We have a real crisis in community banking that has been largely invisible and rarely addressed by experts in the industry.

What is the problem? It is simply that controlling shareholders are nearing retirement, yet few have taken the time to plan who will own and control their institution in the future.

Specific reasons cited by bankers who sell their banks are a desire for retirement money and to provide liquidity for the bankers' heirs so they can pay oppressive estate taxes. Merger-and-acquisition seminars are rampant and almost every major consultant is telling community bankers that now is the best time to sell.

Who really suffers when a community bank is sold? The big losers appear to be bank employees and the community.

It would be easy to provide hundreds of examples of such suffering when a big bank acquires a community bank. The big losers, though, in most cases are the descendants of the selling shareholders.

In many cases, selling a community bank solves a future liquidity problem but at a tremendous cost. Currently, a sale before death means capital gains taxes would have to be paid and then, after death, a 55% estate tax.

Once liquidity is established, the earnings on this amount subject to tax may be only 5% or 6% rather than the potential 15% growth on equity as a bank owner.

Furthermore, with no corporate umbrella, millions of dollars of future tax benefits are discarded forever.

There is an incredibly bright future for bank owners who chose to remain independent, but only if they address their estate planning issues now.

Let us examine one true story that is all too common in banking today. A particular banker had just turned 65 and had a 55% interest in a century- old community bank in a small rural community.

The banker's accountant informed him that a 55% estate tax would be due when his estate matures. What upset the banker the most was that his bank stock and farmland, his largest assets, were not liquid. This situation left him in an uncomfortable predicament.

Although the banker did not want his daughters to worry about settling his estate, he knew that he had a liquidity shortfall. Upon checking with recommended experts, he decided a bank sale was the most advantageous option.

A large bank purchased the local bank, promising to make no changes. The banker received almost $2 million in cash.

Shortly after the acquisition, the banker's two best friends - the No. 2 and No. 3 officers - were fired. Unfortunately, the banker grossly underestimated the social issues of selling the bank.

It became apparent that there was a loss of friends, disruption in local service, and a lack of commitment to community projects he had supported.

The banker's income from his small pension and proceeds of the sale equaled his salary and bonus before the sale. Clearly, if the banker had held on to the bank, he could have:

Maintained full salary during retirement as a bank shareholder, using a salary continuation contract.

Continued to benefit from the bank's equity growth.

Created a stock redemption agreement with the holding company. Upon the death of the banker, the holding company would purchase his stock and the cash proceeds would go to his estate with no capital gains tax. The funding for this purchase could come from no-load life insurance that the holding company takes out on the life of the banker.

In essence, the banker who sold out could have had about one-third more retirement income and been assured of having an estate at least 50% larger to leave to his daughters if the bank had not been sold.

Mr. Shuster is chairman of the National Institute for Community Banking, a Houston-based consultancy.

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