusts are expert at helping landowners find ways to protect their land in the face of ever increasing development pressure. They are able to protect land through donation, purchase, estate planning, by working with landowners that wish to utilize conservation easements, conservation buffers or by devising other plans to maintain open space. Land trusts protect open space of all kinds; watersheds, wetlands, shorelines, forests, wildlife habitat, farms, ranches, historic properties, scenic views, and recreational areas, land of every nature that has environmental, ecological, historic, scenic, or other conservation value. Land trusts also secure ownership, through gift or purchase, of important natural land in order to protect scenic beauty, endangered plants and animals, and to provide recreation areas for residents and visitors. Typically, land trust owned property is open to the public on a limited access basis in keeping with the Conservation Values and Goals for a particular property.

The State of North Carolina has begun initiatives to protect more of its critical natural resource areas. The state legislature has established the Smart Growth Study Commission to examine how North Carolina can better manage growth and use of land resources. Governor Hunt has declared an initiative to protect 1 million more acres in North Carolina over the next ten years. In light of North Carolina's urban growth and recent devastating floods, the importance of protecting our water quality, floodplains, natural areas, farms and forests is becoming more of a broad based public concern than ever. Land trusts are partnering with other conservation organizations, agencies, and communities to meet this challenge.

An example of the public/private partnership in conservation efforts developing today involves the Blue Ridge Parkway. The parkway is a historic and scenic resource of national significance and is the most visited unit of the National Park System attracting over 20 million visitors annually. Its visitors are treated to fascinating views of natural resources and interesting geological forms. The Parkway provides more than 450 miles of highway corridor running from Great Smoky Mountain National Park in North Carolina to the Shenandoah National Park in Virginia. The protected land along the Parkway averages only 800 feet wide as it winds along mountain ridges. Land trusts work to protect the scenic views of the Blue Ridge Parkway by working directly with landowners and other organizations to limit development on and protect privately owned lands adjoining the Parkway.

Conservation easements, now the most popular means to protect land, came into widespread use after the Tax Reform Act of 1976 expressly recognized them as tax deductible when donated to a qualified entity. They are, typically, binding covenants running with the land that limit the type or amount of development on their property. Conservation easements allow the land trusts to work with private landowners in a flexible manner to prevent excessive development of fragile resources and to preserve scenic beauty and ecological integrity. Land protected by conservation easements remains privately owned and is not open to the public. The landowner and prospective easement holder, usually a land trust, tailor the easement terms to protect the land's conservation values and meet the financial and personal needs of the landowner. Thus, each easement is a unique document. Generally, limitations are made on the number and location of structures and the types of land use activities that can take place. A land trust can not accept an easement that does not meet its conservation standards, but these standards are met in different ways on different properties. The easement may apply to just a portion of the entire property, leaving the option of development open for the remaining part as long as the development wouldn't harm the natural or historic resources of the property.

The grantee organization or agency is responsible for enforcing the restrictions that the easement document spells out. To do this, the grantee monitors the property on a regular basis, typically once a year. Grantee representatives visit the restricted property, usually accompanied by the owner. They determine whether the property remains in the condition prescribed by the easement and documented at the time of the grant. The grantee maintains written records on the monitoring visits. The visits also keep the grantee and the property owner in touch. If a monitoring visit reveals that the easement has been violated, the grantee has the legal right to require the violator to correct the violation and restore the property to its condition prior to the violation.

A conservation easement can also serve as a flexible tool in a family's financial planning. The donation of a conservation easement that meets certain requirements of the tax code can qualify as a tax-deductible gift under Internal Revenue Code Section 170. These requirements include a provision that the easement must be donated in perpetuity. It must be donated to a qualified charitable organization that has the commitment and the resources to enforce the easement, such as a land trust. Moreover, it must be donated exclusively for conservation purposes. Internal Revenue Code Section 170 (h) generally defines "conservation purposes" to include the following: The preservation of land areas for outdoor recreation by, or the education of the general public; The protection of relatively natural habitat for fish, wildlife, plants, or similar ecosystems; The preservation of open space where such preservation will yield a significant public benefit and is either 1) for the scenic enjoyment of the general public, or 2) pursuant to a clearly delineated federal, state, or local governmental conservation policy; or 3) the preservation of an historically important land area or certified historic structure. If an income tax deduction is to be claimed, however, some types of easements require access. If the easement is given for recreation or educational purposes, public access is required. For scenic easements, much of the property must be visible to the public, but physical access is not necessary. Access generally is not required for easements that protect wildlife or plant habitats or agricultural lands. For historic preservation easements, either visual or physical access is required, depending on the nature of the property or building to be preserved. To determine the value of the easement donation, the owner has the property appraised both at its fair market value and at its fair market value with the easement restrictions. The difference between these two appraised values is the easement value. Detailed federal regulations govern these appraisals.

