IRS Releases Publication 1458 (5/2009), Actuarial Valuations Version 3B

ACTUARIAL TABLES ASSOCIATED WITH PUBLICATION 1458

For Use in Income, Estate, and Gift Tax Purposes

ACTUARIAL TABLES ASSOCIATED WITH PUBLICATION 1458

 Section  Table         Type of Factors

This publication sets forth examples for using actuarial factors for certain income, gift, and estate tax valuations of future interests. This publication does not contain the tables of actuarial factors used in these examples. The actuarial tables cited in the examples below can be found on the IRS website at the following address:

Website: http://www.irs.gov/retirement/article/0,,id=206601,00.html

The examples provided are for the computation of interests in unitrusts. A unitrust is a trust wherein the trustee is directed to pay annually a fixed percentage of the fair market value of the trust computed each year, either for a life or lives or for a term of years, or for a combination of lives and years. The fixed percentage is called the payout rate. If payments are made other than annually at the beginning of each year, the payout rate must be adjusted (using Table F) in order to compute the interest involved. Some unitrusts may pay the lesser of a stated payout rate or the net trust income for the year (sometimes referred to as a Net Income Charitable Remainder Unitrust).

Example 1 provides the method of computing the Adjusted Payout Rate given the trust's stated payout rate and the section 7520 interest rate.

Example 2 provides the valuation of the remainder interest in a unitrust which continues until the death of a single person.

Example 3 shows the method for computing the remainder interest following the death of the last to die of two persons.

Example 4 illustrates the computation of the term estate interest in a unitrust which continues for a term certain.

Example 5 shows the computation of a remainder interest following the earlier to occur of either the death of a person or the end of a term of years.

Actuarial Tables

The factors and tables associated with this publication involving life contingencies are derived from the values of lx taken from the Life Table for the Total Population appearing as Table 1, in "U.S. Decennial Life Tables for 1999-2001" published by the U.S. Department of Health and Human Services, Public Health Service, National Center for Health Statistics. That mortality table appears in the associated set of tables in Section 6, labeled as Table 2000CM.

The factors in Sections 1, 2, 3, and 5 are based on adjusted payout rates ranging from 0.2 percent to 20.0 percent in intervals of 0.2 percent.

Table U(1), Section 1, contains factors for the present worth of the remainder interest in a single life unitrust.

Table U(2), Section 2, contains factors for the present worth of the remainder interest in a unitrust due at the death of the last to die of two persons.

Table D, Section 3, contains factors for the present worth of the remainder interest in a unitrust following a term certain.

Table F, Section 4, contains factors for computing adjusted payout rates for annual, semiannual, quarterly, and monthly payment periods at interest rates from 0.2 percent to 20.0 percent.

Table Z, Section 5, contains commutation factors for the present worth of certain interests in a single life unitrust.

Table 2000CM, Section 6, is the underlying mortality table used to calculate factors involving life contingencies.

All of the factors associated with this publication reflect annual compounding of interest.

Historical Synopsis of Tables

                         Mortality   Interest

A. Adjusted Payout Rate

Example 1. If the unitrust makes the annual distributions in the form of installments paid periodically during the year, or if the unitrust makes payments annually at a time during the year other than one year from the annual valuation date, it is necessary to adjust the payout rate to reflect the periodic installments and the period of time between the annual valuation date and the payments. This results in an "adjusted payout rate," which is used to find the factors in the actuarial tables.

For all of the following examples, we assume that the unitrust pays out 5.0 percent per year in equal quarterly installments at the end of each quarter, and that the standard annual valuation date is the last day of the trust year, December 31. It is irrelevant if the trust is initiated and funded on another date during the year creating a short trust year, as this initial short trust year is not used to determine the period from the standard annual valuation date to the first periodic payment each year. In addition, we assume that the unitrust interest involved is to be valued at the section 7520 interest rate of 6.2 percent. Time periods are rounded to the nearest whole number of months. Based on these facts, the adjusted payout rate is 4.816 percent, determined as follows:

      Applicable Section 7520 Interest Rate  = 6.2%

Under section 7520 of the Internal Revenue Code, if a charitable contribution is allowed for a transfer of property to the trust, the taxpayer may elect to use either the section 7520 rate for the month of transfer or the rate for either of the two preceding months. We assume the taxpayer elects to use the rate for the month of transfer, 6.2 percent.

The trust pays the lesser of the stated payout rate of 5 percent or the trust net income. Under the provisions of section 1.664-4(a)(3) of the Federal Income Tax Regulations, we compute the remainder interest based on the trust's stated payout rate of 5 percent. Using the method illustrated in Example 1 above, the adjusted payout rate is found to be 4.816 percent. The required remainder factor is found by using the remainder factors found in Table U(1) for adjusted payout rates immediately above and below this adjusted payout rate, and interpolating between these factors for the remainder factor at the adjusted payout rate of 4.816 percent.

             Remainder Factor, Table U(1), at 4.8%  = 0.30453

Under section 7520 of the Internal Revenue Code, if a charitable contribution is allowed for a transfer of property to the trust, the taxpayer may elect to use either the section 7520 rate for the month of transfer or the rate for either of the two preceding months. We assume the taxpayer elects to use a month for which the section 7520 rate is 6.2 percent.

Using the same method as illustrated in Example 1 above, the adjusted payout rate is 4.816 percent. The required remainder factor is found by using the remainder factors found in Table U(2) for adjusted payout rates immediately above and below this adjusted payout rate, and interpolating between these factors for the remainder factor at the adjusted payout rate of 4.816 percent.

             Remainder Factor, Table U(2), at 4.8%  = 0.45576

Under section 7520 of the Internal Revenue Code, if a charitable contribution is allowed for a transfer of property to the trust, the taxpayer may elect to use either the section 7520 rate for the month of transfer or the rate for either of the two preceding months. We assume the taxpayer elects to use the rate for a month in which the section 7520 rate is 6.2 percent.

Using the same method as illustrated in Example 1 above, the adjusted payout rate is 4.816 percent. The required remainder factor is found by using the remainder factors found in Table D for adjusted payout rates immediately above and below this adjusted payout rate, and interpolating between these factors for the remainder factor at the adjusted payout rate of 4.816 percent.

                Remainder Factor, Table D, at 4.8%  = 0.478139

 First Computation:                 Payout Rate  = 4.8%

  Required Interpolated Payout Interest Factor at 4.816%  = 0.36645