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 individ-
ual, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SPECIAL TAX TREATMENT FOR CERTAIN LIFE
INSURANCE CONTRACTS AND TRUSTS RELAT-
ING TO DISABLED INDIVIDUALS.
(a) DEDUCTION ALLOWED.—Part VII of subchapter
B of chapter 1 of the Internal Revenue Code of 1986 (re-
lating to additional itemized deductions for individuals) is
amended by redesignating section 220 as section 221 and
by inserting after section 219 the following new section:
‘‘SEC. 220. PREMIUMS ON LIFE INSURANCE FOR THE BENE-
FIT OF DISABLED INDIVIDUALS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual, there shall be allowed as a deduction an amount
equal to the aggregate qualified life insurance premiums
paid or incurred by the taxpayer during the taxable year.
‘‘(b) DEFINITIONS AND SPECIAL RULE RELATING TO
QUALIFIED DISABLED INDIVIDUAL’S LIFE INSURANCE.—
For purposes of this section—
‘‘(1) QUALIFIED LIFE INSURANCE PREMIUMS.—
The term ‘qualified life insurance premium’ means
the premium under a qualified disabled individual’s
life insurance contract.
‘‘(2) QUALIFIED DISABLED INDIVIDUAL’S LIFE
INSURANCE
CONTRACT.—The term ‘qualified dis-
abled individual’s life insurance contract’ means any
life insurance contract which meets the following re-
quirements on each day (on which such contract is
in effect) of the taxpayer’s taxable year:
‘‘(A) The exclusive beneficiary of the con-
tract is a qualified disabled individual’s trust.
‘‘(B) All individuals who are named (at the
time such trust is established) as the income
beneficiaries of the trust are disabled individ-
uals.
‘‘(C) The contract insures—
‘‘(i) the life of the taxpayer,
‘‘(ii) in the case of a taxpayer who is
married, the life of the spouse of the tax-
payer or the lives of the taxpayer and the
spouse, or
‘‘(iii) in the case of a taxpayer who is
divorced, the life of the former spouse of
such taxpayer or the lives of the taxpayer
and the former spouse.
‘‘(D) All incidents of ownership in the con-
tract are held by the taxpayer.
‘‘(E) The face amount of the contract does
not exceed $1,000,000.
‘‘(3) DISABLED
INDIVIDUAL.—The term ‘dis-
abled individual’ means, with respect to any calendar
year, any individual—
‘‘(A) who is unable, by reason of any medi-
cally determinable physical or mental impair-
ment which can be expected to result in death
or which has lasted or can be expected to last
for a continuous period of not less than 10
years, to engage in the performance of personal
services for which such individual would have
been paid not less than the amount which is
equal to 2 times the full-time minimum wage
amount for such calendar year (or, in the case
of an individual who has not attained age 18,
who suffers from any medically determinable
physical or mental impairment of comparable
severity), and
‘‘(B) whose adjusted gross income for such
calendar year does not exceed the amount which
is equal to 2 times the full-time minimum wage
amount for such calendar year.
‘‘(4) FULL-TIME
MINIMUM
WAGE
AMOUNT.—
The term ‘full-time minimum wage amount’ means
an amount equal to the amount of gross income an
individual would earn if such individual were em-
ployed and paid for 2,000 hours of service during
any calendar year at the minimum wage rate appli-
cable for such calendar year under section 6(a)(1) of
the Fair Labor Standards Act of 1938 (29 U.S.C.
206(a)(1)).
‘‘(5) LIMITATION AND SPECIAL RULE ON NUM-
BER OF POLICIES TAKEN INTO ACCOUNT PER DIS-
ABLED INDIVIDUAL.—If the taxpayer has more than
1 life insurance contract which, but for this para-
graph, would be qualified disabled individual’s life
insurance contracts for any taxable year with respect
to any disabled individual—
‘‘(A) only one of such contracts may be
treated as a qualified disabled individual’s life
insurance contract for such taxable year, and
‘‘(B) the taxpayer shall designate which of
such contracts shall be so treated for such tax-
able year.
‘‘(c) QUALIFIED DISABLED INDIVIDUAL’S TRUST
DEFINED.—For purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘qualified dis-
abled individual’s trust’ means a trust created or or-
ganized in the United States which may accumulate
income or distribute corpus and all the income bene-
ficiaries of which are one or more individuals each
of whom is a disabled individual at the time such
trust is established; but only if the written governing
instrument creating the trust meets the following re-
quirements:
‘‘(A) At all times each trustee is a bank
(as defined in section 408(n)), a life insurance
company, a member in good standing of the bar
of the highest court of any State, or a member
of the family of any income beneficiary of the
trust.
‘‘(B) At all times at least one trustee is a
person who is not a member of the family of
any income beneficiary of the trust.
‘‘(C) If at any time the trust has more
than 3 trustees serving concurrently, at least
one-third of all such trustees are persons who
are not members of the family of any income
beneficiary of the trust.
‘‘(D) Before the death of the last to die of
all individuals who are income beneficiaries of
the trust, the corpus of the trust and any net
accumulated income of the trust may be distrib-
uted only for the benefit of such individuals.
