Our Client Services staff regularly takes client calls that go something like this: Client: I think your software is giving me the wrong deduction. PG Calc Client Services: Can you please explain what you mean? Client: Sure. My donor is 75 years old, so her life expectancy is 11.1 years using the 2000CM mortality table. I know the deduction calculation uses the 2000CM table but when I compute the deduction for a 5% unitrust with a fixed term of 11.1 years, I get a lower deduction than when I compute the deduction for the same unitrust that lasts for my donor’s lifetime. That doesn’t make sense! It does, actually. Let me explain.
Annuity 2000. 2012 IAR. 1983 Basic. 2000CM. Perhaps you are familiar with one or more of these terms. They are the names of mortality tables that are important to planned giving calculations of one kind or another. With so many different mortality tables in play, it’s no wonder that gift planners get confused about which table is used for what purpose and why . . . to the extent that they think about them at all. To help dispel the confusion, I briefly describe below what a mortality table is and the specific use and characteristics of the four mortality tables that gift planners need to be most aware of.
A 70 year-old wants to fund a 5% charitable remainder unitrust with $500,000. If he receives payments for the rest of his life, he gets a charitable deduction of $261,815. On the other hand, if he chooses to receive payments for exactly his life expectancy of 14.2 years, he gets a deduction of $244,060. Strange. Why aren’t the two numbers the same?
How do you respond to a request by one of your organization’s strongest supporters for a two-life charitable gift annuity for him and his wife when you know that his wife is at least a couple decades younger than him? Let’s suppose that the donor is 71 and his wife is 47, for example. Would you be willing to entertain a discussion about a gift annuity written for the joint lives of these two individuals?
In the realm of gift planning, there are a number of terms that we use often. For those new to gift planning or those looking for a refresher, this is the first in a series of articles entitled: “5 Terms Every Gift Planner Should Know.”