HISTORIC

Slide 1:HISTORICPreservation Easements

Michigan Historic Preservation Network May 29,2008

Slide 2:What is an easement program ?

Michigan is rich in natural and historic resources. Yet, as any preservationist knows, these special places are fragile and irreplaceable. How are we to protect and wisely conserve these resources and yet maintain our tradition of private ownership? One appealing alternative for many property owners is the historic preservation easement. Easements have emerged as a very useful legal tool for protecting land and historic properties in Michigan.Michigan is rich in natural and historic resources. Yet, as any preservationist knows, these special places are fragile and irreplaceable. How are we to protect and wisely conserve these resources and yet maintain our tradition of private ownership? One appealing alternative for many property owners is the historic preservation easement. Easements have emerged as a very useful legal tool for protecting land and historic properties in Michigan.

Slide 3:An easement:

Is a legal instrument or contract between a property owner and the Michigan Historic Preservation Network whereby the owner grants a portion of, or interest in, her property rights to MHPN. Establishes perpetual protection for the property by preventing inappropriate changes from being made to the historical significance of the structure and its setting. Peter Dougherty House Old Mission Peninsula Only the owner of the land or building may decide to grant an easement. In the end, the decision to give an easement is a personal one which must be made by the property owner alone, but the owner should always consult competent legal and tax counsels to assure that his or her wishes are successfully translated into the provisions of the easement agreement and to assure that every advantage is taken of all possible tax benefits. Recently they have been used as an added financial incentive in historic rehabilitation projects.Only the owner of the land or building may decide to grant an easement. In the end, the decision to give an easement is a personal one which must be made by the property owner alone, but the owner should always consult competent legal and tax counsels to assure that his or her wishes are successfully translated into the provisions of the easement agreement and to assure that every advantage is taken of all possible tax benefits. Recently they have been used as an added financial incentive in historic rehabilitation projects.

Slide 4:An easement:

Provides assurance to the owner of a historic or cultural property that the property�s value will be preserved through subsequent ownership. Becomes part of the property�s chain of title and �runs with the land.� Preserves the property for future generations Book Cadillac, Detroit The duration of the easement is the choice of the landowner and the recipient and must be decided at the time of negotiation. However, if the landowner wishes to claim any income or estate tax deduction, the easement must be granted in perpetuity. In most cases, the owner will prefer a perpetual easement. The duration of the easement is the choice of the landowner and the recipient and must be decided at the time of negotiation. However, if the landowner wishes to claim any income or estate tax deduction, the easement must be granted in perpetuity. In most cases, the owner will prefer a perpetual easement.

Slide 5:TRUE OR FALSE ?

1. Because a structure is �historic� it is automatically protected from destruction. 2. If a building is listed on the National Register of Historic Places an owner cannot demolish it. FALSE ! FALSE ! 3. An easement is a legal document that insures the preservation of a historic property in perpetuity and is important for saving our historic structures. TRUE !

Slide 6:How Can Easements Benefit Property Owners ?