‘‘(2) MEMBER OF THE FAMILY DEFINED.—The
term ‘member of the family’ means, with respect to
any individual, any spouse, former spouse, parent,
child, grandchild, brother, or sister of such individ-
ual. For purposes of the preceding sentence, the
term ‘parent’ includes the stepmother and stepfather
of such individual and any individual who has legally
adopted such individual.
‘‘(d) TAX TREATMENT
OF DISTRIBUTIONS FROM
TRUST.—
‘‘(1) AMOUNT DISTRIBUTED EXCLUDED FROM
GROSS
INCOME
OF
DISABLED
INDIVIDUAL.—Not-
withstanding section 662(a), gross income of an in-
dividual who is an income beneficiary of a qualified
disabled individual’s trust does not include any
amount distributed from such trust to such individ-
ual in a calendar year in which such individual is a
disabled individual.
‘‘(2) SECTION 661 DEDUCTION AND CREDIT OR
REFUND
FOR
TAXES
DEEMED
DISTRIBUTED
AL-
LOWED.—Notwithstanding the application of para-
graph (1) to any distribution from a qualified dis-
abled individual’s trust to the individual for whose
benefit such trust was established—
‘‘(A) the amount of such distribution shall
be allowed as a deduction for such trust to the
extent such deduction is otherwise allowable
under section 661, and
‘‘(B) the amount of taxes deemed distrib-
uted to the income beneficiaries under section
666(b) and (c) shall, under regulations pre-
scribed by the Secretary, be available to the
trust as a credit against the trust’s income tax
liability computed without such credit or as a
refund of the trust’s income tax payments pre-
viously made. The taxable year or years of the
trust for which such credit or refund shall be
applicable shall be determined under the same
regulations.’’
(b) DEDUCTION ALLOWABLE WHETHER
OR NOT
TAXPAYER ITEMIZES OTHER DEDUCTIONS.—Subsection
(a) of section 62 of such Code is amended by inserting
after paragraph (13) the following new paragraph:
‘‘(14) PREMIUMS ON LIFE INSURANCE FOR THE
BENEFIT OF DISABLED INDIVIDUALS.—The deduc-
tion allowed by section 220.’’
(c) INSURANCE CONTRACT PROCEEDS EXCLUDED
FROM GROSS ESTATE OF HOLDER AND INCLUDED IN
GROSS ESTATE OF BENEFICIARY OF TRUST.—Section
2042 of such Code (relating to estate tax treatment of
the proceeds of life insurance) is amended—
(1) by striking out ‘‘The value of the gross es-
tate’’ and inserting in lieu thereof ‘‘(a) IN GEN-
ERAL.—The value of the gross estate’’, and
(2) by adding at the end thereof the following
new subsection:
‘‘(b) PROCEEDS OF QUALIFIED DISABLED INDIVID-
UAL’S LIFE INSURANCE CONTRACT.—For purposes of this
chapter—
‘‘(1) EXCLUSION FROM ESTATE ON DEATH OF
INSURED.—If a life insurance contract on the life of
the decedent is a qualified disabled individual’s life
insurance contract (within the meaning of section
220(b)(2)) on the date of the decedent’s death and
on at least 80 percent of the days on which such
contract is in effect, the value of the gross estate of
the decedent shall not include any portion of the
proceeds of such contract.
‘‘(2) INCLUSION IN ESTATE ON DEATH OF BEN-
EFICIARY OF TRUST.—On the death of the last to
die of all individuals who are the income bene-
ficiaries of a qualified disabled individual’s trust (as
defined in section 220(c)), an amount equal to the
sum of—
‘‘(A) any remaining portion of the corpus
of the trust which is attributable to the pro-
ceeds of any qualified disabled individual’s life
insurance contract, and
‘‘(B) any remaining accumulated income of
the trust which is attributable to such proceeds,
shall be included in the gross estate of such individ-
ual and shall be subject to the tax imposed under
section 2001 in the manner provided in paragraph
(3).
‘‘(3) PARAGRAPH (2) AMOUNT SUBJECT TO TAX
AT HIGHEST RATE.—The amount of the tax imposed
under section 2001(a) on the taxable estate of any
individual referred to in paragraph (2) shall be the
sum of the amounts computed separately as follows:
‘‘(A) The amount determined under section
2001(b) for the amount of the taxable estate re-
duced by the amount which is attributable to
the amount included in the gross estate under
paragraph (2) (taking into account any deduc-
tion allowed with respect to such paragraph (2)
amount).
‘‘(B) The amount determined for the
amount of such taxable estate which is attrib-
utable to the amount included in the gross es-
tate under paragraph (2) (taking into account
any such deduction) by applying the highest
rate provided in section 2001(c) to such
amount.’’
(d) CLERICAL AMENDMENT.—The table of sections
for part VII of subchapter B of chapter 1 of such Code
is amended by striking the last item and by inserting the
following new items:
‘‘Sec. 220. Premiums on qualified disabled individual’s life insur-
ance contracts.
‘‘Sec. 221. Cross reference.’’