A state income tax deduction is also available under NCGS Sec. 105-151.12. "(a) A person who makes a qualified donation of an interest in real property located in North Carolina during the taxable year that is useful for (i) public beach access or use, (ii) public access to public waters or trails, (iii) fish and wildlife conservation, or (iv) other similar land conservation purposes is allowed a credit against the tax imposed by this Part equal to twenty-five percent (25%) of the fair market value of the donated property interest…" A similar provision applicable to corporations is set forth in NCGS Sec. 105-130.34. Presumably, there is an ad valorem property tax benefit also. The reduction in market value attributable to the easement should be accounted for by the county tax assessor in appraising the property. This is required explicitly by statute in many states such as Michigan and South Carolina. Arguably, it is included by implication in Chapter 105 of the North Carolina General Statutes. Assuming that the land subject to the conservation easement is not otherwise eligible for use valuation, NCGS Sec.105-283 provides that all "property, real and personal, shall as far as practicable be appraised or valued at its true value in money. When used in this Subchapter, the words "true value" shall be interpreted as meaning market value, that is, the price estimated in terms of money at which the property would change hands between a willing and financially able buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of all the uses to which the property is adapted and for which it is capable of being used."

A qualified conservation easement may additionally result in a reduction in estate tax under I.R.C. Sec. 2031(c). An executor of the estate of a decedent may elect to exclude from the taxable estate 40 percent of the value of any land subject to a qualified conservation easement. It must meet the following requirements: (1) the land must be located within 25 miles of a metropolitan area or a national park or wilderness area, or within 10 miles of an Urban National Forest; (2) the land must have been owned by the decedent or a member of the decedent's family at all times during the three-year period ending on the date of the decedent's death; and (3) a qualified conservation contribution of a qualified real property interest was granted by the decedent or a member of his or her family. The maximum exclusion for land subject to a qualified conservation easement is limited to $100,000 in 1998, $200,000 in 1999, $300,000 in 2000, $400,000 in 2001, and $500,000 in 2002 and thereafter. The exclusion for land subject to a qualified conservation easement may be taken in addition to the maximum exclusion for qualified family-owned business interests. Any net equity in debt-financed property is eligible for this provision.

As noted above, there are numerous mechanisms to permit great flexibility in accomplishing land conservancy. A brief summary of the more common forms these conveyances take with their benefits and tax advantages is set out as follows:

Conservation easements comprised of a legal agreement between a landowner and a land trust, or government agency permanently limiting a property's uses, are the most common form. The conservation values are protected by organization and the owner continues to own, use, and live on the land. This form enjoys both income and estate tax benefits when donated. Another frequently used form is where land is donated outright to the land trust or agency. It also enjoys both income and estate tax benefits. A variation of this method occurs when undivided partial interests in land are donated to land trust or agency over several years, until organization has full ownership. Income tax deductions spread over several years and it also is eligible for the estate tax deduction. Sometimes land is donated to land trust or agency at death by will. There are no income tax advantages, but the qualifying gift is deductible from the estate tax. A bargain sale of land enjoys both income and estate tax benefits when the property is sold to land trust or agency for a price below fair market value. Donation of remainder interest in land with reserved life estate enjoys both income and estate tax benefits, while the owner (or designated others) continue to enjoy the benefits until death.

A common variation of the last method summarized above is the charitable remainder trust. There are several types of charitable remainder trusts, but one typical form is the charitable remainder annuity trust. With such a trust, the donor transfers the property to an irrevocable trust. The donor is subsequently paid an annual amount of at least five percent of the fair market value of the gift for the donor's lifetime, or a fixed term of not in excess of twenty years. At the termination of the trust, the donated property belongs to the land trust. The donor takes the yearly payments as income, but is permitted a current deduction equal to the present value of the remainder interest. The deduction is subject to the same percentage limitations on the sale of appreciated property (30% of adjusted gross income) as are other gift deductions. The actual amount of the deductions is calculated using present value tables provided by the IRS.

Two other methods provide conservation benefits for the land with continued ownership and control of the property, but enjoy no income or estate tax benefits. Occasionally land is leased for a specified number of years to a land trust or individual, with restrictions placed on how it can be used. Development is postponed and the restrictions end at the termination of the lease. Mutual covenants can also be imposed on property by a group of landowners agreeing to place restrictions on their land use. This may or may not involve a conservation group and can be nullified by subsequent agreement of the owners.