Having a preservation easement may entitle a property owner to various financial incentives. When owners donate an easement to the Michigan Historic Preservation Network they may claim the charitable deduction on their Federal Income tax. Benefits may also include reduced estate, gift, and local property taxes. When the owner donates a perpetual easement to a charitable organization, such as MHPN or a governmental agency, he may claim a charitable deduction on his Federal Income taxes. If the IRS's rules for granting an easement are followed, a property owner may deduct the value of the easement as a charitable deduction from his or her federal income tax. Here are some brief examples. The value of the easement is based on the difference between the appraised fair market value of the property prior to conveying the easement and its value with the easement in place. Assume the property owner has his property appraised without an easement at $50,000. He then has the property appraised with the easement in force and it is now worth $30,000. The $20,000 difference is the value of the easement gift for tax purposes. For property taxes, the county tax assessor should take into account the reduction in value caused by the easement and should tax the property at its restricted value, not at its highest and best use as if development were unrestricted. In many cases the value of an easement depends upon the property�s development potential and operates under the assumption that an easement limits development, thereby reducing the value of the property. A property that is assessed based upon its easement restricted use rather than its potential, fully developed use could result in a lower tax rate. Federal estate taxes for property heirs also may be reduced because the Fair Market Value of the property was reduced during the donor�s lifetime by the easement restrictions.When the owner donates a perpetual easement to a charitable organization, such as MHPN or a governmental agency, he may claim a charitable deduction on his Federal Income taxes. If the IRS's rules for granting an easement are followed, a property owner may deduct the value of the easement as a charitable deduction from his or her federal income tax. Here are some brief examples. The value of the easement is based on the difference between the appraised fair market value of the property prior to conveying the easement and its value with the easement in place. Assume the property owner has his property appraised without an easement at $50,000. He then has the property appraised with the easement in force and it is now worth $30,000. The $20,000 difference is the value of the easement gift for tax purposes. For property taxes, the county tax assessor should take into account the reduction in value caused by the easement and should tax the property at its restricted value, not at its highest and best use as if development were unrestricted. In many cases the value of an easement depends upon the property�s development potential and operates under the assumption that an easement limits development, thereby reducing the value of the property. A property that is assessed based upon its easement restricted use rather than its potential, fully developed use could result in a lower tax rate. Federal estate taxes for property heirs also may be reduced because the Fair Market Value of the property was reduced during the donor�s lifetime by the easement restrictions.

Slide 7:So how does this affect owners� rights ?

An easement gives MHPN the legal authority and responsibility to enforce the terms of the easement. This includes the right to annually inspect the property to insure that the owner is complying with the terms of the contract. The owner retains all the usual property rights, except for the right to destroy the property. Alterations, improvements, and even additions to the structure are allowed, as long as the historic character is not compromised in any way, shape, or form and they are reviewed and approved by MHPN. MHPN takes on the responsibility and legal right to enforce the easement. If a future owner or someone else violates the easement (perhaps by erecting an addition or making an alteration the easement does not allow), the organization has the authority to require that the violation be corrected and may resort to legal means if necessary.MHPN takes on the responsibility and legal right to enforce the easement. If a future owner or someone else violates the easement (perhaps by erecting an addition or making an alteration the easement does not allow), the organization has the authority to require that the violation be corrected and may resort to legal means if necessary.

Slide 8:What properties qualify for tax deductions ?

Properties eligible for easement donation include agricultural, industrial, commercial or residential structures, and historically important acreage. In addition, properties must meet one of the following requirements: Located in a historic district and certified as being historically significant to the district Listed individually on the National Register of Historic Places Washington Street, Ann Arbor The test for historically important acreage is slightly more complex than we have time to explore today, but the National Park Service website has an explanation.The test for historically important acreage is slightly more complex than we have time to explore today, but the National Park Service website has an explanation.

Slide 9:What does a Preservation Easement Cover ?

The interior of the building is not usually included in the scope of the easement; however, structural elements are indirectly covered. The easement prohibits alterations to the surrounding grounds that would mar the exterior appearance of the building, for example: rubbish, heaps and ash dumps. A building, a bridge, ship, dam or any other structure. Under the newer IRS rules, an easement on a building must cover the entire building envelope including the roof, not just the front of the building or some part of the historic building. Although its not common, in some instances where there is a significant interior, an owner may choose to protect some or all of the interior of a building.Under the newer IRS rules, an easement on a building must cover the entire building envelope including the roof, not just the front of the building or some part of the historic building. Although its not common, in some instances where there is a significant interior, an owner may choose to protect some or all of the interior of a building.

