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IOWA LANDOWNER OPTIONS AN INITIATIVE OF IOWA NATURAL HERITAGE FOUNDATION

www.IowaLandOptions.org

Iowa Landowner Options SAFEGUARDING IOWA’S NATURAL RESOURCES FOR THE FUTURE


About the book and website This booklet is designed to help Iowa landowners explore methods for permanently protecting their land’s special natural features. See the website at www.IowaLandOptions.org for more stories and videos and the most current tax benefit information. All materials in the print and online version are copyrighted by Iowa Natural Heritage Foundation. For permission to reprint or share text or images, contact INHF at info@inhf.org or at 515-288-1846.

2 Getting Started 3 First Steps 10 For Advisors

About the publisher Iowa Landowner Options is published by Iowa Natural Heritage Foundation, a nonprofit, member-supported conservation group that protects and restores Iowa’s land, water and wildlife. INHF printed the first edition of Iowa Landowner Options in 1982 and has provided free consultation and educational materials about Iowa land protection since 1979. INHF has helped Iowa’s landowners protect over 150,000 acres of Iowa’s special places. Some of these sites are now operated as public natural areas while others remain in private ownership or INHF’s care.

Sponsor Major funding provided by the Conservation Education Program of the Resource Enhancement and Protection (REAP) Fund.

Contact INHF For personalized, confidential information about protecting your land’s natural resources, contact our staff at info@inhf.org or at 515-288-1846. Iowa Natural Heritage Foundation 505 5th Ave, Suite 444 Des Moines, IA 50309 www.inhf.org

12 Estate and Financial Planning with Land 14 Protection Options 16 Donation Options 26 Sale Options 32 Private Ownership Options 38 Combining Options 40 Agricultural Land 42 Tax Benefits 44 Importance of Professional Advice 46 Income Tax Benefits 48 Tax Benefits Beyond Income Tax Savings 50 Basics About Claiming Tax Benefits 52 Resources 52 Glossary 53 Conservation Partners 54 Contact INHF

“My family and I thought a long time about our property. We wanted to protect it, but didn’t know how to begin. Then I found this booklet, and INHF to help us. Once we endeavored seriously to get down this path, it was easy. All we had to do was take the first step.” – C  I NDY B URKE, CONSERVATI ON EASEMENT AND RESERVED L I FE ESTATE D ONOR


GETTING STARTED

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GETTING STARTED

Getting Started Determining the future of your land is an important responsibility, and it’s your opportunity to create a conservation legacy. Perhaps no one understands the connection to land quite like Iowans. Cropland that provides our livelihood, timber where we explored as kids, prairies that teach us about our heritage — Iowa’s diverse landscapes shape our lives. Every day, we hear from Iowans that have a special connection to the land they own — land with its own personality, foibles and subtle charm: that stubborn wet spot in the south field, the little flowers that bloom in the woodland each spring, the way

sunrise paints the upper pasture during chores. It’s land they love, and safeguarding it for the future is ever-present on their mind. Landowners often give this decision a great deal of thought and discussion. You may be surprised at the many ways you can protect your land and the many conservation partners who are able to help you create the future you envision for your land.

“My father used to say, ‘Land isn’t ours. It’s ours to use — and then to return better than when we got it.’” – MA RT H A SK I L L MA N , I N DIA NO LA

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We recommend considering and discussing these “nuts and bolts” questions with your family, your legal/financial advisors or Iowa Natural Heritage Foundation staff as you begin your decision-making: Do I want to continue to own or use the land during my lifetime?

Do I want financial compensation for my land?

GETTING STARTED

First Steps

Your answers to these questions can help to direct you to land protection techniques and partners that best fit your situation and your land. Do I want the land to be open to the public as a park or wildlife area someday?

Are potential tax savings important to me?

Do I want to protect all of my property or just part of it?

Who might be best suited to oversee the long-term protection and care of my land: an individual, a nonprofit conservation group or a public conservation agency?

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GETTING STARTED

FIRST STEPS

1. W  hy and when to protect your land Your reasons for protecting your land for conservation might be purely practical or deeply personal. We often hear the following questions from landowners who explore land protection: Personal What will happen to my land someday? Are you worried about how your land will be used after you’re gone? Is it under pressure to be converted to cropland? Quarried? Developed? Are livestock confinements or wind farms sprouting up around you? These things aren’t necessarily wrong — but you may feel strongly that it’s wrong for your land. Will the next owners resist those pressures and opportunities like you have? You can ensure that this is the case through various protection options such as donations (page 17), bequests (page 20) and conservation easements (page 32).

Who will care for this land? Some landowners find they have no obvious heirs for their land: particularly, no one who is motivated to care for the land. This is a special concern for people who have worked hard to care for a prairie or woodland,

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to plant native trees and grasses, to restore wetlands or buffer streams and practiced good farm stewardship. They have invested time, sweat and money, and they know it takes consistent upkeep and commitment for the land to remain healthy. How can you choose a next owner who is firmly committed to the land for the long haul? Land protection techniques can help you find that conservation-minded person, organization or agency.

How can my land help to honor my family and “give back” something lasting? Those of us fortunate enough to own land that’s part of our family heritage may have strong emotional ties to that land — a sense of being entrusted with its past and its future. Whether your vision is to see your family land remain sustainably farmed or restored to natural land, managed for wildlife or enjoyment by future Iowans, INHF may be able to help you achieve that vision or create a lasting conservation legacy.


How can my heirs afford to inherit this land? Iowa inheritance tax and federal estate tax (page 49) can make it difficult for land to pass forward without cost. When land is a major asset in a high-value estate, or when the heirs are not direct descendants of the landowner, this is an even bigger concern.

“Giving part of our farm to the public has been in the back of my mind for years, but turning 50 made me realize: Why wait?” – NEIL HA MILTO N, WAU KEE

Land protection can help. For example, a conservation easement might lower the land’s value and bring the estate under the exclusion limit — saving the estate from owing an estimated 40 percent in federal estate taxes.

first step toward land protection: a reversible decision that provides a temporary “safety net” under the land while you explore other options over time. There’s peace of mind in knowing the land will be in good hands if anything should happen to you. Learn more about bequests on page 20.

How can I turn my land into a public nature area?

Financial or retirement planning

When others’ enjoyment of your land is your goal, you will likely need to work with a conservation agency whose mission is to provide nature experiences for Iowans. You might explore your ideas with your county conservation board, the Iowa Department of Natural Resources or other agencies who share this goal. INHF works in partnership with many agencies, and we’re glad to discuss possible partners with you. Learn more on pages 8 and 53.

Land is a financial asset: an important puzzle piece for your overall planning. Land protection techniques can also offer financial or tax benefits that can be great puzzle pieces in your planning.

Estate planning When you prepare or update your will, you think about the future of your land. Many people choose a bequest for conservation as a

GETTING STARTED

…and practical

If you would like to sell your land to a conservation entity at some point, allow plenty of time to explore those conservation options. Public agencies need time and funds to gain approvals for purchases. INHF may be able to help by holding the land in the interim or assisting the agency in seeking grant funding for the purchase. Significant tax benefits can result from the various donation options for land protection. Plan ahead to use those tax benefits when it’s most useful to offset a spike in income or taxes.

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GETTING STARTED

FIRST STEPS

2. Does my land have conservation value? The easy answer is “Yes.” Iowa has relatively little natural land for wildlife or people, and our cropland is precious with some of the most productive soils in the world. The points below can help you recognize lands that more easily fit the IRS definitions of “conservation value” for tax benefit purposes, and more easily fit into priorities for public conservation agencies or organizations with which you may wish to work. We recommend you invite INHF or another conservation entity to help you determine your land’s conservation value. You may be surprised at the ways your land is important for Iowa conservation.

Natural resources If your land includes a native prairie, trout stream, a great woodland or wetlands, it’s important to consider its future. INHF can help determine the quality of the habitats and ecosystems on your land, and whether it’s a good fit for protection or restoration.

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Key location Adjacent to public land: If you own land next to an existing public area (like county/state parks or wildlife management areas), your land may help expand the wildlife habitat, public access, land management options or buffering benefits of the current public complex. Near protected land: Land near other protected land (private or public) can help connect natural wildlife corridors along rivers, trails and scenic byways. Watersheds: INHF can help identify if your land has exceptional impact on the water quality of lakes, rivers or streams.

Large area Very large tracts of land may — but don’t always — have more conservation value than small tracts. They can often serve as stand-alone conservation areas, even if they are not currently managed for wildlife or nature.


GETTING STARTED

“For me, this is a legacy issue. It’s my opportunity to help future generations experience this gift of nature that is in my own backyard.” – M IC H A E L O ST E R H O L M , DO R C H E ST ER

Agricultural land There are a lot of options for marrying cropland protection with conservation goals. Some involve continued cropping and income; others involve restoring cropland to woodland, wetland or prairie. Learn more about protection possibilities for agricultural land on page 40.

Historical or archeological significance Many of Iowa’s most beautiful natural areas contain significant cultural and historic resources — from effigy mounds built by prehistoric cultures to pottery shards left by Native American tribes. Landowners can protect historical resources alone or as part of a larger conservation plan.

