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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. TREATMENT OF FUNERAL TRUSTS.
(a) IN GENERAL.—Subpart F of part I of subchapter
J of chapter 1 of the Internal Revenue Code of 1986 is
amended by adding at the end the following new section:
‘‘SEC. 684. TREATMENT OF FUNERAL TRUSTS.
‘‘(a) IN GENERAL.—In the case of a qualified funeral
trust—
‘‘(1) subparts B, C, D, and E shall not apply,
and
‘‘(2) no deduction shall be allowed by section
642(b).
‘‘(b) QUALIFIED FUNERAL TRUST.—For purposes of
this section, the term ‘qualified funeral trust’ means any
trust (other than a foreign trust) if—
‘‘(1) the trust arises as a result of a contract
with a person engaged in the trade or business of
providing funeral or burial services or property nec-
essary to provide such services,
‘‘(2) the sole purpose of the trust is to hold, in-
vest, and reinvest funds in the trust and to use such
funds solely to make payments for such services or
property for the benefit of the beneficiaries of the
trust,
‘‘(3) the only beneficiaries of such trust are in-
dividuals who have entered into contracts described
in paragraph (1) to have such services or property
provided at their death,
‘‘(4) the only contributions to the trust are con-
tributions by or for the benefit of such beneficiaries,
and
‘‘(5) the trust would (but for this section) be
treated as owned by the beneficiaries under subpart
E.
‘‘(c) DOLLAR LIMITATION ON CONTRIBUTIONS.—
‘‘(1) IN GENERAL.—The term ‘qualified funeral
trust’ shall not include any trust which accepts ag-
gregate contributions by or for the benefit of an in-
dividual in excess of $7,000.
‘‘(2) RELATED TRUSTS.—For purposes of para-
graph (1), all trusts having trustees which are relat-
ed persons shall be treated as 1 trust. For purposes
of the preceding sentence, persons are related if—
‘‘(A) the relationship between such persons
would result in the disallowance of losses under
section 267 or 707(b),
‘‘(B) such persons are treated as a single
employer under subsection (a) or (b) of section
52, or
‘‘(C) the Secretary determines that treat-
ing such persons as related is necessary to pre-
vent avoidance of the purposes of this section.
‘‘(3) INFLATION ADJUSTMENT.—In the case of
any contract referred to in subsection (b)(1) which
is entered into during any calendar year after 1997,
the dollar amount referred to paragraph (1) shall be
increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year, by substituting ‘calendar year 1996’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
If any dollar amount after being increased under the
preceding sentence is not a multiple of $100, such
dollar amount shall be rounded to the nearest mul-
tiple of $100.
‘‘(d) APPLICATION
OF RATE SCHEDULE.—Section
1(e) shall be applied to each qualified funeral trust by
treating each beneficiary’s interest in each such trust as
a separate trust.
‘‘(e) TREATMENT OF AMOUNTS REFUNDED TO BEN-
EFICIARY ON CANCELLATION.—No gain or loss shall be
recognized to a beneficiary described in subsection (b)(3)
of any qualified funeral trust by reason of any payment
from such trust to such beneficiary by reason of cancella-
tion of a contract referred to in subsection (b)(1). If any
payment referred to in the preceding sentence consists of
property other than money, the basis of such property in
the hands of such beneficiary shall be the same as the
trust’s basis in such property immediately before the pay-
ment.
‘‘(f) EXCEPTION
IF INTEREST PAID TO BENE-
FICIARIES PURSUANT TO ELECTION.—If, on or before the
date on which a qualified funeral trust is established, the
trustee, pursuant to an agreement with a beneficiary of
such trust, elects to pay (not less than annually) to such
beneficiary all income of the trust which is attributable
to such beneficiary, then for purposes of this title such
beneficiary’s interest in such trust shall be treated as a
separate trust to which this section does not apply. The
election under this subsection, once made, shall be irrev-
ocable.
‘‘(g) SIMPLIFIED REPORTING.—The Secretary may
prescribe rules for simplified reporting of all qualified fu-
neral trusts having a single trustee.’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart F of part I of subchapter J of chapter 1 is
amended by adding at the end the following new item:
‘‘Sec. 684. Treatment of funeral trusts.’’
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to items which, but for such
amendment, would be taken into account in taxable
years of a grantor or beneficiary which end after the
date of the enactment of this Act.
(2) TRUSTS
ESTABLISHED
BEFORE
DATE
OF
ENACTMENT.—In the case of a trust established be-
fore the date of the enactment of this Act, section
684(f) of such Code (as added by this section) shall
be applied by treating an election which is made be-
fore the end of the 1-year period beginning with the
date of the enactment of this Act as if such election
were made on or before the date on which the trust
was established, if such election is made pursuant to
an agreement, described in such section 684(f), en-
tered into during such period.
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