Slide 10:PUBLIC ACCESS OF PROPERTY

May be as little as a few hours a year for a sensitive archaeological site or a traditional cultural place with religious significance. May include visual access from a public roadway for a historic building and grounds that are subject to a facade easement. May include allowing the public to tour the inside of a historic home subject to an interior easement two days per year. In order to claim the Federal Income Tax Deduction the historic structure or historically important land area must be accessible to the public. The degree of access varies according to the historic resource under protection. Generally, the accessibility requirement is met if the property owner is not the sole individual benefiting from the donation of the easement.In order to claim the Federal Income Tax Deduction the historic structure or historically important land area must be accessible to the public. The degree of access varies according to the historic resource under protection. Generally, the accessibility requirement is met if the property owner is not the sole individual benefiting from the donation of the easement.

Slide 11:How does it work ?

MHPN does not own the property Property stays in the hands of the donor of the easement and on the local tax rolls, still subject to local land use laws Easement program falls between full ownership and governmental land use controls like zoning Property is protected in perpetuity by the easement and is not subject to the vagaries of political power Donors may qualify for federal income, local property, and estate tax savings Easements legally establish the owner�s wishes about the future treatment of the property and can be individually designed within limits to meet the owner�s needs.

Slide 12:MHPN EASEMENT PROGRAM

MHPN is a charitable organization that is qualified to accept easement donations. Hold residential and commercial easements. Fees: application ($100), baseline study ($2000), monitoring/legal fund donation (varies), and recording/legal fees (varies). Application, agreement, baseline, yearly monitoring. Scenario: MHPN receives call from potential easement donor who is interested in donating an easement for a variety of reasons: Protect a valuable historic resource Income tax deduction Reduce estate taxes MHPN staff tours and evaluates property. Does it meet acceptance criteria? (National register, historic district, potential national register? Donor completes application and submits $100 application fee, which is reviewed and accepted or denied by the easement committee. Donor retains an attorney to draft easement agreement based on the template agreement by the National Trust. MHPN�s legal counsel reviews documents. Donor hires qualified appraiser for appraisal of easement (usually before and after method). Baseline study is completed, including a legal description of the property, boundary survey, a description of architectural elements of the building(s) and any elements in need of restoration or repair, and lots of photographs (primarily for monitoring purposes). Donor is asked to make a contribution to an �easement endowment� to cover the costs of easement acquisition, monitoring and enforcement. Easement agreement is signed by donor and MHPN representative and recorded in the office of register of deeds in the county that the property is located in. MHPN staff responds to owner�s requests to alter building, in accordance with easement agreement. Property is inspected annually. MHPN meets with and sends an annual report to the owners of the property. Scenario: MHPN receives call from potential easement donor who is interested in donating an easement for a variety of reasons: Protect a valuable historic resource Income tax deduction Reduce estate taxes MHPN staff tours and evaluates property. Does it meet acceptance criteria? (National register, historic district, potential national register? Donor completes application and submits $100 application fee, which is reviewed and accepted or denied by the easement committee. Donor retains an attorney to draft easement agreement based on the template agreement by the National Trust. MHPN�s legal counsel reviews documents. Donor hires qualified appraiser for appraisal of easement (usually before and after method). Baseline study is completed, including a legal description of the property, boundary survey, a description of architectural elements of the building(s) and any elements in need of restoration or repair, and lots of photographs (primarily for monitoring purposes). Donor is asked to make a contribution to an �easement endowment� to cover the costs of easement acquisition, monitoring and enforcement. Easement agreement is signed by donor and MHPN representative and recorded in the office of register of deeds in the county that the property is located in. MHPN staff responds to owner�s requests to alter building, in accordance with easement agreement. Property is inspected annually. MHPN meets with and sends an annual report to the owners of the property.

Slide 13:Getting an Easement Started

The Michigan Historic Preservation Network is a private, non-profit preservation organization who advocates for Michigan�s historic places because they contribute to our economic vitality, sense of place, and connection to the past. Nancy Finegood, Executive Director 107 E. Grand River Lansing, Michigan 48906 (517) 371-8080 finegood@mhpn.org www.mhpn.org For more information on the Michigan Historic Preservation Easement Program please contact: