Date

PRIVATE & CONFIDENTIAL

Dear

RE: ACTUARIAL VALUATION OF A LIFE INTEREST

The purpose of this letter is to recommend a split of the assets of the ..................... properties that would be equitable to the life and reversionary interests. The methodology and assumptions used in this calculation have been explained in some detail in order that the reader can form their own opinion as to the reasonableness of the calculation.

Data

The calculations have been based on the following data:

Life Tenant:
Date of Birth:
Date of Calculation:
Value of Assets:

The value of assets has been included as per your letter dated ............... The recommended percentage split can be used for this, or any other value adopted for the value of the property.

Methodology and Assumptions

One method to calculate the average value of the assets to those beneficiaries having the right to a share on the death of ................................., is to base it on the average life expectancy of .................................. In this case, the projected value of the assets at that time is discounted back to a present value.

The second approach possible would be to assign probabilities to each of the possible survival durations and then to calculate the average outcome. The two methods will produce virtually identical answers. The first method - the average life span - is easier to present and so has been used in this letter.

The assumptions influencing the calculation are:

• mortality assumptions;
• rate of return; and
• rate of increase in the value of assets.

Each of these will be considered in some depth.

The most recent Australian population mortality table is Australian Life Table 1995-97. This is based on the average mortality of Australians over the three year period centred on the 1996 Census. For a female/male aged ....., the life expectancy is ......... years. For ........ years, it is ......... years. I would suggest using a value of (say) .......... years to allow for the reasonable good health comment.

The economic assumptions are dependent on the real rate of return - the difference between how the market value of investments are likely to increase and the rate of discount/interest. I have assumed that the real estate will increase in value at the CPI rate.

Real yields required by financial markets can be assessed from Treasury Capital Indexed Bonds. Recent yields have been:

Tender Date	Tender No.	Average Real Yield
13/07/1995	7	4.732%
25/06/1996	12	5.235%
19/06/1997	17	4.487%
18/06/1998	24	3.570%
17/06/1999	30	3.780%
20/01/2000	34	3.720%
23/11/2000	36	3.438%

A higher real rate favours the life interests, while a lower rate favours the reversionary interests. I suggest a ...........% real rate of return - say ............% CPI and ............% interest - would be an equitable balance between the two interests.

Results

Using the above methodology and results, the value of the reversionary interests are:

Current Value of Assets x (1 + j)^t / (1 + i)^t

Where:
j is the increase in the value of the assets
i is the rate of discount / interest
t is life expectancy

i.e. .....................................................

The recommended immediate split of the assets is:

Life Interests	$
Reversionary Interests	$
TOTAL ASSETS	$

This letter addresses solely the issue of the current value of life tenancy. The issue of how the assets can be dealt with under the terms of the various wills is an issue upon which you should obtain appropriate legal advice.

Please do not hesitate to contact me if you would like to discuss any aspect of the above.

Yours sincerely,

BRIAN BENDZULLA, B.Sc., UED
Fellow of the Institute of Actuaries of Australia
Director

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