I

103D CONGRESS

1ST SESSION H. R. 524

To allow a deduction for the amount of the premiums paid on a life insurance

contract the beneficiary of which is a trust established for the benefit

of a disabled individual, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 21, 1993

Mrs. MORELLA introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To allow a deduction for the amount of the premiums paid

on a life insurance contract the beneficiary of which

is a trust established for the benefit of a disabled individual, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SPECIAL TAX TREATMENT FOR CERTAIN LIFE

4 INSURANCE CONTRACTS AND TRUSTS RELAT5 ING TO DISABLED INDIVIDUALS.

6 (a) DEDUCTION ALLOWED.—Part VII of subchapter

7 B of chapter 1 of the Internal Revenue Code of 1986 (re8 lating to additional itemized deductions for individuals) is
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1 amended by redesignating section 220 as section 221 and

2 by inserting after section 219 the following new section:

3 ‘‘SEC. 220. PREMIUMS ON LIFE INSURANCE FOR THE BENE4 FIT OF DISABLED INDIVIDUALS.

5 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi6 vidual, there shall be allowed as a deduction an amount

7 equal to the aggregate qualified life insurance premiums

8 paid or incurred by the taxpayer during the taxable year.

9 ‘‘(b) DEFINITIONS AND SPECIAL RULE RELATING TO

10 QUALIFIED DISABLED INDIVIDUAL’S LIFE INSURANCE.—

11 For purposes of this section—

12 ‘‘(1) QUALIFIED LIFE INSURANCE PREMIUMS.—

13 The term ‘qualified life insurance premium’ means

14 the premium under a qualified disabled individual’s

15 life insurance contract.

16 ‘‘(2) QUALIFIED DISABLED INDIVIDUAL’S LIFE

17 INSURANCE CONTRACT.—The term ‘qualified dis18 abled individual’s life insurance contract’ means any

19 life insurance contract which meets the following re20 quirements on each day (on which such contract is

21 in effect) of the taxpayer’s taxable year:

22 ‘‘(A) The exclusive beneficiary of the con23 tract is a qualified disabled individual’s trust.

24 ‘‘(B) All individuals who are named (at the

25 time such trust is established) as the income
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1 beneficiaries of the trust are disabled individ2 uals.

3 ‘‘(C) The contract insures—

4 ‘‘(i) the life of the taxpayer,

5 ‘‘(ii) in the case of a taxpayer who is

6 married, the life of the spouse of the tax7 payer or the lives of the taxpayer and the

8 spouse, or

9 ‘‘(iii) in the case of a taxpayer who is

10 divorced, the life of the former spouse of

11 such taxpayer or the lives of the taxpayer

12 and the former spouse.

13 ‘‘(D) All incidents of ownership in the con14 tract are held by the taxpayer.

15 ‘‘(E) The face amount of the contract does

16 not exceed $1,000,000.

17 ‘‘(3) DISABLED INDIVIDUAL.—The term ‘dis18 abled individual’ means, with respect to any calendar

19 year, any individual—

20 ‘‘(A) who is unable, by reason of any medi21 cally determinable physical or mental impair22 ment which can be expected to result in death

23 or which has lasted or can be expected to last

24 for a continuous period of not less than 10

25 years, to engage in the performance of personal
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1 services for which such individual would have

2 been paid not less than the amount which is

3 equal to 2 times the full-time minimum wage

4 amount for such calendar year (or, in the case

5 of an individual who has not attained age 18,

6 who suffers from any medically determinable

7 physical or mental impairment of comparable

8 severity), and

9 ‘‘(B) whose adjusted gross income for such

10 calendar year does not exceed the amount which

11 is equal to 2 times the full-time minimum wage

12 amount for such calendar year.

13 ‘‘(4) FULL-TIME MINIMUM WAGE AMOUNT.—

14 The term ‘full-time minimum wage amount’ means

15 an amount equal to the amount of gross income an

16 individual would earn if such individual were em17 ployed and paid for 2,000 hours of service during

18 any calendar year at the minimum wage rate appli19 cable for such calendar year under section 6(a)(1) of

20 the Fair Labor Standards Act of 1938 (29 U.S.C.