If your land’s main value is cultural, you might want to contact the Office of the State Archeologist or the State Historical Society of Iowa. These departments often work in tandem with conservation partners to protect the land’s natural resources simultaneously.

Is your land outside Iowa? We recommend you contact a land trust that serves the area where your land is located. The Land Trust Alliance has a listing of land trusts on their website (www.landtrustalliance.org).

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GETTING STARTED

FIRST STEPS

3. Public or private? How do you envision your land? There are many potential conservation partners for your land’s protection, and the first way to sort among them is to determine if it’s important to you whether or not your land becomes public. Some landowners would like future generations to experience nature on their land. A public conservation agency may be able to make that happen. Other landowners prefer their land be available mostly to wildlife, not people. A private, nonprofit conservation organization may be able to make that happen.

Public enjoyment Many people think first of the county conservation board (Iowa has one in each county) or the Iowa Department of Natural Resources as a potential owner of land to be shared with the public. These agencies may offer guided hikes, educational opportunities with professional naturalists on the land, mentored or youth hunting, as well as varied individual recreation opportunities on lands they own and manage. Iowa’s private land trusts sometimes provide public access or occasional public events on land they own and manage, and are also in an easier position to hold land that is not open to the public.

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Techniques that fit public vs. private partners • Donation options are easiest for both public and private entities to consider and accept, compared to sale options. Both public and private entities may offer donor recognition, including a specially chosen name for the area. Learn more on page 16. • Sale options might work with private conservation organizations, but are most often associated with public agencies. Competitive public grants for land protection are generally limited to lands that will be open to the public. Learn more on page 26. • Conservation easements can be donated to public or private entities. Some county conservation boards have active easement programs, but many have not yet had the opportunity to accept a conservation easement. Land trusts are eligible to hold easements, and many do. INHF can help you explore potential conservation easement partners based on the location of your land. Learn more on page 32.


INHF has worked with private landowners since 1979 to bring conservation to more than 1,100 places statewide. The first person to donate land to INHF for protection was Daisy Whitham of Fairfield. Daisy said, “I want you to be my eyes into the future.” That was her way of saying she trusted INHF to keep her woodland always a woodland — to keep an eye on her land. INHF is honored to carry out Daisy’s vision for the future, and to carry out the vision for hundreds more Iowa landowners. It’s a trust we take seriously, and a duty at which INHF is one of the most experienced organizations in the state.

GETTING STARTED

4. How INHF can help

• Navigate. Whether you choose a donation or a bequest, a conservation easement, a bargain sale or any number of other options, we can help you navigate all the steps you’ll need to take. • Protect. If you choose INHF to hold your conservation easement or own your land in the future, we look forward to building a lasting partnership with you and your land. Our staff and board work hard to ensure that INHF has the capacity to live up to our permanent responsibilities.

To help you achieve your land protection goals, INHF can: • Listen. We start with a conversation to determine what’s best for the land and your protection priorities. We can help you consider the many options available for Iowa landowners and choose the best course of action. • Refer. We work hard to find the right fit for Iowa landowners. That often includes INHF, but not always. We’ve introduced many landowners to conservation agencies and organizations that best fit their vision and needs.

Serving you and a hundred public partners Iowa Natural Heritage Foundation often makes it easier for landowners to protect, donate or sell land. Looking to start the protection process, or learn more about your options? Contact the INHF staff at info@inhf.org or 515-288-1846. These landowner services are free and confidential.

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GETTING STARTED

For Advisors A word to attorneys, financial planners and tax preparers: We meet many professional advisors who are in the midst of their first opportunity to help a client with permanent land protection decisions. Many want to hear how others in Iowa have benefited from these techniques, deductions and tax credits. INHF staff is here for you, too. Just as we offer free, confidential conversations to landowners, we are committed to sharing our knowledge and experience with professional advisors.

INHF staff can help: • Examine possibilities. In confidential conversation, we can help you discern whether an anonymous situation might lend itself to land protection and its affiliated tax benefits. • Find resources. We’ve introduced many landowners and advisors to conservation agencies and organizations that best fit the goals and needs at hand. • Learn from your professional peers. INHF has co-presented land protection workshops for Continuing Legal Education credit, and we hope to do more outreach in collaboration with professional advisors. We are also available for presentations to professional gatherings in Iowa.

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Which clients should know more about land protection? You might consider introducing the land protection topic to your clients who: • express concern about what will happen to their land beyond their ownership or lifetime. • have no obvious heirs for their land (including those whose children do not share their interest in enjoying or caring for the land). • are the “end of the line” for family land, such as multi-generation family farms. • mention wanting to “give back” somehow with their land. • are nearing the time when they’ll sell or transfer land that has obvious conservation value. • need to consider the future of land as part of their current estate or financial planning. • are sharing ownership with siblings or partners — especially if that shared ownership will become more complex, making land decisions harder in the future.


GETTING STARTED

“There is nothing more satisfying than helping a family protect land they love for those who follow. Many of my favorite projects as an attorney have been helping families explore and implement conservation gifts.” – AT TORN E Y PAU L P. MO R F

Practical pointers INHF staff is glad to talk with attorneys, financial advisors, tax preparers or appraisers about the experience we’ve gained in helping Iowa landowners with varied land protection actions. We also learn from professional conferences and the national land trust community regarding recommended methods of filing for tax benefits related to permanent land protection.

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GETTING STARTED

Estate and Financial Planning with Land Estate and financial planning are wise moves, especially if land is one of your major assets. Your goals for your land, your finances and your legacy should be considered together. They are intertwined. Know your financial situation You’ll want to understand your future financial resources before deciding on permanent conservation actions for your land. For example, if your land is your only source of funds for major expenses late in life, you may want to consider a bequest for conservation (rather than a donation today) so you can retain the flexibility to sell land if necessary to fund your needs.

Share your conservation priorities Those who advise you legally and financially need to understand your desire to protect your land. Without this knowledge, they may recommend options that later conflict with your land protection options. With this knowledge, they may help you discover tax benefits or financial advantages to certain land protection methods.

Trusts vs. protection Sometimes land is placed with other assets into irrevocable trusts that guarantee lifetime income

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(such as charitable remainder trusts). If protecting your land’s natural resources is your primary goal, you’ll want to consider this cautiously. As some conservation-minded landowners have learned too late, these trusts are required to return maximum value for the beneficiary — so it may be impossible to later add permanent land protections that reduce value. Even if you intend that a conservation group receive the land from the trust upon your death, the trustee might be forced to sell your land in order to provide your income payments during your lifetime.

Estate planning can be a safety net for your land If you’re concerned about your land’s future, but you want time to determine just how you’d like to protect it, a simple bequest of land to a conservation organization can provide peace of mind. Bequests allow you to take your time without worry as you consider other techniques that would supersede the bequest during your lifetime.


For example, a number of landowners have named INHF as primary or contingent beneficiary for their land, trusting us to “figure out” the best protection for their land if or when the time comes.

Do you know your children’s wishes for the land? Some people assume they will bequeath land to their children, and that the children will care for it much as they themselves have done. Experience shows it’s best not to assume. Some heirs may consider land ownership and its stewardship responsibilities to be more a burden than a blessing. It’s fair to ask children what they would do with the land if they owned it. It suits some families better all around to accomplish land protection and estate planning in a way that helps you shift other assets to your children’s legacy.

Bequests of land: Talk it through

GETTING STARTED

A contingency bequest of land can also give peace of mind — just in case the heir you’ve chosen to care for your land is unable to accept the gift or pre-deceases you unexpectedly.

Some people prefer not to reveal to beneficiaries that they are included in the will. While surprise can be a wise strategy in some situations, permanent land protection is generally not one of them. Many conservation groups have horror stories about bequests they received with no advance warning or discussion. In some cases, their staff, the deceased’s lawyer and descendants struggled to clarify vague bequest instructions like “use my land for conservation.” In other cases, intended recipients had to reject a surprise bequest because the gift didn’t fit their mission or because there were so many restrictions and management costs that they could not meet the donor’s expectations. To avoid such problems, talk with your chosen conservation organization or agency before bequeathing land to them. This way, you’ll have time to clarify goals, revise the will’s language and/or choose another beneficiary.

“Preserving this property was one of the most important things I could do in my estate planning. This is the one thing I know will always stay the same.” – M IK E RIC K E RT, WAU KO N

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PROTECTION OPTIONS

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When it comes to conservation protection, there are many options you can consider with your chosen conservation partner. Use the chart below to start identifying potential protection options.

PROTECTION OPTIONS

Protection Options

Do you want to continue to own and use this land during your lifetime?

YES

NO

CONSIDER:

CONSIDER:

CONSIDER:

Conservation Easement if you have plans to leave the land to family/friends or sell it someday

Bequest Donation

Full Donation

See page 20

Bargain Sale

OR

See page 26

Reserved Life Estate Donation

OR

See page 23

See page 29

See page 32

See page 17

Fair Market Sale

These methods allow you to choose a conservation entity, such as INHF, to be the future owner of your land.

