A26-Lancaster Farming, Saturday, November 18,1989
T
A
R
MANAGEMENT
SELLING YOUR
CONSERVATION EASEMENT
Will you have done your heirs
any favors if they can’t get adequ
ate and timely farm services, are
always fighting with their neigh
bors about the farm odors, and/or
can’t get to the fields because the
traffic makes it too dangerous?
By Alan W. Strock
County Agent/Farm Manage-
ment
Chester and Lancaster Counties
If you are contemplating selling
your conservation easement, you
have many complex decisions and
issues to face. It may even be more
challenging than planning your
estate. Remember, the decisions
you make will greatly influence
your heirs for generations to come.
You must consider the impact of
your decision on the future feasi
bility of farming, the supply of
interested heirs to continue farm
ing, the real estate tax, the federal
and state inheritance and income
tax, the lowered fair market value
of your farm. Also, there are your
county’s rating system and the tim
ing of your decision to consider.
Making an informed final deci
sion won’t be easy, but your heirs
will hopefully thank you for gener
ations.
ABLE TO BE FARMED ?
The first consideration is the
future feasibility of fanning at
your location. Some factors to
think about will be traffic conges
tion, availability of farm support
services, (supplies, repairs, feed,
etc.), local zoning and manure
ordinances, water quality and
availability, and finally, direct
marketing opportunities of your
farm products.
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HEIRS?
If there is a question whether
you have heirs that desire to farm,
it may also be questionable
whether you want to restrict your
farm land to farm uses only. Some
of your children may want the farm
sold for the top dollar and feel that
the farm is their big inheritance.
If you do have heirs who desire
to farm, the conservation easement
cash payment may make estate
planning easier by having the cash
to compensate those non-farm
children. It will also make it easier
for the future farmer to purchase
the farm by lowering its fair mark
et value. With the cash you may
even be able to gift a portion of the
fair market value to your child, to
further facilitate the heir purchas
ing the farm.
REAL ESTATE TAXES
Presently it is uncertain how
your real estate taxes and the
assessed value of your property
will be affected by the conserva
tion easement.
The new assessment should be
based solely on agricultural value,
but this is presently untested in the
Pennsylvania court system. If it
has been a long time since your
farm has been assessed it is con
ceivable that your assessed value
will rise after the conservation
easement is sold. Your total real
estate taxes will still rise even if
your assessment stays the same,
when and if, your local millage
rates increase.
Before making a final decision
to sell your conservation easement
try to get some ruling from your
county tax assessment office as to
how your assessment will be
affected by selling your conserva
tion easement.
INHERITANCE AND
INCOME TAXES
Selling your conservation ease
ment and then gifting cash or other
assets out of your estate may be an
excellent tool in lowering your
probable inheritance tax liability.
Don’t forget though, as long as
the cash or other assets you
bought stay in your control you
won’t have substantially low
ered the value of your estate,
however the real estate value of
your estate will be lowered
because the farm real estate will
now be valued at farm use value
instead of fair market value in
calculating the total value of your
taxable estate.
Don’t forget, the profit you real
ize from the conservation ease
ment is taxable income for feder
al and state income tax purposes.
Make sure, after paying off your
lending institution and your
income taxes, that you have
enough left to fulfill your wishes.
You may want to purchase the
neighboring farm, make major
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building improvements and/or
additions to the farm, or gift funds
to your heirs among other desires.
You may want to consider donat
ing a portion of your easement sale
to lower your tax liability and
allow the county and/or state to
purchase more easements.
Be sure to spend time with your
accountant and calculate your
income tax liability before you
sign on the dotted line, especially
if you gift a portion of the
easement.
LOWERED FAIR MARKET
VALUE
The conservation easement will
greatly reduce your fair market
value when the farm is transferred
to the next owner. The fourteen
farms in Lancaster County sold
with conservation easements in
place over the past 41/2 years sold
for an average of $3,116 an acre, or
about $lOOO less than the 1988
Lancaster County average. This
lowered value is great if the farm
will stay in the family, but greatly
reduces the sale price when com
pared to selling the farm for
development
COUNTY RATING SYSTEM
It would be a good idea to
become familiar with the rating
system that your county will use to
decide which farms’ easement to
purchase. According to the ena
bling state legislation each county
-will have a detailed list of rating
factors that will contribute to a
final cumulative score, which will
be used to rank the farms under
consideration of easement purch
ase.
Location and site factors and
agricultural productivity factors
are the two classifications of the
ranking system. Location and site
factors may include: extent of non-
agricultural development in the
area, proximity to planned deve
lopment, proximity to farmland
protected by perpetual easements
or restrictive covenants, buffering
of parks, environmentally sensi
tive areas, historical structures or
districts, soil and water conserva
tion practices, size of the farm par
cel, proximity to sewer service,
and cost (or percent donation of
appraised easement value).
Agricultural productivity fac
tors revolve around the productivi
ty of the soil types on the farm and
crops grown on the farm.
TIMING
Even after considering every
thing else, timing could be your
most important factor. If you are
aware of your county’s rating sys
tem you may desire to wait until
your score would be the highest
and consequently have the best
chance of selection.
If the fair market value of your
farm has continued to rise recently,
you may also want to wait until, in
your opinion, the farm would have
reached its peak fair market value,
and in turn yield you the most
money. You may also want to wait
to,see if any of your children and
their spouses desire to farm. You
may also want to wait until the
conservation easement would best
work into your estate plan.
SUMMARIZE
Be sure to thoroughly research
all your options before you sell
your farm’s conservation ease
ment If possible talk to farmers in
other states that have already sold
their easements and learn from
their experiences. Literally list the
pros and cons and consult your*
family members and make an
informed decision that is right for
your family and you.