21 206(a)(1)).

22 ‘‘(5) LIMITATION AND SPECIAL RULE ON NUM23 BER OF POLICIES TAKEN INTO ACCOUNT PER DIS24 ABLED INDIVIDUAL.—If the taxpayer has more than

25 1 life insurance contract which, but for this para-
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1 graph, would be qualified disabled individual’s life

2 insurance contracts for any taxable year with respect

3 to any disabled individual—

4 ‘‘(A) only one of such contracts may be

5 treated as a qualified disabled individual’s life

6 insurance contract for such taxable year, and

7 ‘‘(B) the taxpayer shall designate which of

8 such contracts shall be so treated for such tax9 able year.

10 ‘‘(c) QUALIFIED DISABLED INDIVIDUAL’S TRUST

11 DEFINED.—For purposes of this section—

12 ‘‘(1) IN GENERAL.—The term ‘qualified dis13 abled individual’s trust’ means a trust created or or14 ganized in the United States which may accumulate

15 income or distribute corpus and all the income bene16 ficiaries of which are one or more individuals each

17 of whom is a disabled individual at the time such

18 trust is established; but only if the written governing

19 instrument creating the trust meets the following re20 quirements:

21 ‘‘(A) At all times each trustee is a bank

22 (as defined in section 408(n)), a life insurance

23 company, a member in good standing of the bar

24 of the highest court of any State, or a member
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1 of the family of any income beneficiary of the

2 trust.

3 ‘‘(B) At all times at least one trustee is a

4 person who is not a member of the family of

5 any income beneficiary of the trust.

6 ‘‘(C) If at any time the trust has more

7 than 3 trustees serving concurrently, at least

8 one-third of all such trustees are persons who

9 are not members of the family of any income

10 beneficiary of the trust.

11 ‘‘(D) Before the death of the last to die of

12 all individuals who are income beneficiaries of

13 the trust, the corpus of the trust and any net

14 accumulated income of the trust may be distrib15 uted only for the benefit of such individuals.

16 ‘‘(2) MEMBER OF THE FAMILY DEFINED.—The

17 term ‘member of the family’ means, with respect to

18 any individual, any spouse, former spouse, parent,

19 child, grandchild, brother, or sister of such individ20 ual. For purposes of the preceding sentence, the

21 term ‘parent’ includes the stepmother and stepfather

22 of such individual and any individual who has legally

23 adopted such individual.

24 ‘‘(d) TAX TREATMENT OF DISTRIBUTIONS FROM

25 TRUST.—
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1 ‘‘(1) AMOUNT DISTRIBUTED EXCLUDED FROM

2 GROSS INCOME OF DISABLED INDIVIDUAL.—Not3 withstanding section 662(a), gross income of an in4 dividual who is an income beneficiary of a qualified

5 disabled individual’s trust does not include any

6 amount distributed from such trust to such individ7 ual in a calendar year in which such individual is a

8 disabled individual.

9 ‘‘(2) SECTION 661 DEDUCTION AND CREDIT OR

10 REFUND FOR TAXES DEEMED DISTRIBUTED AL11 LOWED.—Notwithstanding the application of para12 graph (1) to any distribution from a qualified dis13 abled individual’s trust to the individual for whose

14 benefit such trust was established—

15 ‘‘(A) the amount of such distribution shall

16 be allowed as a deduction for such trust to the

17 extent such deduction is otherwise allowable

18 under section 661, and

19 ‘‘(B) the amount of taxes deemed distrib20 uted to the income beneficiaries under section

21 666(b) and (c) shall, under regulations pre22 scribed by the Secretary, be available to the

23 trust as a credit against the trust’s income tax

24 liability computed without such credit or as a

25 refund of the trust’s income tax payments pre-
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1 viously made. The taxable year or years of the

2 trust for which such credit or refund shall be

3 applicable shall be determined under the same

4 regulations.’’

