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The rates used to calculate Pennsylvania inheritance tax vary depending upon the relationship of the beneficiary to the decedent. The rate for a surviving spouse is 0%; lineal relationships (up to parents or down to children) -- 4.5%; siblings -- 12%; others -- 15%. These rates are applied to the value of the property of the estate passing to each class of beneficiaries.

When land subject to a conservation easement is valued for Pennsylvania inheritance tax purposes, the restrictions on subdivision, construction of improvements, and activities and uses imposed by the conservation easement are taken into consideration. The reduction in appraised value resulting from conservation restrictions can result in significant savings in the tax that family members or other beneficiaries would otherwise pay upon inheriting land located in Pennsylvania.

A 2006 amendment of the Pennsylvania Inheritance and Estate Tax Act (see Section 9 of Act 67) provides a 50% reduction in valuation for inheritance tax purposes of land subject to an agricultural conservation easement as defined in the Agricultural Area Security Law. This reduction applies to the value otherwise determined under the Inheritance and Estate Tax Act, which may be the “use value” described in the “Clean and Green” section below.

Agricultural conservation easements purchased under the program instituted under the Agricultural Area Security Law are, of course, eligible for the 50% reduction provided by Act 67. Other conservation easements may also qualify if they meet the requirements of the definition provided in §903 of the law:

“AGRICULTURAL CONSERVATION EASEMENT.” An interest in land, less than fee simple, which interest represents the right to prevent the development or improvement of a parcel for any purpose other than agricultural production. The easement may be granted by the owner of the fee simple to any third party or to the Commonwealth, to a county governing body or to a unit of local government. It shall be granted in perpetuity as the equivalent of covenants running with the land. The exercise or failure to exercise any right granted by the easement shall not be deemed to be management or control of activities at the site for purposes of enforcement of the act of October 18, 1988 (P.L. 756, No. 108), known as the “Hazardous Sites Cleanup Act.

The Model Grant of Conservation Easement published by the Pennsylvania Land Trust Association gives the easement holder the right to prevent the development or improvement of areas identified as “Highest Protection Area” for any purpose, and the right to prevent the development or improvement of areas identified as “Standard Protection Area” for any purpose other than sustainable agricultural purposes, sustainable forestry purposes and recreational uses. The possibility that the owner could grow and harvest hardwoods and other forest and nursery products within the Standard Protection Area should not disqualify the Model Grant of Conservation Easement as an agricultural conservation easement as defined by the law. The Agricultural Area Security Law defines “agricultural commodities” to include timber, wood and other wood products derived from trees. If the possibility of recreational use within the Standard Protection Area would disqualify an otherwise conforming conservation easement for purposes of Act 67, then that possibility can be removed from the conservation easement.

Designation of a “Minimal Protection Area” to accommodate residential use under the model is also consistent with its qualification as an agricultural conservation easement for purposes of Act 67. Agricultural conservation easements purchased under the Pennsylvania Department of Agriculture’s Agricultural Conservation Easement Purchase Program may include at least one residential area. Presumably, inclusion of a Minimal Protection Area for the same purposes should not disqualify, for purposes of Act 67, a conservation easement based upon the Model Grant of Conservation Easement.

Whether or not restricted by conservation easement, §2122(b) of the Inheritance and Estate Tax Act affords an opportunity to reduce taxes otherwise due upon inheritance of land if it has been enrolled in the “Clean and Green“ program instituted under Act 319 of 1974. The land is valued at its use value, set annually by the Pennsylvania Department of Agriculture, rather than its appraised value for inheritance tax purposes. The “use value” is typically much lower than fair market value.

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