Chapter 3: Your Land As An Asset
by Stephen J. Small, Esq.   5.21.02


As land values go up, and as good land gets harder to find, more and more landowners and families are beginning to think differently about their land. What once was just the family place, or the family farm, a piece of land loved but not worried about, has taken on more meaning. The family land has become a very important family asset.

Irreplaceable and a Lifestyle Statement
Your land is a unique asset in the hands of your family, probably priceless to you and impossible to replace. It is probably beautiful. It may be in the Mississippi Delta or inland in New England or in the Rocky Mountains. Your land is beautiful and it evokes strong emotions in you and probably other members of your family. Your land may represent a very important lifestyle decision you have made: this is ours, this is important to us, this is a decision we have made and this is a way of life we love. You know that if your land ever passes out of the hands of your family it is probably gone forever.

Valuable Economically
Your land is an asset that may require significant planning if you want to keep it intact. You may need land use planning and appraisal assistance to determine the development potential and the value of your land. You need to understand whatever local zoning and regulatory rules exist. Again, all of this is important to be able to determine the correct dollar value of your land. In a real estate market with down times, flat periods, and upward bursts you may need to update your land value on a reasonably regular basis. You may not want to sell it for that dollar value, but this is information you will need to have.

Estate Planning
That dollar value will be important in your estate tax planning. While we expect that the estate tax threshold will go up over the coming years, it is not unreasonable to expect that over the long term land values will also increase and the value of other assets will increase. To be able to do your estate planning right, you need to be able to know the value of your land and the value of your other assets. If you don't already know the answer to these questions, you should find out: "What will happen to my land when I die? What will be the estate tax burden on my estate? What will my heirs have to do to pay the estate tax bill?" See Chapter 6 for some estate tax planning issues and calculations.

Historically, good estate planning is something the advisor and the family can do in the office, or the living room, or at lunch. If most of a family's net worth is more or less liquid, more or less savings, stocks, and life insurance, along with the residence, people can sit in an office and discuss concepts and agree on a plan.

However, if the older generation owns a valuable and loved piece of land, the planning cannot be so "passive." The family and the advisor need to take an active role in learning about the land, walking the land, bringing in advisors with special experience, learning about the planning options, determining its cash value and conservation values, understanding conservation easements, and understanding their tax benefits, planning opportunities, and flexibility. What you used to be able to do in an armchair now may require boots and four-wheel drive!

Cash
Your land is an asset that in many parts of the country can generate significant amounts of cash if you sell the development rights, or even sell the land outright to a charitable organization or government agency for conservation purposes. For a family that wants to keep its land intact and still generate some cash from that land, the sale of a conservation easement or development rights may be a wonderful planning opportunity. In addition, good tax planning can help stretch the after-tax dollars for a motivated seller in a variety of interesting and creative ways so those dollars have a bigger impact; see Chapter 9 for more on this point. When your land is an asset like this it deserves the same attention and care and tax and financial planning that knowledgeable people give to their other important assets.

Income Tax Savings
Your land is also an asset that can generate substantial income tax savings and money in your pocket from the donation of a conservation easement. To do this you need to understand the appraisal process, you need to understand the income tax rules, and you need good tax planning. See Chapter 5 for some income tax planning points and examples of income tax savings from easement donations.

It is not always easy to generalize about tax matters and tax results. There is absolutely no substitute for running the numbers and looking at the actual after-tax dollar results from a variety of different planning possibilities. Most beautiful pieces of land cost money every year to keep up. By turning a conservation easement into income tax savings, and by investing that tax savings and letting it grow, you can completely turn around the economics for a piece of land that otherwise runs at a loss each year.

Here is a very important observation. The income tax savings make conservation easement donations very attractive for some people who would otherwise never be interested in restricting their land against development. The income tax savings make conservation easement donations very attractive for other people who are sympathetic to the idea but need some incentive to give away significant dollar value. In addition, in the case of easement sales, good tax planning can help maximize the after-tax proceeds of the sale. If you are donating or selling an easement you must get good tax planning advice from a competent tax attorney who has experience with these transactions.

Planning... And Not Planning
Sometimes doing the planning that is necessary to keep your land intact and to pass it to the next generation is not that difficult or time-consuming and sometimes it is.

Over the years, however, I have heard many landowners say, "I am so glad I did that work. We took the time to do it right. We did the planning we wanted to do. We saved our land and saved tax dollars. My family and I have an enormous sense of satisfaction and relief."

Unfortunately, I have also heard stories about families that have not done the planning. In some cases they did not know what their choices were and did not make an effort to find out. In some cases stubborn (there is no other word for it) older-generation family members were well-advised and simply refused to do anything. Some older landowners seem to think that choosing not to do anything has no consequences (because they're not doing anything), but it can have dramatic consequences. If you are a landowner in this country today, and if you care about your land, you cannot do nothing.

Part of the Planning for All Your Assets
Your land is an asset that by itself can be the subject of important planning decisions. But as you will see from much of the discussion in this book, for most families planning for your land is something that should be done as part of your overall planning. It could be a mistake to do tax planning and legal planning for your land alone, without an understanding of how your land fits with your other assets. A family's financial, economic, and succession issues and decisions should take into account all of the family's assets.

This was true starting at least in the 1980s and it is even more true today: private land protection and the tax code are now inextricably tied together. Historically in this country private land ownership did not bring with it federal tax planning issues; it does now.