Revenue Administrative Bulletin 1989-44

Approved: May 5, 1989

INHERITANCE TAX - COMPUTATION OF PRESENT CLEAR MARKET VALUE

RAB-89-44. This Bulletin provides information regarding the calculation of the present clear market value of certain interests for inheritance tax purposes.

Tables 1 and 2 (see pages 4 and 5 of this Bulletin) will be used for calculating the present clear market value of remainders preceded by a life estate, life estates, and survivor life annuities. However, annuities payable other than annually must be computed by the Department of Treasury. In these cases, full data shall be sent to the Department. The Department will determine, based upon tables provided by the Commissioner of Insurance, the present clear market value of the several interests therein and will then forward the results to the requesting judge. [MCL 205.211]

Computing the Value of Remainders and Reversions

Table 1 gives the present clear market value of each dollar of remainder, at the termination of a life estate, when the life tenant is of the age and gender indicated. The Table was prepared at the request of the Department of Treasury, pursuant to MCL 205.211. The Table is certified for use in computing, under the Inheritance Tax Law, the present value of reversions and remainders. The Table is in accordance with the rule, method or standard of mortality and value employed by the Commissioner of Insurance in ascertaining the value of policies of life insurance. The Table is based on a 5% per annum rate.

The value of remainders and complete reversions is computed by multiplying the principal sum to be received upon termination of the life estate by the amount indicated across from the age, and under the gender classification, of the life tenant.

Example: In an estate of $ 4,000.00, where the male life tenant is 57-years old, the present clear market value of each $ 1.00 of remainder is $ 0.3681053. Thus:

The value of the preceding life estate is computed in two steps:

1. Compute the difference between 1.0 (one) and the present clear market value of each $ 1.00 of the remainder which succeeds the life tenancy. (This latter value is obtained from the table on page 4. It is the number which is found across from the age of the life tenant, and under the gender classification of the life tenant.)

1. Multiply the principal sum by the difference obtained in step 1. The product, of the multiplication in step 2 is the present clear market value of the preceding life estate.

Example: In an estate of $ 18,000.00, where the female life tenant is 35-years old, the present clear market value of each $ 1.00 of remainder is $ 0.1203076. Thus:

Step 1

Step 2

Table 1 is effective for all life estates and remainders received due to a death occurring on or after October 1, 1978.

Computing the Value of Annuities

Table 2 is used to determine the present clear market value of survivor life annuities. It was prepared at the request of the Department of Treasury, pursuant to MCL 205.211. The Table is certified for use in computing, under the Inheritance Tax Law, the present clear market value of survivor life annuities, and it is in accord with the rule, method or standard of mortality and value employed by the Commissioner of Insurance in ascertaining the value of policies of life insurance. The Table is based on a 5% per annum rate.

The value of survivor life annuities is computed by multiplying the amount payable annually to the surviving annuitant by the amount indicated across from the age, and under the gender classification, of the surviving annuitant.

Example: A 57-year old male has a survivor life annuity with an amount payable annually of $2,000.00. Thus:

Table 2 is effective for all survivor life annuities received due to a death occurring on, or after, October 1, 1978.

TABLE 1
Present Clear Market Value of Each $1.00
of a Remainder Preceded by a Life Estate*

*Computations made by Insurance Bureau, Department of Licensing and Regulation.

TABLE 2
Present Clear Market Value of a Survivor Life Annuity
(for each $1.00 of Amount Payable Annually)*