These six protection tools are the most commonly used by Iowa landowners. There are other methods available that are less common because they apply only to specific circumstances or work best in combination with other options. Visit www.IowaLandOptions.org to learn more.

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PROTECTION OPTIONS / Land Donation

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Donation Options Landowners most often use one of these three options to give land to an agency or organization whose mission is conservation. The chart below compares their features. See also the notes on combining options (page 38) and estate planning (page 12).

Reserved Life Estate

Donation

Bequest

Flexibility of gift

Irrevocable; this is a permanent decision

Full flexibility (revocable)

Irrevocable, but you retain the flexibility of use of the land during your lifetime

Timing

Gift accepted by conservation group; see your gift in action now

Trust in future acceptance of gift by conservation group

Gift accepted by conservation group; you may or may not see your gift in action

Land decisions

No responsibility for land; control through pre-determined restrictions

Full control and responsibility of land

Responsibility and control during lifetime; may choose to relinquish later

Tax benefits

Full tax benefits

Rarely any tax benefits

Significant tax benefits; based on age

Income from land

Income supports your donee

Full income to you during lifetime

 ull income to you F during lifetime

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Donating land to a conservation partner is usually the simplest conservation option because financing and price negotiations aren’t necessary. The process involves discussing your goals and intentions with your intended recipients to confirm that they will accept your land gift and then an eventual transfer of title. You can also donate cropland or non-conservation land to support conservation efforts (page 40).

Financial benefits • You will no longer pay property taxes or costs of management. • A full donation to a qualified government agency or nonprofit organization maximizes the income tax benefits of land protection. You may be able to claim a federal income tax deduction plus an Iowa income tax credit for the land’s fair market value (as determined by a qualified appraiser). • Some landowners donate land in installments or partial interests over a period of years to maximize their tax benefits. • Donation during your lifetime may reduce your federal estate tax and your heirs’ state inheritance tax.

Other benefits Donating land for conservation also provides intangible benefits:

PROTECTION OPTIONS / Land Donation

Land donation

• Because you are making a gift, you have more control in choosing your land’s future owner, land uses, management goals and transaction timing. • You may have naming rights to the property — allowing you to memorialize your family name or placing a meaningful name on the land permanently. • You share in the excitement of seeing the conservation project unfold before your eyes.

“I want you to be my eyes into the future.” – D  A ISY WHITHA M, F IRST LA NDOWNER AS S ISTED BY INHF (1 9 80 )

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PROTECTION OPTIONS / Land Donation

“INHF seemed like the logical choice to ensure that the work we have done to preserve natural areas is continued.” – RO S LEA JO HNS O N

THEIR STORY: LAND DONATION Bob and Roslea Johnson will be the first to admit that when they acquired the land that is now home to their Madison County farm, parts of it weren’t much to look at. Portions of it were “totally mucked over and unusable for anything,” Roslea said.

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to protect it. They decided to donate their land to a conservation organization. “INHF seemed like the logical choice to ensure that the work we have done to preserve natural areas is continued,” Roslea said.

Bob’s initial restoration goal for those pieces of their property was to create pastureland for cattle grazing. But in the process, the Johnsons learned that there were remnants of prairie on their land.

The Johnsons intend to donate their property in parcels over time, including their cropland, reconstructed prairie and a former quarry site offering unique scenic features long-enjoyed by locals.

“Then, when we learned about savanna,” Roslea said, “we wanted to preserve these rare ecosystems.”

In the future, the Johnsons hope to see more neighbors protecting their land in the Clanton Creek area.

After discovering their property’s special features and putting in years of work to steward, protect and connect the remnant pieces, the Johnsons took the next step

“Our goal is to help build an even stronger community of people who appreciate and enjoy nature,” Bob said.

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Ease, whether public or private If you’d like your land to become a public wildlife area or park, it’s much easier for a conservation agency to accept a land donation than to accomplish the purchase of land for conservation. Seeking grants or public funding for a purchase can take months or years, while a donation can be approved much more quickly. Similarly, it’s much easier for a conservation organization to accept a donation of land than to purchase land. Most nonprofits do not have ready funds to purchase lands, nor can they compete for many of the public funding sources for land protection.

QUICK LOOK:

You may want to consider a land donation if any of these apply to you: Y  ou’d like a protection method that’s relatively simple and could be completed soon.

PROTECTION OPTIONS / Land Donation

DONATION OPTIONS

Y  ou’re ready to pass forward the responsibility for caring for this land and to choose its next owner. Y  ou like the idea of entrusting this land to an agency or organization with a conservation mission. Y  ou would like the most generous tax benefits available.

Timing It’s best to discuss land gifts with your potential recipient well in advance. Conservation staff can help clarify your wishes and/or suggest changes in gift timing that could be mutually beneficial.

Future stewardship If your land has special long-term management needs, consider donating or bequeathing funds to help cover your recipient’s future expenses associated with the gifted property.

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PROTECTION OPTIONS / Bequest

DONATION OPTIONS

Bequest If you want to entrust your land to a conservation group eventually, but want to keep it throughout your lifetime, a bequest to a conservation entity might be right for you. This option has few tax benefits, but offers maximum flexibility and peace of mind.

What type of land? If your land has high-quality natural resources that you want protected beyond your lifetime, consider bequeathing it to a conservation group. Even if your land has little or no natural resource value — such as cropland or a commercial lot — you can bequeath it to a like-minded conservation group. They can use its sale proceeds or annual income to fund other conservation efforts.

Advantages • Ease. It’s a straightforward process — simply include the land bequest and recipient in your will or estate documents. • Control. A bequest enables you to decide what will happen to your land. If you die without a will, state law determines how your assets will be disbursed. • Use and income. The bequest does not affect your use of the land during your lifetime. The land

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is still completely yours, and the joys and responsibilities of land ownership are still yours. Any income the land provides will still come to you. • Flexibility. A bequest can be changed if you later need an asset to cover personal expenses or if you’d like to choose a different beneficiary.

Legal and tax benefits • Your bequest may reduce future estate and inheritance taxes. • Bequests do not qualify for income tax savings available through several other options.

Safety net Some landowners use the bequest as a first step toward land protection. During the time that the landowner is considering other land protection options or waiting for them to be completed, they have peace of mind knowing that the land will be in good hands if anything should happen to them suddenly. This “safety net” trusts the beneficiary to tend to the land protection, in case the landowner is unable to complete it.


Though the paperwork is simple and can be done without the beneficiaries’ knowledge, always discuss land bequests and restrictions with potential conservation beneficiaries in advance.

Here are some key issues to clarify with your conservation partner: • Bequeathing land “for conservation” can mean different things for different land and different people — from selling the land and using the proceeds for other conservation projects to preserving and managing the land according to very specific guidelines. Talk with your intended conservation recipient — perhaps even walk your land together — to make sure this partner understands and can fulfill your goals. • Unlike a cash bequest, land gifts can place significant responsibilities and costs on the recipient — especially if the land has no income-producing potential and comes with restrictions on its use, management or future sale. In such cases, consider a bequest of funds to ensure that your conservation partner can manage the property as you intend.

QUICK LOOK:

You may want to consider a bequest if any of these apply to you:

PROTECTION OPTIONS / Bequest

Talk with your beneficiary

F  or now, you want to personally own this land and receive any income it provides. T  o finish your estate plans, you need to decide who the next owner of this land will be. Income tax benefits are not important to you. Y  ou’d like an agency or organization with a conservation mission to own this land after you or permanently protect it on your behalf.

• Contingency bequest: It’s always good to have a “Plan B” in your estate plans regarding land you want to protect. Perhaps you’re leaving your land to a trusted, conservation-minded heir. But just in case that heir pre-deceases you, add your “second choice” of a conservation heir: another individual, or a conservation agency or nonprofit.

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PROTECTION OPTIONS / Bequest

Bobby Lanz put her farm into the hands of people devoted to conservation.

THEIR STORY: BEQUEST Some landowners have a specific vision for the future of their property. Others come to Iowa Natural Heritage Foundation seeking guidance. And some, like the late Bobbie Lanz, simply entrust INHF to do what it thinks is best. Bobbie never spoke with INHF staff about her intentions for her 192-acre farm near Newton, and her will mentioned no restrictions or expectations. So it was with surprise and gratitude that the organization set out to determine the land’s future. Bobbie may have assumed INHF would sell this land, but because our mission is focused on Iowa land and natural resources, we paused to examine other possibilities. “We wanted to try more things that improve land for farming and for

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conservation simultaneously,” said INHF President Joe McGovern. “That’s the attitude we’d love to see on every farm across Iowa’s landscape.” Ultimately, INHF decided to keep the farm Bobbie entrusted to us. We made a commitment to land management that benefits soil, water and wildlife while providing income for the organization. INHF put some of the steep hillsides in pollinator habitat and added buffers along the waterways. Lanz Heritage Area is not a perfect demonstration farm. Like most worthwhile undertakings, it’s a work in progress. McGovern said, “There’s always a next step, and our mission keeps us focused on doing better all the time.”


