I

105TH CONGRESS

1ST SESSION H. R. 684

To amend the Internal Revenue Code of 1986 to clarify the treatment of

funeral trusts.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 11, 1997

Mrs. MINK of Hawaii introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to clarify

the treatment of funeral trusts.

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

3 SECTION 1. TREATMENT OF FUNERAL TRUSTS.

4 (a) IN GENERAL.—Subpart F of part I of subchapter

5 J of chapter 1 of the Internal Revenue Code of 1986 is

6 amended by adding at the end the following new section:

7 ‘‘SEC. 684. TREATMENT OF FUNERAL TRUSTS.

8 ‘‘(a) IN GENERAL.—In the case of a qualified funeral

9 trust—
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1 ‘‘(1) subparts B, C, D, and E shall not apply,

2 and

3 ‘‘(2) no deduction shall be allowed by section

4 642(b).

5 ‘‘(b) QUALIFIED FUNERAL TRUST.—For purposes of

6 this section, the term ‘qualified funeral trust’ means any

7 trust (other than a foreign trust) if—

8 ‘‘(1) the trust arises as a result of a contract

9 with a person engaged in the trade or business of

10 providing funeral or burial services or property nec11 essary to provide such services,

12 ‘‘(2) the sole purpose of the trust is to hold, in13 vest, and reinvest funds in the trust and to use such

14 funds solely to make payments for such services or

15 property for the benefit of the beneficiaries of the

16 trust,

17 ‘‘(3) the only beneficiaries of such trust are in18 dividuals who have entered into contracts described

19 in paragraph (1) to have such services or property

20 provided at their death,

21 ‘‘(4) the only contributions to the trust are con22 tributions by or for the benefit of such beneficiaries,

23 and
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1 ‘‘(5) the trust would (but for this section) be

2 treated as owned by the beneficiaries under subpart

3 E.

4 ‘‘(c) DOLLAR LIMITATION ON CONTRIBUTIONS.—

5 ‘‘(1) IN GENERAL.—The term ‘qualified funeral

6 trust’ shall not include any trust which accepts ag7 gregate contributions by or for the benefit of an in8 dividual in excess of $7,000.

9 ‘‘(2) RELATED TRUSTS.—For purposes of para10 graph (1), all trusts having trustees which are relat11 ed persons shall be treated as 1 trust. For purposes

12 of the preceding sentence, persons are related if—

13 ‘‘(A) the relationship between such persons

14 would result in the disallowance of losses under

15 section 267 or 707(b),

16 ‘‘(B) such persons are treated as a single

17 employer under subsection (a) or (b) of section

18 52, or

19 ‘‘(C) the Secretary determines that treat20 ing such persons as related is necessary to pre21 vent avoidance of the purposes of this section.

22 ‘‘(3) INFLATION ADJUSTMENT.—In the case of

23 any contract referred to in subsection (b)(1) which

24 is entered into during any calendar year after 1997,
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1 the dollar amount referred to paragraph (1) shall be

2 increased by an amount equal to—

3 ‘‘(A) such dollar amount, multiplied by

4 ‘‘(B) the cost-of-living adjustment deter5 mined under section 1(f)(3) for such calendar

6 year, by substituting ‘calendar year 1996’ for

7 ‘calendar year 1992’ in subparagraph (B)

8 thereof.

9 If any dollar amount after being increased under the

10 preceding sentence is not a multiple of $100, such

11 dollar amount shall be rounded to the nearest mul12 tiple of $100.

13 ‘‘(d) APPLICATION OF RATE SCHEDULE.—Section

14 1(e) shall be applied to each qualified funeral trust by

15 treating each beneficiary’s interest in each such trust as

16 a separate trust.

17 ‘‘(e) TREATMENT OF AMOUNTS REFUNDED TO BEN18 EFICIARY ON CANCELLATION.—No gain or loss shall be

19 recognized to a beneficiary described in subsection (b)(3)

20 of any qualified funeral trust by reason of any payment

21 from such trust to such beneficiary by reason of cancella22 tion of a contract referred to in subsection (b)(1). If any

23 payment referred to in the preceding sentence consists of

24 property other than money, the basis of such property in

25 the hands of such beneficiary shall be the same as the
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1 trust’s basis in such property immediately before the pay2 ment.

3 ‘‘(f) EXCEPTION IF INTEREST PAID TO BENE4 FICIARIES PURSUANT TO ELECTION.—If, on or before the

5 date on which a qualified funeral trust is established, the

6 trustee, pursuant to an agreement with a beneficiary of

7 such trust, elects to pay (not less than annually) to such

8 beneficiary all income of the trust which is attributable

9 to such beneficiary, then for purposes of this title such

10 beneficiary’s interest in such trust shall be treated as a

11 separate trust to which this section does not apply. The

12 election under this subsection, once made, shall be irrev13 ocable.

14 ‘‘(g) SIMPLIFIED REPORTING.—The Secretary may

15 prescribe rules for simplified reporting of all qualified fu16 neral trusts having a single trustee.’’

17 (b) CLERICAL AMENDMENT.—The table of sections

18 for subpart F of part I of subchapter J of chapter 1 is

19 amended by adding at the end the following new item:

‘‘Sec. 684. Treatment of funeral trusts.’’

20 (c) EFFECTIVE DATE.—

21 (1) IN GENERAL.—The amendments made by

22 this section shall apply to items which, but for such

23 amendment, would be taken into account in taxable

24 years of a grantor or beneficiary which end after the

25 date of the enactment of this Act.
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1 (2) TRUSTS ESTABLISHED BEFORE DATE OF

2 ENACTMENT.—In the case of a trust established be3 fore the date of the enactment of this Act, section

4 684(f) of such Code (as added by this section) shall

5 be applied by treating an election which is made be6 fore the end of the 1-year period beginning with the

7 date of the enactment of this Act as if such election

8 were made on or before the date on which the trust

9 was established, if such election is made pursuant to

10 an agreement, described in such section 684(f), en11 tered into during such period.

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