Academic journal article ABA Banking Journal

Estate Tax Changes Help, but Not All That Much

Academic journal article ABA Banking Journal

Estate Tax Changes Help, but Not All That Much

Article excerpt

Most community bankers from family-held banks agree that while the changes made in the estate and gift tax laws by the Taxpayer Relief Act of 1997 will help, they don't make a cataclysmic difference for many community banks, at least not directly.

However, because the success of community banks is inevitably intertwined with the interests of the community, the impact of the law's changes will be felt indirectly. Some bankers say the changes will help local small business owners. And bankers in farm communities believe the changes should help keep more farms in family hands, by reducing the need to sell the farm to pay inheritance taxes.

"Many of our customers are small business people and farmers," says Ken Fergeson, chairman of $150 million-assets National Bank of Commerce, Altus, Okla. "We have heard over the years from farmers in particular that they needed relief. In farming you build up assets but not cash." Fergeson says farmers are pleased with the relief Congress passed, though they are disappointed that it didn't go further.

There is some relief in the new law for banks themselves. "It will enhance the ability of the next generation to carry on," says Larry Williams, chairman and CEO of The Halstead Bank, a $40 million-assets institution in Halstead, Kan. Williams' family owns the bank (which is now a Subchapter S corporation) as well as farming operations. Both banking and farming have long been part of the family's history and Williams is pleased that the new law enhances the ability for family-owned enterprises to have a continuation. "That's very important to communities like ours," be explains. "It's more than just dollars and cents."

Estate and gift taxation law can quickly grow very complicated, but here are highlights of what the Taxpayer Relief Act accomplishes:

* Basic change in estate and gift tax treatment. Under current law (in effect through the end of this year), the gift tax and the estate tax are unified so that a single graduated rate schedule applies to cumulative taxable transfers made by a taxpayer during his or her lifetime and at death. Currently, a unified credit of $192,800 is provided against the estate and gift tax, which effectively exempts the first $600,000 in cumulative transfers from tax. …

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