Reserved Life Estate When you donate your land with a reserved life estate, you firmly commit to the gift but can continue to use the property during your lifetime. This option, also called a “life tenancy,” is a middle ground between a bequest and an outright land donation that can feel like the best of both worlds. How does this work? • You donate your land to a conservation agency or organization, with a reservation of life use that allows you to continue to use all or part of the property — either for a certain number of years or during the rest of your lifetime. This life estate can make it possible for you to continue to live on the land, enjoy recreation there and farm the cropland for income. • Your spouse and/or other immediate family member(s) that you stipulate as “life tenants” can also enjoy continued use. However, extending this right to additional people — especially if they are significantly younger — decreases your potential income tax benefits. • You retain typical owner responsibilities and costs, such as building maintenance, land management, insurance and property taxes. • You can’t make management decisions that would significantly reduce the value of the gift. For example, you can’t clear cut the

land or stop maintaining the buildings (unless permitted in the original agreement).

PROTECTION OPTIONS / Reserved Life Estate

DONATION OPTIONS

Advantages • Regularity. For all appearances, it’s as if you continue to own your land. • Certainty. The conservation entity you’ve chosen as a future owner has accepted your land donation. It’s a “done deal.” • Tax benefits are greater than those for a bequest of land (though not as large as a full donation without a life estate). • Income. If your land produces income, you and your life tenants will continue to receive it. • Flexibility. If you or your life tenants decide that use of the land is no longer important to you, you can donate the remainder of your life estate. This is a pathway to release the responsibilities of land ownership later in life. This can also enable you to watch your conservation vision for the land unfold during your lifetime, if you wish.

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PROTECTION OPTIONS / Reserved Life Estate

DONATION OPTIONS

Financial effects QUICK LOOK:

You may want to consider a reserved life estate if any of these apply to you: F  or now, you want to enjoy this land and receive any income it provides. Y  ou’d like to choose an agency or organization with a conservation mission to own this land after you or permanently protect it on your behalf. You’d also like to know they’ve accepted this land and this responsibility. Y  ou’d like to be eligible for some income tax benefits.

“It’s a relief to know that this special place will be preserved and cared for, even after I’m gone — and that it will carry my grandmother’s name: DeElda Heritage Area.” – H E LE N G U N DE R SO N , A ME S

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• You can’t reverse a reserved life estate gift. In contrast, you can change a bequest during your lifetime. For this reason, the donation with reserved life estate may offer tax benefits during your lifetime while a bequest does not. • You’ll continue to pay real estate taxes on the land retained for your family’s use. • Your gift may qualify for income tax deductions. Your deduction is based on a formula using IRS actuarial tables and current interest rates. If the life tenant is older, the tax benefits will be greater than if the life tenant is younger.

Partner considerations Some conservation groups may prefer to avoid the complexity and delays associated with a land donation with reserved life estate. Others may actually prefer it to an outright donation. It’s an especially appealing option for groups that would someday like to own the property but do not wish to accept the costs and responsibilities of immediate ownership.


– RICH Z EIS

PROTECTION OPTIONS / Reserved Life Estate

“I didn’t have to worry anymore about what would become of the land after I’m gone.”

THEIR STORY: RESERVED LIFE ESTATE Rich Zeis believes his land at Spencers Grove is “the third prettiest place in Iowa,” and it’s easy to see why. This high spot between Cedar Rapids and Waterloo encompasses gently rolling rural beauty, rich in reconstructed prairie and woodland. Rich arranged a bequest of 110 acres to Iowa Natural Heritage Foundation with the expectation that INHF would permanently protect it. “I felt like I’d done my job,” Rich said. “I didn’t have to worry anymore about what would become of the land after I’m gone.” Fifteen years later, Rich asked himself “why wait?” and donated the land to INHF with a reserved life estate. A desire to see the land

permanently protected during his lifetime, the freedom and financial benefits this option offered were all part of his decision. “These are good tax benefits, quite frankly,” Rich said. “Some people might be hesitant to donate with reserved life estate, fearing they would lose control of the land. It’s not that way. I can still enjoy it and do everything with it that I would want to.” Rich also appreciates the peace of mind that a completed gift with lifetime use provides. “I don’t have to worry that, when I enter my dotage, someone will try to convince me to do something different, like develop it. I know that this matter is settled.”

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PROTECTION OPTIONS / Bargain Sale

Sale Options Bargain Sale Rather than sell at fair market value, there are good reasons to consider selling your land to a conservation partner at a reduced price. Whether the price reduction is small or substantial, a bargain sale is a popular option for protecting conservation land. Bargain sellers may get a significant part of their donation returned in tax savings. Advantages • You receive proceeds from the sale of your land (though less than fair market value). • You may qualify for income tax benefits based on the discounted price of your sale. Meanwhile, your capital gains taxes associated with the sale may become smaller or nonexistent. • Bargain sales can often be accomplished more quickly and effectively than sales at fair market value. • Conservation groups always have limited funds, and public grants for protection projects are very competitive. Your generosity helps your conservation partner compete for public grants and attract private contributions to complete the purchase.

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• Those who donate substantial land value may be given the opportunity to participate in choosing the name that their land will always bear. This can be a wonderful way to honor family or the local heritage. When you begin to discuss your land’s protection with the conservation agency or nonprofit of your choice, they can help you learn more about all these factors. INHF can provide a first conversation about bargain sales to a conservation agency, if you’re not sure which one might fit your land and situation the best.


PROTECTION OPTIONS / Bargain Sale

Timing Timing deserves discussion. Conservation agencies often need months or years to raise funds for a purchase. Also, your financial advisor may be able to help you identify a year when a charitable deduction can benefit you most. Talk with a conservation agency or INHF about ways to ease the purchase process for everyone concerned. For example, your buyer can often help you time your gift to a specific tax year. You might offer special considerations like extended payment terms or an exclusive option to buy that will enable the agency to seek grant support.

QUICK LOOK:

You may want to consider a bargain sale if any of these apply to you: Y  ou’re ready to pass this land forward and would like to see it in the hands of an agency or organization with a conservation mission. T  his is a financial asset you’re counting on. Y  ou could use income tax benefits, especially to offset the capital gains and income taxes that may result when you sell the land.

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PROTECTION OPTIONS / Bargain Sale

“It’s a balancing act: comparing the goal of protecting the land with the economic impact of doing that.” – CA L PA R R OT T

THEIR STORY: BARGAIN SALE Cal and Frankie Parrott’s 248-acre conservation farm near Council Bluffs is a wellspring of wildlife habitat in an intensely agricultural area. Over the years, the couple has converted cropland to native vegetation and improved the oak savanna and mature deciduous forest on the property. When it came time to decide the land’s future, permanent protection was important to them, as were the tax considerations. “It’s a balancing act: comparing the goal of protecting the land with the economic impact of doing that,” Cal said. They liked the idea of the land becoming a public wildlife area. After exploring their options, they decided on a bargain sale to Iowa

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Natural Heritage Foundation so the land could later transfer to the county conservation board. “I talked with my tax planner, and he saw the tax savings [of a bargain sale] would be substantial,” Cal said. “Looking at our bottom line, the net we’d receive would likely be similar whether we donated 1/3 of the value or sold the land at full price.” Donating substantial value was the key to helping the county successfully fund the purchase and protection of this place — now known as Wheeler Grove Conservation Area. “It’s a positive feeling to preserve a piece of ground. It’s a lasting feeling. People will enjoy this ground for many years to come. This sense of accomplishment trumps the feeling of a tax benefit,” Cal said.


Fair Market Sale Conservation groups can and do purchase land at fair market value — though their acquisition funds are limited. Easing the sale

Extended payment terms

If you truly care about protecting your land’s natural resources but need to receive fair market value, consider easing your conservation buyer’s purchase through the following non-financial means.

You can give your conservation buyer time to raise purchase funds by offering a contract or installment sale. This strategy might also help you extend your income and tax benefits.

While many of these incentives can aid other sale options, they are particularly helpful for fair market purchases.

Option to purchase If a conservation group lacks ready cash to purchase your land, you can grant an option to purchase. You and the conservation buyer agree on a specific sale price and terms, including a specific amount of time during which the buyer may exercise its exclusive right to purchase your land. During that time, you cannot sell to anyone else. If the option expires, you have no further obligation to that buyer. An option enables a conservation agency to compete for grants for land protection. Without such grants, a fair market sale might not be possible.

PROTECTION OPTIONS / Fair Market Sale

SALE OPTIONS

First right of refusal If a conservation group expresses interest in purchasing your property but you’re not yet ready to sell, you may grant that buyer a First Right of Refusal. This right gives a conservation buyer a specified period of time to match any bona fide offer that you receive from another potential buyer. Before accepting this outside offer, you are obligated to allow the conservation group to purchase the land for that amount.

