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Senior Alert

Should you care that the IRS likely will use new actuarial tables sometime in 1999? Yes, if you're eyeing a qualified personal-residence trust.

Many older taxpayers use QPRTs to cut taxes their children will owe when they inherit a home. Take a 65-year-old couple who own a beach house. They can set up a QPRT that lets them use the house for a fixed term--until they're 75, say--before handing it over to the kids. The kids might have to pay gift tax, but the 10-year delay reduces the gift's value--and potential tax--by 45% or more, says Boston tax lawyer Timothy Fidgeon.

Most QPRTs have a twist: If the donor dies during the trust's term, the transfer to the heirs is reversed. The uncertainty further shrinks the gift's value and the tax tab.

Here's where actuarial tables matter. The Internal Revenue Service uses life expectancies based on the 1980 Census. Those figures underestimate current longevity, thus overestimating the odds that the trust will be reversed. That inflates the discount heirs can claim. With the IRS' current figures, that 65-year-old couple's kids could mark down the house's value by 67%, Fidgeon says. Using up-to-date life expectancies, the discount is 61%.

Beyond saying they'll be out this year, the IRS hasn't said exactly when it will release the new longevity tables based on the 1990 Census. So taxpayers considering a QPRT should act soon, Fidgeon says.

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