Thursday April 18, 2024

6.1.2 Mortality Tables

Mortality Tables

Definition:  A mortality table is defined in Webster's dictionary as "an actuarial table indicating life expectancy and probability of death as a function or age and sex and occupation, etc."

Application of Mortality Tables:  Sec. 7520 of the Internal Revenue Code requires that the value of any annuity, any interest for life or term of years or any remainder or reversionary interest be determined using the mortality tables issued by the IRS.

Definition
A mortality table is defined in Webster's dictionary as "an actuarial table indicating life expectancy and probability of death as a function of age, sex, occupation, etc." Mortality tables are used for a variety of reasons. They are used by insurance companies, commercial annuity companies and the IRS. Because mortality tables are used for different purposes, many mortality tables are published. Therefore, a person's stated life expectancy depends on which mortality table is being used to calculate life expectancy.

In the charitable sector, a number of mortality tables are used. There are the 2000CM table, the 90CM table, the 2012 IAR table, tables that underlie the expected return multiple for gift annuities and other tables that may be used by state insurance departments for calculating the required reserve amount of a gift annuity program. All of these tables project different life expectancies. Generally, the more recent the table, the longer the life expectancy projected.

Application of Mortality Tables
Sec. 7520 of the Internal Revenue Code requires that the value of any annuity, any interest for life or term of years or any remainder or reversionary interest be determined using the mortality tables issued by the IRS. Under this Section, the IRS is required to update mortality tables at least once every 10 years. The last update occurred on May 1, 2009 and was published as Table 2000CM. The next update is required not later than May 1, 2019. Table 2000CM is based on U.S. Census Bureau figures. This table is not an estimate of life expectancies. Instead, the table is based on the probability of a living person's surviving to a given age.

The 2000CM mortality table shows the number of persons alive at every age beginning at age zero and ending at age 110. Of every 100,000 people, the table shows how many of those people will survive to the particular age. An abbreviated excerpt of Table 2000CM follows.

AgeNumber of Persons Still Living
0 100,000
20 98,664
40 96,419
60 85,595
80 50,819
1001,477
1100

The mortality calculations in this table determine the probability of survival from one age to another. For example, using this table, the probability of a person's age 60 reaching age 80 can be computed. The probability of survival from age 60 to age 80 is simply the number of persons alive at age 80 divided by the number of persons alive at age 60. A 60-year-old has a 59% probability of reaching age 80 (50,819/85,595). In contrast, an 80-year-old has a 3% probability of reaching age 100 (1,477/50,819). These basic calculations also may be used in more complicated actuarial valuations, such as valuing a remainder interest following multiple lives.

Although Table 2000CM is not a life expectancy table, it may be used to construct a table of life expectancies. Therefore, it is not uncommon for persons to refer to the "life expectancies under Table 2000CM."

The 2012 Individual Annuity Reserving (2012 IAR) mortality table is used by the American Council on Gift Annuities to establish the suggested payout rates for charitable gift annuities. This table is gender specific in that it has different life expectancies for men and women.

Another table commonly used is the IRA minimum distribution table. This table was published by the Treasury Department in 2002. It is used primarily to determine the minimum withdrawal amount for IRA owners. It is also used in Crescendo to project lifetime income streams to donors or other beneficiaries.

A fourth table is found in Reg. 1.72. This table must be used to calculate the expected return multiple for gift annuities. This table calculates the life expectancy over which the annuitant can spread out any tax-free or capital gain amounts that he or she may have to report as a result of funding a gift annuity. Once an annuitant exceeds his or her life expectancy under this table, any future payments to the annuitant are fully taxable as ordinary income.

Related Topics on Mortality Tables

1.3.1  Estate Tax Overview:    An estate tax may be levied on the transfer of property when a person passes away. However, an estate distributed to a surviving spouse who is a U.S. citizen is not taxable. Sec. 2001(a). There is also an estate tax exemption, which excludes most estates from this tax.

3.4.6  IRA to Testamentary Gift Annuity:    IRAs and pension plans have grown dramatically in aggregate size during the past decade. Even with the reduction in value due to the stock market, Federal Reserve data suggest that there is approximately $3 trillion in IRAs and over $10 trillion in cumulative qualified plans.

6.1.3  Computing Actuarial Values - IRS Publications 1457, 1458 and 1459:    IRS Publications 1457, 1458, and 1459 were published in 1999 and are used to compute actuarial values. Publication 1457 is titled Book 3A. Publication 1458 is titled Book 3B and Publication 1459 is Book 3C.

Davenport:    In Estate of Sarah M. Davenport et al. v. Commissioner; T.C. Memo. 2006-215; No. 16060-04 (5 Oct 2006), the court determined that two commercial annuities would be includable in the estate and valued using the Sec. 7520 treasury tables.

      Quiz-Basic



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