“A fair market sale can be more challenging than a donation or bargain sale. But with some flexibility on the terms and price, it can be a good way to accomplish multiple goals and protect great places.” – H  EATHER JO BST, S ENIO R LA ND CO NS ERVATIO N DIRECTO R, INHF

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PROTECTION OPTIONS / Fair Market Sale

SALE OPTIONS

Selling from an estate QUICK LOOK:

You may want to consider a fair market sale if any of these apply to you: Y  ou’re ready to pass this land forward and would like to see it in the hands of an agency or organization with a conservation mission. Y  ou need to receive full value for this land, if possible. Income tax benefits are of no use to you. T  his land is to be sold from an estate, and as executor or heir, you believe it’s best that the land be placed into conservation hands, if possible.

The bottom line Before setting your price, compare the pre-tax and after-tax proceeds of a fair market sale with a bargain sale. Your bottom line isn’t measured by your sales proceeds alone but by how much you get to keep after taxes. Bargain sales also provide intangible benefits, such as recognition and participating more fully in protecting your land as a conservation legacy.

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If you are an heir or executor of an estate that contains land you believe should be protected, there may be a way to accomplish this. If land is not bequeathed to a particular heir, it’s likely to be sold by the estate and the proceeds directed to the heirs. Usually, executors try to maximize the proceeds. But if all the heirs agree that the land should be protected, they can ask the executor to place a conservation easement on the land before it is sold — even if it decreases the sale proceeds. Or, they can ask that the land be sold, bargain sold or donated to a conservation entity if possible. Any land value that’s donated can be claimed on the estate’s income tax filing. Even if some heirs don’t care about protecting the land, a fair market sale to a conservation entity might satisfy everyone involved. Sometimes estates need to close faster than a public conservation agency can secure funds to purchase the land. In those cases, INHF may be able to purchase the land from the estate and hold it for future resale to a public agency.


PROTECTION OPTIONS / Fair Market Sale

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PROTECTION OPTIONS / Conservation Easement

Private Ownership Options Conservation Easement A conservation easement is the most popular and permanent way to protect your land’s special features while retaining private ownership and use. How conservation easements work A conservation easement is a permanent agreement between a landowner and a qualified conservation group. The easement document specifies:

Flexibility

• The purpose of permanent protection, including the natural, cultural, historic and scenic attributes of the land.

Because landscapes, landowner goals and potential threats vary widely, a conservation easement is a flexible protection tool.

• What uses or rights the landowner retains.

Though conservation easement documents may start from the same template, each is tailored to the land and the landowner. For example, some Iowa easement donors place an easement on their entire property while others protect only the most vulnerable areas. Some limit timber harvesting to a sustainable plan while others completely prohibit it. Some restrict development to protect their agricultural tradition. Others restrict agriculture to protect their prairie restoration efforts.

• What land uses the landowner does not want to exercise — and which no future owner will be able to exercise. In other words, when you grant a conservation easement, you retain many land ownership rights while voluntarily giving up others — such as development or mining — that could damage the site’s conservation values. The easement document, which is binding to the current owner and

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all future owners, is filed with the county recorder. The easement holder accepts the responsibility of monitoring the land use into the future.

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Continued ownership

ahead. From start to finish, the process can take anywhere from four to 15 months.

Easements allow landowners to maintain most ownership rights. Landowners still hold the property in fee-title and can sell it or bequeath it to heirs. If compatible with the purpose of the easement, they may live on the site, raise crops, harvest timber and otherwise derive income from the property. Their rights to restrict public access are identical to those of any other private landowner. Easement donors also retain typical landowner responsibilities such as controlling noxious weeds and paying property taxes.

The conservation easement process involves several steps, including drafting and agreeing on easement language, updating the property abstract to assure clear title, getting a qualified appraisal (if you seek tax benefits), creating a baseline inventory that the easement holder (your conservation partner) can use in future monitoring visits, and filing final documents with your county recorder. While most of these tasks aren’t your responsibility, you need to allow time for your conservation partner to complete them.

Tax benefits

The decision

A conservation easement generally reduces the land’s fair market value, which can reduce the donor’s taxes. If the easement is donated, the difference in appraised value before and after placing the easement may be recognized as a charitable gift and may qualify the donor for substantial income tax benefits. It may also reduce estate and inheritance taxes.

Granting a conservation easement is a major decision that should not be taken lightly. Depending on circumstances, easements can significantly reduce the land’s fair market value while providing significant tax benefits. Once signed, an easement’s restrictions are recorded and become permanently binding on the current owner and all future owners.

The process

Before granting a conservation easement, discuss your options with your financial and legal advisors, family, heirs and potential easement holder.

If you’re trying to complete your easement within a specific tax year or other personal deadline, plan

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PROTECTION OPTIONS / Conservation Easement

Advantages

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PROTECTION OPTIONS / Conservation Easement

PRIVATE OWNERSHIP OPTIONS

Tailoring your easement Most conservation easements share similar features — with the finer details adapted to each landscape and landowner. For example, easements held by INHF generally prohibit subdivision, development, mining

QUICK LOOK:

You may want to consider a conservation easement if any of these apply to you: A  t least for now, you want to personally own this land and receive any income it provides. Y  ou plan to pass this land to someone you’ve chosen, or perhaps sell it. N  o matter who owns this land in the future, you’d like to make sure that certain things don’t happen to its natural features. Y  ou’ll feel better knowing that a conservation agency or organization is able to enforce these wishes always.

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and concentrated animal feeding operations (CAFOs). They generally permit continued residence by current and future owners, agriculture on existing farm fields, timber harvests within a sustainable plan and other activities that don’t violate the stated restrictions or otherwise damage the property’s natural resources. However, most easements also have individual features that reflect the specific landscape or the landowner’s wishes.

What you can expect from INHF If you decide you’d like INHF to be your easement holder, this is what you can expect: • INHF staff will discuss with you your wishes and explore your land, then draft an easement document. We encourage you to seek legal counsel during the drafting and completion of your easement. • During the easement-drafting process, INHF staff completes a baseline inventory of the property, including photos and descriptions of key resources. INHF records your signed easement document and baseline with your county recorder. • Using the baseline data, INHF staff visits our easement sites annually to ensure that the use of the land complies with goals and restrictions in the easement agreement. All


– RA LEIGH BU CKMASTER, LA NS ING

visits are scheduled in advance and owners are encouraged to join the INHF staff member before, during or after the monitoring process. Staff is thankful for the chance to learn more about your land’s special features. We ask that you let us know if you are considering a sale or transfer of your land. • When the land is sold or transferred, INHF makes a point to establish early and friendly communication with the new owner (who will learn about the easement and its restrictions during the purchase process). INHF and the new owner then conduct annual monitoring visits as before. • If a violation occurs, INHF works with the owner to discontinue and/or fix the problem. If a major violation occurs that can’t be resolved through dialogue — such as a new owner trying to build condos when the easement forbids development — INHF would use legal means to protect the easement’s integrity.

Easement monitoring funds

PROTECTION OPTIONS / Conservation Easement

“I am a strong believer in personal property rights. This easement strengthens our protection efforts without compromising our intended land use. Regarding ecological integrity: perhaps long-term consequences will be immune from short-term decision-making.”

Responsible easement holders take seriously their perpetual responsibility to monitor the site for easement compliance and, if necessary, enforce the easement through legal means — even decades after the gift was made. To ensure the financial capacity to do this, INHF and many other easement holders have established easement monitoring funds to cover monitoring costs and potential legal costs if the easement needs to be defended in court. It’s not uncommon for landowners who establish easements to be asked to consider a tax-deductible contribution to such a fund. It’s your opportunity to help your chosen partner maintain financial strength to be your eyes into the future.

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PROTECTION OPTIONS / Conservation Easement

PRIVATE OWNERSHIP OPTIONS

Conservation Easement FAQ Must it be a donation? In Iowa nearly all conservation easements are donated. Some states fund programs to purchase conservation easements, but Iowa does not. Federal programs sometimes provide partial payment, but they may require multiple years to complete and may require significant land value contributions from the landowner. For the most part, Iowa easement donors receive their reward from income tax benefits and intangibles like peace of mind about their land’s future.

Is WRE or CRP a conservation easement? Federal farm programs sometimes offer opportunities to restrict use on your land in return for a payment. This booklet refers to permanent, voluntary agreements that landowners make with conservation nonprofits or local agencies. In contrast, the Conservation Reserve Program (CRP) is generally a 10+ year agreement, not permanent. Federal Wetland Reserve Easement

“We believe the best use for Grant Ridge is to remain a natural area. Even the most protective land ownership is only temporary, which is why we felt that a permanent easement was the best choice.” – CIN DY H I L D E BR A N D & R O G E R M A DDU X, A MES

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program (WRE) easements have some similarity, as they permanently restrict cropping and development, but they are not tailored to the land and landowner as these conservation easements are.

