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When tables are produced, the IRS also produces IRS Publications 1457, IRS Publication 1458 and IRS Publication 1459. The publications produced in 1989 used Table 80CNSMT for mortality calculations and were entitled Publications 1457 Alpha, 1458 Beta and 1459 Gamma. The new publications will be available from the Superintendent of Documents, United States Government Printing Office, Washington, DC 20402, and will be referred to as Publication 1457 "Actuarial Values, Book Aleph," Publication 1458 "Actuarial Values, Book Beph" and Publication 1459 "Actuarial Values, Book Gimel."
The update was made necessary by the 1989 passage of Section 7520 of The Code. Under this section, the mortality tables must be published a minimum of every 10 years with updated information based on the latest census. During the 1990 census, your author inquired of Norman Greenberg, then Chief Actuary of the IRS. In response to the inquiry as to the probable date of issuance of the updated table, Mr. Greenberg stated that the new mortality tables would be issued "sometime after 1995."
There is a transition period during May and June of 1999. If the March or April AFR is selected, then the Table 80CNSMT deduction must be used. If the May or June AFR is used, then either the Table 80CNSMT or the Table 90CM deduction may be used. On July 1, 1999 and thereafter, the new Table 90CM is mandatory, but the July or either of the prior 2 months Applicable Federal Rates may be used.
Impact on Deductions
What is the impact of the new mortality tables? Generally, the deductions will decrease by perhaps 2% or 3% for the new tables. For example, listed below are deductions for ages 60 – 100 for a unitrust or annuity trust. The deductions were calculated using a 6.2 Applicable Federal Rate and assuming a trust funded for one-life with corpus of $100,000.
Unitrust |
Annuity Trust |
|||
| Age | Old | New | Old | New |
60 |
$41,886 |
$40,258 |
$46,944 |
$45,591 |
70 |
$55,539 |
$53,985 |
$58,491 |
$57,133 |
80 |
$69,795 |
$68,468 |
$71,173 |
$69,956 |
90 |
$81,575 |
$81,256 |
$82,099 |
$81,791 |
95 |
$85,681 |
$85,785 |
$86,002 |
$86,041 |
100 |
$88,191 |
$89,070 |
$88,402 |
$89,242 |
Gift Annuity
| Age | Payout Rate | Old | New |
60 |
6.6 |
$2,997 |
$2,818 |
70 |
7.5 |
$3,774 |
$3,570 |
80 |
9.2 |
$4,696 |
$4,472 |
90 |
12.0 |
$5,704 |
$5,630 |
95 |
12.0 |
$6,640 |
$6,662 |
100 |
12.0 |
$7,216 |
$7,418 |
Note that the unitrust deductions decline very slightly until age 95. Similarly, the annuity trust deductions decline by approximately 1% - 2% until age 95.
Using the New Tables During May or June
Generally, the existing tables should be used for gifts during May and June. Since the gift annuity rates change on July 1, 1999 and that date is the required date for use of the new tables, most software vendors will ship updated software in June. This software should be loaded at the end of June.
However, at age 95 and above, the deductions increase slightly with the new mortality tables. With the new tables, there is a larger pool of individuals at age 95. Thus, the number of decedents from this larger pool passing away each year under the new tables is actually slightly greater than with the existing tables. Thus, at age 95 the prospects for that smaller group of individuals under current tables to survive to a more senior date are greater. In essence, under the new tables there will be a larger number of individuals who survive to age 95, but their prospects for surviving to age 110 are not as good as under the current tables, viewed from an individual perspective.
For this reason, the persons age 95 and above who create remainder trust for annuity agreements should consider using the new tables for the income tax deduction calculation.
There is one other circumstance in which the new tables will be helpful. While it is a rather unusual agreement, your author has assisted individuals in creating a charitable lead annuity trust for one or two lives. If the lead trust is funded during May, then the March 5.8 Applicable Federal Rate and the old tables should be utilized. However, if the lead trust is funded during June, then it may be more attractive to use the May or June Applicable Federal Rate and the new tables.
The charitable gift annuity will also have a reduced deduction for annuitants below age 95 after July 1. Since the annuity rates for annuitants age 65 and above are not changed, the deduction will merely decline by perhaps 2% - 4%. However, since the deduction is lower, the tax-free payout will be higher. Thus, the net impact will be relatively modest for most gift annuitants.
Question – How do you best the IRS?
Linda Davis of Stetson University in DeLand, FL reports that she has a wonderful gift annuitant whom has indeed bested the IRS. Of course, the IRS tables are from age 0 to age 110. Last year Linda and her staff attended the 110th birthday of this gift annuitant. They brought in a cake and all sang "Happy Birthday" to this senior friend of Stetson.
As the birthday gathering drew to a close, the senior friend called Linda over and whispered in her ear, "This was so wonderful. Thank you, thank you so much for coming, but you must promise me one thing."
"What is that?" Linda responded.
"You must come back for my birthday next year!" the senior friend stated.
Linda promised. Two months ago, she attended the 111th birthday of this wonderful Stetson annuitant. Surely, this is by far the best way to outmaneuver the IRS.
Copyright (c) 1999 by A. Charles Schultz
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