5 (b) DEDUCTION ALLOWABLE WHETHER OR NOT

6 TAXPAYER ITEMIZES OTHER DEDUCTIONS.—Subsection

7 (a) of section 62 of such Code is amended by inserting

8 after paragraph (13) the following new paragraph:

9 ‘‘(14) PREMIUMS ON LIFE INSURANCE FOR THE

10 BENEFIT OF DISABLED INDIVIDUALS.—The deduc11 tion allowed by section 220.’’

12 (c) INSURANCE CONTRACT PROCEEDS EXCLUDED

13 FROM GROSS ESTATE OF HOLDER AND INCLUDED IN

14 GROSS ESTATE OF BENEFICIARY OF TRUST.—Section

15 2042 of such Code (relating to estate tax treatment of

16 the proceeds of life insurance) is amended—

17 (1) by striking out ‘‘The value of the gross es18 tate’’ and inserting in lieu thereof ‘‘(a) IN GEN19 ERAL.—The value of the gross estate’’, and

20 (2) by adding at the end thereof the following

21 new subsection:

22 ‘‘(b) PROCEEDS OF QUALIFIED DISABLED INDIVID23 UAL’S LIFE INSURANCE CONTRACT.—For purposes of this

24 chapter—
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1 ‘‘(1) EXCLUSION FROM ESTATE ON DEATH OF

2 INSURED.—If a life insurance contract on the life of

3 the decedent is a qualified disabled individual’s life

4 insurance contract (within the meaning of section

5 220(b)(2)) on the date of the decedent’s death and

6 on at least 80 percent of the days on which such

7 contract is in effect, the value of the gross estate of

8 the decedent shall not include any portion of the

9 proceeds of such contract.

10 ‘‘(2) INCLUSION IN ESTATE ON DEATH OF BEN11 EFICIARY OF TRUST.—On the death of the last to

12 die of all individuals who are the income bene13 ficiaries of a qualified disabled individual’s trust (as

14 defined in section 220(c)), an amount equal to the

15 sum of—

16 ‘‘(A) any remaining portion of the corpus

17 of the trust which is attributable to the pro18 ceeds of any qualified disabled individual’s life

19 insurance contract, and

20 ‘‘(B) any remaining accumulated income of

21 the trust which is attributable to such proceeds,

22 shall be included in the gross estate of such individ23 ual and shall be subject to the tax imposed under

24 section 2001 in the manner provided in paragraph

25 (3).
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1 ‘‘(3) PARAGRAPH (2) AMOUNT SUBJECT TO TAX

2 AT HIGHEST RATE.—The amount of the tax imposed

3 under section 2001(a) on the taxable estate of any

4 individual referred to in paragraph (2) shall be the

5 sum of the amounts computed separately as follows:

6 ‘‘(A) The amount determined under section

7 2001(b) for the amount of the taxable estate re8 duced by the amount which is attributable to

9 the amount included in the gross estate under

10 paragraph (2) (taking into account any deduc11 tion allowed with respect to such paragraph (2)

12 amount).

13 ‘‘(B) The amount determined for the

14 amount of such taxable estate which is attrib15 utable to the amount included in the gross es16 tate under paragraph (2) (taking into account

17 any such deduction) by applying the highest

18 rate provided in section 2001(c) to such

19 amount.’’

20 (d) CLERICAL AMENDMENT.—The table of sections

21 for part VII of subchapter B of chapter 1 of such Code

22 is amended by striking the last item and by inserting the

23 following new items:

‘‘Sec. 220. Premiums on qualified disabled individual’s life insurance contracts.

‘‘Sec. 221. Cross reference.’’
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1 (e) EFFECTIVE DATE.—The amendments made by

2 this section shall apply with respect to premiums under

3 a qualified disabled individual’s life insurance contract

4 paid or incurred after the close of the 1st calendar year

5 ending after the date of the enactment of this Act, in tax6 able years ending after the close of such year.

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