How do I choose an easement holder? Your first step is to choose a conservation agency or nonprofit you trust to hold and monitor your conservation easement in perpetuity. It’s important to choose an easement holder that shares your goals and has the professionalism and capacity to fulfill the contractual obligations of an easement. The easement holder’s main responsibility is to ensure that no present or future owners exercise or permit the uses prohibited by the easement agreement. Different organizations handle this responsibility differently, so look for easement holders who will permanently commit the time and resources to monitor and enforce your easement’s restrictions. Easements may be held by public or private entities. Eligible public agencies are listed in Iowa Code Section 457A. They include the Iowa Department of Natural Resources and county conservation boards. Private, nonprofit land trusts are also qualified easement holders (see page 53).


PROTECTION OPTIONS / Conservation Easement

“There’s no better authentic, real, genuine partner to work with.” – DA N D E C O O K

THEIR STORY: CONSERVATION EASEMENT From their ridge pasture, three generations of the DeCook family enjoy a view reminiscent of the mid-1800s — complete with bison grazing on the prairie. Brothers Dan and Mike DeCook and their parents, Mark and Kay DeCook, all own land near one another in southern Iowa. They have restored thousands of acres with three goals in mind: make a living, restore the land and keep it wild. A series of conservation easement donations to INHF ensures that more than 2,499 acres of DeCook family land is never developed or subdivided, and that its natural features remain. “There’s no better authentic, real, genuine partner to work with than INHF,” Dan DeCook said.

“Throughout the organization, they are marvelous to work with, to walk us through the process and be a resource. Their goals and vision for the state are inspiring to us!” The next generation is already inheriting their family’s appreciation for conservation, and the DeCooks hope they will one day love and care for this land, too. Even if not, it’s reassuring that the conservation easement assures this pioneer landscape will always remain. “It’s a privilege to help this family lock in the restoration they’ve worked so hard to achieve,” said INHF President Joe McGovern. “It’s truly a beautiful thing to see.”

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PROTECTION OPTIONS

Combining Options Protecting land is not a one-size-fits-all process. Some landowners find a simple, immediate decision that feels right. Others benefit from a longer, strategic path to land protection involving more than one method used over time. The best answer for you and your land might evolve over time. Combining methods can serve your changing needs as a landowner over time. Sometimes it can provide maximum tax benefits as well.

Three examples: 1. A bequest may become a donation Some landowners enjoy the flexibility and peace of mind offered by a bequest of land to a conservation organization. They retain full ownership and enjoyment of the land: Nothing changes for them and the land except the certainty of a carefully chosen future owner.

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There may come a time when a land gift or a reserved life estate donation becomes appealing as a way to let go of responsibility for the land and gain tax benefits that a bequest cannot offer.

2. A conservation easement may be followed by a bequest A landowner may find a conservation easement appealing because the protected land remains in their ownership and care. Their primary protection goal is accomplished. They still face the decision of an heir for the protected land — and they might choose a conservation agency or organization to accomplish additional goals such as public enjoyment or consistent land stewardship.

3. Multiple kinds of donations over time When land is large, mixed in use or quite valuable, a landowner might find it useful to donate different portions in varied ways or time periods. For example, the woodland might be donated now to a conservation organization, while the cropland is donated with reserved life estate so that the landowner can continue to receive the crop income.


PROTECTION OPTIONS

“This gives me peace of mind that the land will always be protected.” – A N N A N D E R SO N

THEIR STORY: COMBINING OPTIONS: CONSERVATION EASEMENT + LAND DONATION Just beyond the trees near Haywards Bay on West Lake Okoboji lies Green Pastures, 163 acres that includes native prairie remnants, restored wetlands and grasslands within Okoboji and Spirit Lake city limits. Given its location, the property offers substantial — and extraordinarily valuable — natural space in an otherwise highly developed area. This was not lost on Ann and Sig Anderson, who inherited the property from Ann’s parents, who purchased it in 1944. In most cases, a conservation easement of a donation alone is sufficient protection. But when development pressure is extreme, a landowner may seek two layers of protection.

“I felt such an urgency due to the mounting development pressure in the area to be backed up in every way possible,” said Ann. “I wanted to be absolutely sure INHF had every armament available.” Ann and Sig donated the property to INHF. They also placed a conservation easement on the land, which is now held by the Iowa Department of Natural Resources. This double layer of protection gives Ann confidence that Green Pastures will be wild forever. “We don’t know what the future holds. This gives me peace of mind that the land will always be protected,” Ann said. “If you have a commitment to something of great importance to you, you do everything you can to protect it.”

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PROTECTION OPTIONS

Agricultural Land Farmland can become a great conservation legacy. Many Iowa landowners own cropland or grazing land as well as natural land — sometimes intertwined. Landowners may also feel a special responsibility for deciding the future of a family farm. Permanent protection options can often apply to productive land as well as natural land. Some conservation partners are in a position to steward your cropland well into the future.

A conservation heir Donating or bequeathing your farmland to a conservation organization has these advantages: • Income from your land can support the conservation mission of a conservation organization you admire. The gift of cropland can keep on giving into the future as it produces crop revenue. • Conservation organizations will share your conservation values as they make land management decisions. • You can donate the land with specific restrictions on its use.

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• When your land includes both income-producing fields and natural places, there is abundant potential for a conservation organization to care for both kinds of land with nature and the future in mind. As you consider donating land to a conservation organization, talk with them about: • their ability to manage the land well. • any desire you have to see some productive land restored to trees, native prairie species, wetland, etc. • any restrictions or intentions you are considering to direct the land’s future use. • how they will use any income that your land produces over time. • whether your family name, or a name you choose, can remain permanently on the land. If you are directing land to a charity through your estate plans, please talk with the charity in advance about your wishes and expectations. This gives you the assurance that they can carry out your vision for the land as well as the purpose of your gift.


PROTECTION OPTIONS

Conservation easement solutions Conservation easements on agricultural land may make it more affordable for the next generation to inherit the land. When the family farm is located in an area where its development value exceeds its agricultural value, the cropland may contribute to an estate valuation high enough to trigger estate taxes. Even if you want this land to remain undeveloped and productive under your heirs’ care, the tax situation may make it necessary to sell or develop the land in order to pay the estate taxes. A conservation easement that removes development and protects scenic and open space values would reflect your values and wishes, and it could reduce the total value of the land enough to resolve the estate tax situation. Conservation easements can be donated from an estate (after the owner’s death, before the land passes to beneficiaries), but completing a conservation easement during your lifetime is more likely to allow you to fully use the income tax benefits and to be certain of protection.

Cropland restoration Iowa Natural Heritage Foundation has helped farmland owners take a too-steep field or flood-prone acres out of production to become wildlife habitat — perhaps even an area that the public can enjoy. INHF has also accepted donations and bequests of land for which the donor’s goal is to return cropland to the prairie or wooded land it once was. Some have asked us to sell their donated field so as to help protect and restore natural land elsewhere.

Farmland protection If you want your family farm to always be a farm — productive and sustainably managed — a land protection method plus a conservation partner might help you meet that goal. For example, Bobbie Lanz entrusted her cropland to INHF in her estate plans. INHF brought new soil-saving measures to the land with the help of a committed young tenant and a conservation lease. This place will always be known as Lanz Heritage Farm, and its crop income will help INHF protect this site and other Iowa lands each year into the future (see page 22).

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TAX BENEFITS

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TAX BENEFITS

Tax Benefits Federal and state tax laws reward conservation donors who protect public values like clean water, scenic views and wildlife habitat. This makes land protection surprisingly affordable. When a donation of land or a conservation easement provides permanent conservation benefits, the donation may be considered for generous and unique income tax benefits.

The bottom line As you consider how land protection may impact you financially, remember: • The value you donate, or the cash you receive, in a land transaction provides just one part of the picture. To know your “bottom line” impact, also count how tax benefits from land protection may help you to keep more of your income that would have gone to taxes. • Tax savings may make it easier to protect your land, but protection decisions aren’t likely to be purely financial. Each situation is unique, but most landowners first explore conservation options because they want to permanently protect land they know and cherish, or they desire to leave as a legacy a special place where others can enjoy the outdoors far into the future. The value of making this happen may be an important part of your own “bottom line” considerations.

Current tax law State and federal tax laws are subject to change. This booklet includes a simple summary as of the printing date. Find more details and the most current information on tax benefits for land protection at the companion website www.IowaLandOptions.org or by calling Iowa Natural Heritage Foundation at 515-288-1846. INHF staff can speak with you about potential tax benefits, and we encourage you to speak to your tax professional.

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TAX BENEFITS

The Importance of Professional Advice Tax options change over time, and their advantages vary according to individual finances and goals. Always get professional advice when considering your options. This can help you make the most of tax benefits available to you, and help you know how current tax rules apply to your specific situation. Talk with your tax advisor about issues like: • how to time your gift for maximum financial advantage. • how to compare the tax benefits of a land bequest vs. other options. Bequests offer great flexibility, but they provide no income tax benefits during your lifetime. • how tax benefits can make a land donation or bargain sale more affordable. For example, landowners often discover that donating significant land value as part of a conservation sale can yield the same bottom-line return as a full-value sale.

Determining your donated value and handling the filing accurately are key to receiving tax benefits. See tips at www.IowaLandOptions.org.

