Senior Health Planning Account Act
Bill: H.R.5137 | Sponsor: Rep. Higgins, Brian (D-NY)
Policy area: Taxation

Summary:
Senior Health Planning Account Act
This bill allows tax-exempt senior health planning accounts that are funded using a taxpayer's gains from the sale or assignment of a life insurance contract. The bill excludes from gross income (1) the gains that are contributed to the accounts, and (2) distributions from the accounts that are used exclusively for the health care expenses of the account beneficiary or the account beneficiary's spouse.

To amend the Internal Revenue Code of 1986 to create senior health 
 planning accounts funded by the proceeds of the sale or assignment of 
                       life insurance contracts.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Senior Health Planning Account 
Act''.

SEC. 2. SENIOR HEALTH PLANNING ACCOUNT.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting after section 
139H the following new section:

``SEC. 139I. SENIOR HEALTH PLANNING ACCOUNT.

    ``(a) Exclusion of Contributions of Gain From Sales of Life 
Insurance Contracts.--The amount of gain from the sale or assignment of 
a life insurance contract of a taxpayer shall be reduced (but not below 
zero) by the amount of contributions to a senior health planning 
account made by such taxpayer during the 30-day period beginning on the 
date of such sale or assignment.
    ``(b) Tax Treatment of Senior Health Planning Account.--
            ``(1) In general.--A senior health planning account is 
        exempt from taxation under this subtitle unless such account 
        has ceased to be a senior health planning account. 
        Notwithstanding the preceding sentence, any such account is 
        subject to the taxes imposed by section 511 (relating to 
        imposition of tax on unrelated business income of charitable, 
        etc. organizations).
            ``(2) Account terminations.--Rules similar to the rules of 
        paragraphs (2) and (4) of section 408(e) shall apply to senior 
        health planning accounts, and any amount treated as distributed 
        under such rules shall be treated as not used to pay qualified 
        health care expenses.
            ``(3) Tax treatment of distributions.--
                    ``(A) Amounts used for qualified health care 
                expenses.--Any amount paid or distributed out of a 
                senior health planning account which is used 
                exclusively to pay qualified health care expenses of 
                the account beneficiary or the account beneficiary's 
                spouse shall not be includible in gross income.
                    ``(B) Inclusion of amounts not used for qualified 
                health care expenses.--Any amount paid or distributed 
                out of a senior health planning account which is not 
                used to pay the qualified health care expenses of the 
                account beneficiary or the account beneficiary's spouse 
                shall be included in the gross income of such 
                beneficiary.
                    ``(C) Additional tax on distributions not used for 
                qualified health care expenses.--The tax imposed by 
                this chapter on the account beneficiary for any taxable 
                year in which there is a payment or distribution from a 
                senior health planning account of such beneficiary 
                which is includible in gross income under subparagraph 
                (B) shall be increased by 20 percent of the amount 
                which is so includible. This subparagraph shall not 
                apply if the payment or distribution is made after the 
                account beneficiary--
                            ``(i) dies,
                            ``(ii) becomes a terminally ill individual 
                        (as such term is defined in section 
                        101(g)(4)(A)), or
                            ``(iii) becomes a chronically ill 
                        individual (as such term is defined in section 
                        101(g)(4)(B)).
            ``(4) Coordination with medical expense deduction.--For 
        purposes of determining the amount of the deduction under 
        section 213, any payment or distribution out of a senior health 
        planning account for qualified health care expenses shall not 
        be treated as an expense paid for medical care.
            ``(5) Transfer of account incident to divorce.--The 
        transfer of an individual's interest in a senior health 
        planning account to an individual's spouse or former spouse 
        under a divorce or separation instrument described in 
        subparagraph (A) of section 71(b)(2) shall not be considered a 
        taxable transfer made by such individual notwithstanding any 
        other provision of this subtitle, and such interest shall, 
        after such transfer, be treated as a senior health planning 
        account with respect to which such spouse is the account 
        beneficiary.
            ``(6) Treatment after death of account beneficiary.--
                    ``(A) Treatment if designated beneficiary is 
                spouse.--If the account beneficiary's surviving spouse 
                acquires such beneficiary's interest in a senior health 
                planning account by reason of being the designated 
                beneficiary of such account at the death of the account 
                beneficiary, such senior health planning account shall 
                be treated as if the spouse were the account 
                beneficiary.
                    ``(B) Other cases.--
                            ``(i) In general.--If, by reason of the 
                        death of the account beneficiary, any person 
                        acquires the account beneficiary's interest in 
                        a senior health planning account in a case to 
                        which subparagraph (A) does not apply--
                                    ``(I) such account shall cease to 
                                be a senior health planning account as 
                                of the date of death, and
                                    ``(II) an amount equal to the fair 
                                market value of the assets in such 
                                account on such date shall be 
                                includible if such person is not the 
                                estate of such beneficiary, in such 
                                person's gross income for the taxable 
                                year which includes such date, or if 
                                such person is the estate of such 
                                beneficiary, in such beneficiary's 
                                gross income for the last taxable year 
                                of such beneficiary.
                            ``(ii) Special rules.--
                                    ``(I) Reduction of inclusion for 
                                predeath expenses.--The amount 
                                includible in gross income under clause 
                                (i) by any person (other than the 
                                estate) shall be reduced by the amount 
                                of qualified health care expenses which 
                                were incurred by the decedent before 
                                the date of the decedent's death and 
                                paid by such person within 1 year after 
                                such date.
                                    ``(II) Deduction for estate 
                                taxes.--An appropriate deduction shall 
                                be allowed under section 691(c) to any 
                                person (other than the decedent or the 
                                decedent's spouse) with respect to 
                                amounts included in gross income under 
                                clause (i) by such person.
    ``(c) Definitions.--For purposes of this subsection--
            ``(1) Account beneficiary.--The term `account beneficiary' 
        means, with respect to a senior health planning account, the 
        individual on whose behalf such account was established.
            ``(2) Senior health planning account.--The term `senior 
        health planning account' means a trust created or organized in 
        the United States as a senior health planning account, but only 
        if the written governing instrument creating the trust meets 
        the following requirements:
                    ``(A) No contribution will be accepted unless it is 
                in cash and in consideration of the sale or assignment 
                of any portion of the death benefits under a life 
                insurance contract on the life of the account 
                beneficiary.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)), an insurance company (as defined in section 
                816), or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                such person will administer the trust will be 
                consistent with the requirements of this section.
                    ``(C) No part of the trust assets will be invested 
                in life insurance contracts.
                    ``(D) The assets of the trust will not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
                    ``(E) The interest of an individual in the balance 
                in his account is nonforfeitable.
            ``(3) Qualified health care expenses.--The term `qualified 
        health care expenses' means, with respect to an account 
        beneficiary, amounts paid by such beneficiary for medical care 
        (as defined in section 213(d)) for such individual and the 
        spouse of such individual, but only to the extent such amounts 
        are not compensated for by insurance or otherwise.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of such Code is amended by inserting after 
the item relating to section 139H the following new item:

``Sec. 139I. Senior health planning account.''.
    (c) Effective Date.--The amendments made by this subsection shall 
apply with respect to sales or assignments of life insurance contracts 
after the date of enactment of this Act.
    (d) Reports.--The Secretary may require the trustee of a senior 
health planning account to make such reports regarding such account to 
the Secretary and to the account beneficiary with respect to 
contributions, distributions, and such other matters as the Secretary 
determines appropriate.
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