H.R. 5137 - Senior Health Planning Account Act

117TH CONGRESS
1ST SESSION

H.R. 5137

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.

IN THE HOUSE OF REPRESENTATIVES

AUGUST 31, 2021

Mr. HIGGINS of New York 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 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.