Potential advisors You may already know or rely on one of these kinds of advisors who may help you consider the tax impact of protection options you are considering: • professional tax preparer or CPA • certified financial advisor or planner • attorney with tax knowledge • trust officer • qualified land appraiser Iowa Natural Heritage Foundation staff is glad to share basic tax information with you or your professional advisor. The experience gained through helping many landowners with Iowa land protection can help you consider possible tax benefits for your situation. This service is free and confidential. Contact us at 515-288-1846 or visit www.IowaLandOptions.org.

Iowa Natural Heritage Foundation does not provide professional tax or legal advice. We encourage you to hire professional advice as needed to assist with your transaction and filing for tax benefits.

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TAX BENEFITS

What Landowners Say “Primarily, we wanted to protect our land. The tax savings were an additional benefit. The Iowa tax credit benefited us for several years after the gift.” – CA L PA RROTT, BA RGA IN SA LE DO NO R

“The year you protect your land is not the year to use your brother-in-law’s buddy to do your taxes. Find an experienced, well-qualified, professional tax preparer. You want it done well.” – R O D BA KKEN, CO NS ERVATIO N EAS EMENT DO NO R

“It took two professionals to help me compare my options. A qualified appraiser gave me a rough idea of gift value on donated land versus a conservation easement. Then my attorney used those values to calculate the tax savings and financial impact. I appreciated working with professionals who knew what a conservation easement is!” – R I C H Z EIS , DO NO R WITH RES ERV ED LIF E ESTATE

Iowa Natural Heritage Foundation does not provide professional tax or legal advice. We encourage you to hire professional advice as needed to assist with your transaction and filing for tax benefits. I OWA L A N D OW N E R O P T I O N S

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TAX BENEFITS / Iowa Income Tax Benefits

Income Tax Benefits* Tax options change over time, and their advantages vary according to individual finances and goals.

Iowa If you have Iowa income and file an Iowa income tax return, these benefits may apply.

Iowa tax credit If you are protecting land in Iowa, the Iowa Charitable Conservation Contribution Tax Credit may benefit you. You may be able to receive a tax credit of: • Up to 50 percent of the fair market value of the real property interest that you donate, up to a maximum $100,000 tax credit per donation, plus • A “carry-forward” of up to 20 years to help you receive your full tax credit even if your income is relatively low. Any credit that exceeds your tax liability for the tax year may be credited to next year’s taxes. This tax credit applies to many kinds of land protection that are accomplished with a qualified conservation organization. Conservation easements and

bargain sales, as well as land donations or reserved life estate donations, may be considered if they protect land for conservation, scenic value, outdoor education, and/or recreation purposes. Learn more about the Iowa Charitable Conservation Contribution Tax Credit at www.IowaLandOptions.org.

Iowa tax deduction If you protect land in Iowa, and if the land value you donate exceeds the maximum claimed for the Iowa Charitable Conservation Contribution Tax Credit, you may claim an Iowa income tax deduction for the excess amount. This is treated similarly to deductions for other charitable contributions. For example, if you donated $250,000 in land value, you might claim the maximum $100,000 tax credit (based on $200,000 of your donation) plus an Iowa income tax deduction for the remaining $50,000 in donated value. If you protect land outside of Iowa, and you are an Iowa resident eligible for a federal deduction for that donated value, you may also claim an Iowa Schedule A charitable deduction.

*Information current as of printing date. Subject to change over time. Iowa Natural Heritage Foundation does not provide professional tax or legal advice. We encourage you to hire professional advice as needed to assist with your transaction and filing for tax benefits.

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Charitable gift deduction for land donations

Enhanced deduction for conservation easements

If you protect land through a full donation, a donation with reserved life estate (keeping lifetime use), or a bargain sale to a conservation nonprofit or agency, the donated value may be claimed as a charitable contribution. Your gift provides lasting public benefit, caring for the land, water and wildlife now and into the future.

Landowners who permanently protect private land with a conservation easement may deduct the value of your donation with broader terms:

Just like a check to your favorite charity, your donation of land or land value through a qualified conservation entity is a qualified charitable contribution. It’s eligible for the same federal tax benefits as other charitable gifts you may be donating. Qualified charitable contributions are generally eligible to be claimed as itemized federal deductions, within the income limits set by the IRS. This deduction has a “carry-forward” of five years. You begin to claim this deduction in the same tax year in which you donate the land or land value. If your gift value exceeds what you can claim that year, you can carry forward the unclaimed portion to the next tax years until the gift is fully claimed, but not more than five additional years.

• Deducting up to 50 percent of the donor’s annual adjusted gross income (compared to 30 percent for most charitable gifts) — or for qualifying farmers and ranchers, up to 100 percent of income

TAX BENEFITS / Federal Income Tax Benefits

Federal

• A “carry-forward” of up to 15 years. If you cannot use your full deduction in the first year because of the income limit, you can continue to claim the deduction the next year, and the next, until the full deduction is used (for a maximum of 15 years). This enhanced tax deduction should not be the driving factor when you choose the protection method that’s best for your situation and your land. Other factors may be ultimately more important in successfully meeting your goals for your land. INHF staff can help you explore your options, weighing tax benefits as well as other benefits.

Iowa Natural Heritage Foundation does not provide professional tax or legal advice. We encourage you to hire professional advice as needed to assist with your transaction and filing for tax benefits. I OWA L A N D OW N E R O P T I O N S

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Tax benefits beyond income tax savings Capital gains tax

Property tax

When you sell property, you will likely incur capital gains taxes based on the difference between your sale price and your basis (your original purchase price plus improvements and less depreciation).

After you’ve protected your land, do you still have to pay property taxes on it? That depends on the technique you’ve chosen.

If your land has greatly appreciated during your ownership, you may owe significant federal and state capital gains taxes when you sell it. Iowa does not tax capital gains resulting from the sale of property used in trade or business for at least 10 years. When a landowner dies, the basis is automatically reset to the current fair market value at the time of death. A Like-Kind Exchange with a conservation agency that allows you to trade income or investment property for other property might help you protect land while deferring capital gains taxes because this transaction is considered a trade instead of a sale.

If you donate or sell land, you’re no longer responsible for property taxes or other management duties. Many landowners come to appreciate this as they grow older. If you donate land with a reserved life estate, you continue to be responsible for paying property tax. It’s part of the continued rights and responsibilities you have retained with lifetime use of the land. A conservation easement reduces your property’s fair market value, so you’d expect it would also reduce your property taxes. Unfortunately, Iowa has no consistent laws on this practice. Many Iowa counties do not adjust property taxes for conservation easements. If you’re considering an easement donation, you may want to speak in advance with your county tax office to explain why reduced property taxes make sense to you. In some Iowa counties there are few or no donated conservation easements, so this may be a new concept to local officials.

*Information current as of printing date. Subject to change over time. Iowa Natural Heritage Foundation does not provide professional tax or legal advice. We encourage you to hire professional advice as needed to assist with your transaction and filing for tax benefits.

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TAX BENEFITS

Estate and inheritance tax

benefits to the estate, this can be a wonderful joint action of the heirs in honor of the deceased landowner or other family members who have, in effect, provided this land legacy and protection opportunity to the heirs.

The vast majority of Americans don’t pay estate taxes because their gross taxable estate falls below the standard exemption. However, remember that land can be a particularly valuable estate asset — and one that’s likely to change in value over time.

Charitable gifts

Land protection may reduce the value of your land, which in turn reduces the value of your estate and may reduce your federal estate tax and state inheritance tax.

Gifts to qualified charities from your estate are subtracted from your estate value before the taxes are computed. This includes charitable bequests of land for conservation purposes.

Especially if your total assets approach $5 million or more, the possibility of being subject to estate tax rates as high as 40 percent can be a compelling reason to consider land protection. Because tax rules are always subject to change, professional advice and planning are recommended. You may want to discuss these general topics with your professional advisors.

Land protection within the estate Heirs may consider donating a conservation easement or land for conservation while land is held in the estate — after the death of their loved one but before the estate tax return is filed. Besides the potential estate tax benefits or income tax

State inheritance taxes Unlike federal estate taxes, which are paid by the estate, Iowa’s inheritance tax is paid by the beneficiary. These tax rates are based upon the relationship of the beneficiary to the deceased, with no inheritance tax due from spouses and direct lineal descendants or ascendants (i.e. children, grandchildren, parents). Heirs who are not part of your direct family line, such as friends or nieces/nephews, may face Iowa inheritance taxes. If conservation protections reduce your estate’s value, it may in turn reduce your heirs’ inheritance taxes. In some cases, inherited land can be donated to a state or county conservation agency in lieu of paying Iowa inheritance tax.

Iowa Natural Heritage Foundation does not provide professional tax or legal advice. We encourage you to hire professional advice as needed to assist with your transaction and filing for tax benefits. I OWA L A N D OW N E R O P T I O N S

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TAX BENEFITS

Basics about claiming tax benefits Professional advice

Appraisal

Always consult a professional tax and/or legal advisor before making major financial decisions or donations. Tax laws are complex and each situation is unique. While INHF and other experienced conservation groups can help lay out your options, they are not tax professionals and cannot legally represent your interests in these transactions.