Conservation buffers are small areas or strips of land in permanent vegetation, designed to intercept pollutants and manage other environmental concerns. Buffers include: riparian buffers, filter strips, shallow water areas for wildlife, grassed waterways, shelterbelts, living snow fences, contour grass strips, windbreaks, wind barriers, cross-wind trap strips, vegetative barriers, field borders, alley cropping, and other natural buffer mechanisms. Strategically placed buffer strips in the agricultural landscape can effectively mitigate the movement of sediment, nutrients, and pesticides within farm fields and from farm fields. When coupled with appropriate upland management practices and technologies, buffer strips should allow farmers to achieve a measure of economic and environmental stability in their operations. Buffer strips can also enhance wildlife habitat and protect biological diversity.

Conservation buffers slow water runoff, trap sediment, and enhance runoff filtration within the buffer. They do this by trapping fertilizers, pesticides, pathogens, sediment and heavy metals. If properly installed and maintained, buffers have the capacity to remove more than 50 percent of these pollutants. Conservation buffers also help to stabilize a stream, reduce its water temperature and offer a setback distance for agricultural chemical use from water sources. In addition, they protect livestock and wildlife from harsh weather; buildings from wind damage, help trap snow, and cut down on blowing soil in areas with strong winds. Conservation buffers reduce noise and odor. They are a source of food, nesting cover, and shelter for many wildlife species. Buffers also provide connecting corridors that enable wildlife to move safely from one habitat area to another.

Conservation buffers work economically because of additional financial incentives available through USDA conservation programs such as the Conservation Reserve Program (CRP) sign-up, Environmental Quality Incentives Program, Wildlife Habitat Incentives Program, Wetlands Reserve Program, and Stewardship Incentives Program. Financial incentives available through the CRP sign-up are attractive because they include a signing incentive payment of $100 to $150 per acre for riparian buffers, filter strips, grassed waterways, shelterbelts, field windbreaks, and living snow fences as well as other financial benefits. No competitive offer is required in the sign-up, and there is no waiting period. Offers are accepted automatically if eligibility requirements are met and the land offered for enrollment is suitable for the buffers to be installed. Many state and local governments, and even some private organizations, offer additional financial incentives to install conservation buffers.

In certain instances, land trusts will assist in negotiating a purchase between conservation minded sellers who may be unwilling or unable to afford a donation and prospective purchasers seeking the tax benefits. At issue in these transactions is the conflict between insuring that the conservation objectives are met and not prematurely restricting the property. If the seller imposes the restrictions prior to closing, the land trust will be assured of inclusion of the property in its program. However, the purchaser may not be able to derive the maximum tax benefit and the seller may not wish for the property to be encumbered with the easement if the deal fails to close. One possible solution is to include provision for the conservation easement in the contract with a provision that the requirement will survive the closing. A memorandum of contract including the essential terms, including a sunset date if there is no recorded conveyance, can be executed and recorded. This can assure maximum tax and philanthropic benefit while not creating a title problem for the owner if the sale falls through.

Communities are learning that they can save tax dollars by protecting sources of drinking water or avoiding disastrous flooding by acquiring property and regulating development in flood plains. Protecting natural systems is good economics. Communities across the nation are learning that building in floodplains is an invitation to disaster, despite expensive dike and levee systems that simply increase flooding farther downstream. Expense piles on expense as residents and businesses demand costly drainage improvements, flood control projects, flood insurance, and disaster relief. Protected floodplains also create economic benefits by providing open space for recreation, wildlife habitat, and farming. A protected floodplain that doubles as a wildlife refuge or recreation area may generate economic benefits by attracting hunters, birdwatchers, and other tourists to a community. No wonder that more and more governments at all levels are prohibiting development in floodplains or are acquiring floodplains for permanent flood protection. Because of the high cost of recurring flood damage, in 1988 the Federal Emergency Management Agency (FEMA) announced that in the future it would work to relocate homes and businesses out of the path of "recurring natural disasters." This has been the process in Eastern North Carolina in the aftermath of the disastrous flooding following Hurricane Floyd. Cities and counties have acquired properties in the flood plain and are in the process of removing the damaged structures. Arguably, removal of these impediments to water flow will directly result in diminished flooding. It is widely accepted that the direct economic benefit of the elimination of the recurring cost of damage in these areas will greatly exceed the costs of purchase and removal.

Increasingly, title insurance is being utilized by the various parties to these transactions as the benefit provided by such protection becomes more recognized. In many cases, the failure of the title to one link in a chain of easements may negate much of the benefit of the entire project. It is important to note that when the Federal government (or one of its agencies) is the insured, an ALTA US Government policy form will be required. It is a good idea to advise your title company in such situations.

Additional information on the many programs available in North Carolina can be found on the North Carolina Department of Environment and Natural Resources Web site: www.enr.state.nc.us.