WSR 97-20-001

INSURANCE COMMISSIONER'S OFFICE

[Filed September 17, 1997, 2:35 p.m.]

table for determining the valuation or present worth of life and term estates or annuities and remainders or reversionary interests, computed at several interest rates, for the use of the courts and appraisers of washington

Section .02.16 of Chapter seventy-nine (79) of the Laws of 1947 (RCW 48.02.160) provides:

"* * * The Commissioner shall: Obtain and publish for the use of courts and appraisers throughout the state, tables showing the average expectancy of life and values of annuities and of life and term estates."

Pursuant to the foregoing provisions, the following tables for determining the present worth of life estates or annuities and remainders or reversionary interests, are hereby published and promulgated for the use of the courts and appraisers of the state, computed on the basis of 1990 United States population mortality and at the respective rates of three and one-half, four, four and one-half, five, five and one-half, and six percent annual interest.

Tables I.A through I.F give the basis for valuing life estates or annuities, the proceeds of which the beneficiary enjoys during his or her life. These tables are applicable only where continuation of the annuity is dependent upon a single life. Where two or more lives are involved a special calculation will be required, using supplementary factors derived from 1990 United States population mortality.

Tables II.A through II.F relate to term estates or annuities-certain, which are payable irrespective of continuation of life but terminable at the end of a certain period definitely stated in the provisions of the instrument creating the estate.

Deborah Senn

Insurance Commissioner

[Open Style:Columns Off]

[Open Style:Columns On]

The first column shows the age of the person under consideration at his or her nearest birthday.

The second column shows the present worth of one dollar payable upon death.

The third column shows the present value of an annuity of $1.00 per year payable at the end of each year, during the lifetime of a person of the specified age, with a final payment upon death of an amount proportionate to the time elapsed between the date of the preceding payment and the date of death.

The fourth column shows the complete expectation of life, which is the average number of years of future life for persons of the specified age.

If a life interest in an estate or income from property is payable in semi-annual, quarterly, monthly or weekly installments, Tables should be used without adjustment.

In the case of a life annuity or an annuity-certain, if payable at the end of semi-annual, quarterly, monthly or weekly periods, the annuity value should be multiplied by the appropriate adjustment factor:

Interest rate 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%

Semi-annual 1.00867 1.00990 1.01113 1.01235 1.01357 1.01478

Quarterly 1.01303 1.01488 1.01672 1.01856 1.02039 1.02223

Monthly 1.01594 1.01820 1.02046 1.02271 1.02496 1.02721

Weekly 1.01706 1.01948 1.02190 1.02432 1.02673 1.02913

Example 1. A decedent's will provides that his nephew, age 40 years, is to receive the sum of $1,000 per year for life, payable in monthly installments. What is the present value of the bequest?

Reference to column (3) of Table I.D provides the factor for valuation of a life annuity at age 40, 15.5813. The monthly adjustment factor is 1.02271. The value required is 15.5813 x 1.02271 x $1,000 = $15,935.

Example 2. A decedent leaves to his sister, age 50, a life interest in property the value of which is $50,000, and provides that upon the sister's death, absolute title to the property will pass to other parties. What is the value of the sister's interest, and what is the value of the remainder interest of the other parties in the estate?

A net return of 5% per annum is assumed, and on that basis the sister's income from the estate will be .05 x $50,000 or $2,500 per year. The value of her income (whether paid annually or otherwise) will be $2,500 x 14.8741 [see column (6) Table I.D, age 50] or $37,185.

The remainder interest of the other parties is determined from column (5) of Table I.D, taking into account the age of the person receiving the life interest. The value of $1.00 due upon the death of the sister is $.25637. Hence, the reversion is valued at .25637 x $50,000, or $12,819, for those who receive the remainder interest.

note. It is to be noted that the value of a life estate plus the value of the reversionary or remainder interest equals the value of the whole property. Thus, as a practical matter, only one of the values needs to be computed, and the second can then be arrived at by simply subtracting the value computed from the value of the whole property.

Example 3. Income from property valued at $100,000 is payable to the decedent's niece for 20 years. The income is payable whether or not the niece survives. At the end of 20 years (whether or not the niece is then living) the property is to pass to the decedent's younger brother (or to the younger brother's estate if he is not then living).

Income at 5% on $100,000 will be $5,000 per year. Present worth of $1.00 per year for 20 years, according to column (3) of Table II.D, is $12.4622. The niece's interest, therefore, is $12.4622 x $5,000 or $62,311.

Present worth of $1.00 due at the end of 20 years, from column (2) is $.376889. The brother's interest is valued at $.376889 x 100,000 or $37, 689.

note. It is to be noted that the value of a term estate plus the value of the reversionary of remainder interest equals the value of the whole property. Thus, as a practical matter, only one of the values needs to be computed, and the second can then be arrived at by simple subtracting the value computed from the value of the whole property.

Example 4. The decedent provides that a beneficiary is to receive $100 per month for a fixed period of 10 years, and at the end of that period a final payment in the amount of $10,000. What is the value of the bequest?

$1.00 per year payable annually for 10 years is worth $7.7217 [column (3), Table II.D]. For adjustment to a monthly basis, the correcting factor is 1.02271. The payments amount to $1,200 per year and the value of the income is, thus, $7.7217 x 1.02271 x 1,200 = $9,476.