- Weekly = once per week. There are an average of 4-1/3 weeks per month.
- Bi-Weekly = once every two weeks. There are an average of 2-1/6 of these per month.
- Semi-Monthly = twice a month.
- Monthly = once a month.
- Bi-monthly = once every two months.
- Quarterly = once every three months.
- Semi-Annual = twice per year or once every six months.
- Annual = once a year.
- Bi-Annual = once every two years.
- Determine the current age of the life estate owner.
- Determine when the life estate was created (look to the date the deed which creates the life estate was first recorded).
- Using the date (month/year) determined in Step 2, determine the applicable interest at the time the life estate was created under 26 U.S.C. § 7520. The table of interest rates can be found at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Section-7520-Interest-Rates if the interest was created this year. Presently, the IRS has these tables going back to 1997 – to access previous years’ interest rates, go to http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Section-7520-Interest-Rates-for-Prior-Years.
- Access IRS Publication 1457 and open up Table S, which you can get at http://www.irs.gov/pub/irs-tege/sec_1_table_s_2009.xls. Scroll down until you find the interest rate you determined in Step 3. Then locate the age you determined in Step 1. Slide over to the column for Life Estate, and find your percentage. If more than one living person maintains a life estate, you must use the “last to die” R(2) tables, rather than Table S. Presently, the IRS has the R(2) tables split into five files based on the interest rate determined in Step 3. 0.2% – 4%; 4.2% – 8%; 8.2% – 12%; 12.2% – 16%; and 16.2% – 20%.
- Multiply the fair market value of the property by the percentage determined in Step 4. Then, account for any partial interests or any other encumbrances (such as mortgages, judgment liens, or tax liens) to determine the value of the beneficiary’s future interest.
I am going to regale you all anyhow with the tale of Jeanne Calment, which I find necessary to do every year or so […] to remind people that the fair market value of a life estate (or for that matter a remainder interest) is not what’s in those tables, but what a willing buyer would pay a willing seller. And, because betting on someone else’s life is risky, a life estate has a fair market value that is likely significantly less than an actuarial expectancy multiplied by the value of the fee simple estate.
Jeanne Calment is the oldest person whose life span has been historically verified. She lived to 122½ in Arles, France. At the ripe old age of 90, she sold her apartment to a 47-year-old lawyer, Andre-Francois Raffray, whose office was in the same building; he wished to expand it. Mme. Calment reserved a life estate. The deal was that Raffray would pay her 2500 francs a month until she died.
Raffray died at age 77 of cancer. Mme. Calment outlived him. (His family continued the payments on the apartment until she died.) Raffray and his heirs ended up paying Mme. Calment more than twice what the apartment was worth.