By reducing the value of land, conservation easements also facilitate the use of other estate planning tools. This is particularly true of gifts. One of the most important means of shifting valuable land from one generation to the next is by gift. Federal law allows an annual exclusion from the gift tax. In 2022 the exclusion amount is $16,000 per donor per donee.
By reducing the value of land, a conservation easement allows more land to pass, tax free, to the next generation. For example, a husband and wife with two children can make tax-free gifts to their children using the annual exclusion in the amount of $64,000 each year. If they own a farm valued at $10,000 per acre and donate a conservation easement on it which reduces the value to $5,000 per acre, they can transfer twice as many acres to their children each year than would be possible without the conservation easement.
Because conservation easements restrict the number of parcels into which land may be divided, to take advantage of the annual gifting strategy described above, land should be transferred to a family limited partnership or limited liability company. This allows annual transfers to be made through the gifting of membership interests in the partnership or limited liability company without the need to actually divide the land and transfer acreage.