Knowing something is of value is one thing. However, being able to prove the value is another kettle of fish.
This easement valuation challenge goes double since you are attempting to value an intangible, non-market benefit, and triple when it is the IRS you are trying to convince.
The developing trend against easement valuations was the subject of a recent Forbes article titled “Easement Valuations Not So Easy Anymore” If you have any possible interest in leaving an easement then it is a problem well worth your planning attention.
So what is an easement and why would you be interested in leaving one? Essentially, an easement is a charitable gift of the right to change your property, or anyone else’s right should they purchase it from you. If you own forested land in the country and you want to conserve that forest as it is instead of putting up a strip mall, then protect it with a conservation easement. If you own historic property in the city and you want to conserve that historic building as it is instead of allowing for yet another contemporary high-rise, then protect it with a conservation easement.
There are lots of hurdles to qualifying as an easement and there must be a charity to eventually run it. Regardless, value is the key hurdle to clear when taking a deduction for the donation without also ruining the value of the property itself. After all, just because you are foregoing utter capitalization of the property does not mean you were hoping to debase any value at all.
As the original article points out, valuation has been a tricky game and it is only getting trickier. With nothing but rough estimates to live off of – there is no market rate for an “easement” after all – valuations fell to simple principles and the (hopeful) applications of percentages. This is what the IRS is now challenging.
No surprise there.
Read the original article for a better understanding of the cases in the works and the challenges now being levelled by the IRS against easement valuations. The bottom-line: this should underscore how important valuation is and how important it is to build your easement plan carefully.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Forbes (April 5, 2014) “Easement Valuations Not So Easy Anymore”