If you claim a deduction or credit that exceeds $5,000, a qualified appraisal is required.

Does my land fit the criteria?

• The appraisal must be completed near the time of your gift:

Your gift must provide lasting conservation benefits in order to qualify for income tax deductions or income tax credits that are specific to conservation gifts of land. With your advisor, make sure your gift meets the requirements of IRC Section 170 and accompanying Treasury Department regulations, and/or any other federal or state requirements.

The gift’s value Don’t overstate your gift! Due to abuses of conservation tax deductions in other states, the IRS is particularly watchful for charitable deductions based on inflated appraisals, inflated conservation benefits, insider deals and other suspicious transactions. Penalties can be severe.

• As the donor, you are responsible for determining the value of the donation. • You will need to hire a qualified appraiser who follows the Uniform Standards of Professional Appraisal Practice (USPAP).

– Completed not earlier than 60 days prior to the date of contribution, or – Completed after the gift, establishing value as of the date of the gift. • The appraisal must be completed before the due date for the tax return on which the deduction is first claimed. See IRS Publication 561 for more about determining gift value.

Claiming a deduction IRS tax form 8283 is used to claim a federal deduction for a gift of land or land value. A Supplemental Statement is also required for federal

*Information current as of printing date. Subject to change over time. Iowa Natural Heritage Foundation does not provide professional tax or legal advice. We encourage you to hire professional advice as needed to assist with your transaction and filing for tax benefits.

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deductions of conservation easement donations. Form 8283 is signed first by the appraiser, then it is signed by the receiving organization and returned to you. You should allow plenty of time for each party to review and sign this form before your filing deadline. Your Form 8283 needs all original signatures (not scanned or emailed forms/signatures). Many receiving organizations (including INHF) request a copy of the appraisal and Supplemental Statement to review before signing Form 8283. Their staff will use their general knowledge and common sense to make a general assessment about whether the appraised value and the statement are credible. They have an ethical responsibility to avoid participating in projects where they have significant concerns about the tax deduction being claimed. Iowa tax form IA 148 is used to claim the Iowa Charitable Conservation Contribution Tax Credit. IA 148 does not require signatures from your appraiser or the receiving organization — but you will need to attach a copy of your signed federal Form 8283 with your state return.

INHF staff is glad to talk with attorneys, financial advisors, tax preparers or appraisers about experience we’ve gained through helping Iowa landowners with varied land protection actions, as well as current advice from the national land trust community regarding recommended methods of filing for tax benefits related to permanent land protection. If you’d like to talk, call 515-288-1846 or email info@inhf.org.

TAX BENEFITS

Advisors

Solid appraisal and substantiation are important Technical failures in the appraisal and substantiation documents have been known to lead to IRS denial of charitable conservation contributions, and substantial penalties can be assessed as well. Review your appraisal, and be sure you and your legal and tax advisors review and understand the requirements of IRC §170 and the accompanying Treasury Department regulations.

Keep your acknowledgement letter Your receiving organization must provide an official acknowledgment letter to you very soon after your gift is completed. The IRS requires you to keep the original acknowledgement letter with your tax records as your official acknowledgment of receipt of your gift. It’s good practice to attach a copy of this acknowledgement letter to your fully executed IRS 8283 tax form.

Iowa Natural Heritage Foundation does not provide professional tax or legal advice. We encourage you to hire professional advice as needed to assist with your transaction and filing for tax benefits. I OWA L A N D OW N E R O P T I O N S

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RESOURCES

Glossary Adjusted gross income (AGI): Your gross income minus business deductions, IRA and self-employed retirement deductions, and several other specialized items. Appraisal: The estimated sale value of property as determined by an appraiser, based on sales of comparable property or income potential. Bargain sale: Sale of land or interest in land to a tax-exempt organization at a price less than the full fair market value. Basis: Your original purchase price (or value when inherited) plus the costs of certain improvements and less depreciation. Charitable contribution (gift, donation): Qualified charitable contribution / donation: a gift of money or property to an IRSqualified charitable organization or government entity Conservation easement: A legal agreement between a landowner and a conservation group that permanently limits the uses of the land by you and all future owners in order to protect specified conservation values. Conservation easement holder: A nonprofit organization or government agency that accepts a conservation easement and assumes the long-term legal responsibility for monitoring and enforcing its terms.

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Conservation easement monitoring fund: A dedicated fund managed to support easement monitoring and enforcement. This fund is managed by an entity that holds conservation easements to ensure that adequate money will be available to take care of its easement responsibilities over time. Conservation groups, conservation partners: As used in the context of this booklet, these terms include nonprofit organizations and governmental agencies whose missions include permanent land protection. Conservation values: Special natural and cultural qualities of a property, such as wildlife habitat, scenic views, public trails, productive agriculture and forestry, unusual natural features, unusual species and other qualities that are worthy of protection. Estate tax: A federal tax on the value of all assets owned at death. Estate tax is paid by the estate of the deceased person before assets are transferred to the heirs. The amount is based on your estate’s size and any applicable deductions. Fair market value: The price that a willing buyer would pay a willing seller, neither being under any compulsion to buy or sell and both being fully informed about relevant facts.

Gross taxable estate: The value of all assets in which the decedent has an interest, including real estate, stocks, bonds, cash, bank accounts, personal property and life insurance proceeds. Inheritance tax: The tax paid by your beneficiaries to the State of Iowa. The percentage is determined by the size of the inheritance as well as the beneficiary’s relationship to the deceased. Land trusts: Non-governmental, nonprofit organizations involved in conserving land for its natural, recreational, scenic, historical and productive values. Land trusts work with landowners who are interested in protecting open space and use a variety of methods to permanently conserve land. Life tenancy (life estate, life interest): See reserved life estate. Reserved life estate/ Remainder interest: Occurs when land is transferred with deed restrictions that allow certain individuals to retain possession of the property during their lifetime or for a stated number of years. The individuals retain a “reserved life estate” while the conservation organization receives a “remainder interest.” Right of first refusal: Agreement by an owner to offer a property to a specified individual or organization at the same price and terms as those in a future bona fide offer to purchase received by the owner.


RESOURCES

Conservation Partners Who can help you protect land in Iowa?

Local, state or federal government agencies

Iowa has many public agencies and private organizations you might consider as conservation partners to protect your land in the manner you envision. Not sure where to start? INHF can help you navigate what options and organizations would be the best fit for your individual protection route.

These public agencies manage natural land that’s available to the public.

Land Trusts Permanent land protection is central to the missions of these private, nonprofit organizations.

You might talk about land protection with agency staff that serves the area where your land is located. Iowa Natural Heritage Foundation can help introduce you to people at these agencies who serve the land and landowners in your area. INHF frequently assists landowners with the transfer of land to public agencies, too. • County Conservation Boards

• Iowa Natural Heritage Foundation

• Iowa Department of Natural Resources

•  Bur Oak Land Trust – focuses on the region around Johnson County to accept land for the public trust as well as conversation easements.

• U.S. Fish and Wildlife Service

•  Four Mounds Foundation – a nonprofit with a mission to preserve and protect over 120 acres of blufflands along the Mississippi River. •  The Nature Conservancy – protects diverse habitats across the Earth. • S  ustainable Iowa Land Trust – seeks to preserve land and grow healthy food. • Whiterock Conservancy – focuses on agriculture, resource protection and public recreation on 5,000 acres along the Raccoon River valley.

For land not in Iowa: •  Land Trust Alliance can direct you to land trusts that serve other states. Find more information at www.LTA.org.

For culturally important lands If your land has archeological or historical features, as well as natural features that you’d like to protect, these public agencies might be able to add their help. • Office of the State Archaeologist • State Historical Society of Iowa

Other conservation organizations Many nonprofits with conservation missions will consider accepting a donation or bequest of land for conservation purposes. Your gift might be able to support the organization as well as protect your land. You might talk with your favorite conservation organization(s) about possibilities, or talk with INHF to learn about organizations whose missions most closely match your interests and your desires for your land.

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RESOURCES / Contact INHF

Contact INHF INHF has worked with private landowners since 1979 to bring conservation to over 1,100 places statewide. To help you achieve your land protection goals, INHF can:

Listen We start each project with a confidential conversation to learn about your land and your protection priorities. We can help you consider the many options available for Iowa landowners and choose the best course of action for you and your land.

Refer We work hard to find the right fit for Iowa landowners. That often includes INHF, but not always. We’ve introduced many landowners to conservation agencies and organizations that best fit their vision and needs.

Looking to start the protection process, or learn more about your options? Call us at 515-288-1846 or email us at info@inhf.org. These services are free of cost or obligation to the landowner.

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Navigate Whether you choose a donation or a bequest, a conservation easement, a bargain sale or any number of other options, we can help you navigate all the steps you’ll need to take.

Protect If you choose INHF to hold your conservation easement or own your land in the future, we look forward to building a lasting partnership with you and your land. Our staff and board work hard to ensure that INHF has the capacity to live up to our permanent responsibilities.

Iowa Landowner Options  
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