[Congressional Record Volume 153, Number 22 (Tuesday, February 6, 2007)]
[Senate]
[Pages S1641-S1643]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SMITH:
  S. 504. A bill to amend the Internal Revenue Code of 1986 to 
establish long-term care trust accounts and allow a refundable tax 
credit for contributions to such accounts, and for other purposes; to 
the Committee on Finance.
  Mr. SMITH. Mr. President, I rise today to introduce the Long-Term 
Care Trust Account Act of 2007. I am pleased to be joined by my 
colleague Senator Blanche Lincoln who has been a tireless leader on 
issues of importance to the health of our Nation. I look forward to 
continuing to work with Senator Lincoln on this legislation as well as 
other opportunities to improve health care in America.
  We are an aging Nation. With babyboomers rapidly retiring, the need 
for long-term care planning is becoming even more critical. However, we 
know all too well that planning for the likelihood of disability in 
young or old age is not done as actively as we would like it to be. 
Currently, only about 7 percent of all money spent on long-term care 
comes from private insurance. Too often, insurance is not being 
purchased, funds are not being saved and persons with disabilities are 
forced to rely on Medicaid for their daily care.
  As a Nation, we need to do better. Senator Lincoln and I believe that 
our bill will encourage Americans to invest in their futures and in 
their care, which is an important first step.
  Specifically, our legislation will create a new type of savings 
mechanism for the purpose of preparing for the costs associated with 
long-term care services and purchasing long-term care insurance. An 
individual who establishes a long-term care trust account can 
contribute up to $5,000 per year to their account and receive a 
refundable 10 percent tax credit on that contribution. Interest accrued 
on these accounts will be tax free, and funds could be withdrawn for 
the purchase of long-term care insurance or to pay for long-term care 
services. Our bill also will allow an individual to make contributions 
to another person's Long-Term Care Trust Account. This will allow 
relatives to help their parents or a loved one prepare for their future 
health care needs.
  The Centers for Medicare and Medicaid Services estimates that 
national spending for long-term care was more than $190 billion in 
2004, representing about 12.5 percent of all personal health care 
expenditures. While those numbers already are staggering, we also know 
that the need for long-term care is expected to grow significantly in 
coming decades. Almost two-thirds of people receiving long-term care 
are over age 65, with this number expected to double by 2030. We also 
know that the population over age 85, those most likely to need long-
term services and supports, is expected to increase more than 250 
percent by 2040 from 4.3 million to 15.4 million.
  Today, millions of Americans are receiving or are in need of long-
term care services and supports. Surprisingly, more than 40 percent of 
persons receiving long-term care are between the ages of 18 and 64. 
Some were born with disabilities; others came to be disabled through 
accident or illness. No one can predict their long-term health care 
needs. Therefore, everyone needs to be prepared.
  Currently, long-term care insurance is the main way to prepare for 
possible future care and support needs. Long-term care insurance helps 
protect assets and income from the devastating financial consequences 
of long-term health care costs. Today's comprehensive long-term care 
insurance policies allow consumers to choose from a variety of benefits 
and offer a wide range of coverage choices. They allow individuals to 
receive care in a variety of settings including nursing homes, home 
care, assisted living facilities and adult day care. Some of the most 
recent policies also provide a cash-benefit that a consumer can spend 
in the manner he or she chooses. When we buy long-term care insurance, 
we are also working to ensure that we can make more independent long-
term care decisions and reduce the strain on state Medicaid budgets.
  Unfortunately, for too many, the struggle to pay the immediate costs 
of long-term care insurance sometimes outweighs the security these 
products would provide. As Americans are spending more and saving less, 
I fear the American middle class is woefully unprepared to meet the 
coming challenges of their long-term care needs. Moving forward in our 
effort to help individuals prepare for life in their later years, we 
must encourage them to purchase long-term care insurance and save for 
long-term care services. The Long-Term Care Trust Account Act of 2007 
is designed to achieve both goals.
  It is my hope that this legislation will help all Americans save for 
their future and their independence during times of vulnerability. I 
urge my colleagues on both sides of the aisle to support this important 
bill.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 504

       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 ``Long-Term Care Trust Account 
     Act of 2007''.

     SEC. 2. LONG-TERM CARE TRUST ACCOUNTS.

       (a) In General.--Subchapter F of chapter 1 of the Internal 
     Revenue Code of 1986 (relating to exempt organizations) is 
     amended by adding at the end the following new part:

                ``PART IX--LONG-TERM CARE TRUST ACCOUNTS

     ``SEC. 530A. LONG-TERM CARE TRUST ACCOUNTS.

       ``(a) General Rule.--A Long-Term Care Trust Account shall 
     be exempt from taxation

[[Page S1642]]

     under this subtitle. Notwithstanding the preceding sentence, 
     such account shall be subject to the taxes imposed by section 
     511 (relating to imposition of tax on unrelated business 
     income of charitable organizations).
       ``(b) Long-Term Care Trust Account.--For purposes of this 
     section, the term `Long-Term Care Trust Account' means a 
     trust created or organized in the United States for the 
     exclusive benefit of an individual who is the designated 
     beneficiary of the trust and which is designated (in such 
     manner as the Secretary shall prescribe) at the time of the 
     establishment of the trust as a Long-Term Care Trust Account, 
     but only if the written governing instrument creating the 
     trust meets the following requirements:
       ``(1) Except in the case of a qualified rollover 
     contribution described in subsection (d)--
       ``(A) no contribution will be accepted unless it is in 
     cash, and
       ``(B) contributions will not be accepted for the calendar 
     year in excess of the contribution limit specified in 
     subsection (c)(1).
       ``(2) 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 that person will administer the 
     trust will be consistent with the requirements of this 
     section or who has so demonstrated with respect to any 
     individual retirement plan.
       ``(3) No part of the trust assets will be invested in life 
     insurance contracts.
       ``(4) The interest of an individual in the balance of his 
     account is nonforfeitable.
       ``(5) The assets of the trust shall not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       ``(6) Except as provided in subsection (e)(2), no 
     distribution will be allowed if at the time of such 
     distribution the designated beneficiary is not a chronically 
     ill individual (as defined in section 7702B(c)(2)).
       ``(c) Tax Treatment of Contributions.--
       ``(1) Contribution limit.--
       ``(A) In general.--The aggregate amount of contributions 
     (other than qualified rollover contributions described in 
     subsection (d)) for any taxable year to all Long-Term Care 
     Trust Accounts maintained for the benefit of the designated 
     beneficiary shall not exceed $5,000.
       ``(B) Inflation adjustment.--In the case of any taxable 
     year beginning in a calendar year after 2007, the dollar 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the medical care cost adjustment determined under 
     section 213(d)(10)(B)(ii) for the calendar year in which the 
     taxable year begins, determined by substituting `2006' for 
     `1996' in subclause (II) thereof.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $10, such amount shall be rounded to the next 
     lowest multiple of $10.
       ``(2) Gift tax treatment of contributions.--For purposes of 
     chapters 12 and 13--
       ``(A) In general.--Any contribution to a Long-Term Care 
     Trust Account on behalf of any designated beneficiary--
       ``(i) shall be treated as a completed gift to such 
     beneficiary which is not a future interest in property, and
       ``(ii) shall not be treated as a qualified transfer under 
     section 2503(e).
       ``(B) Treatment of excess contributions.--If the aggregate 
     amount of contributions described in subparagraph (A) during 
     the calendar year by a donor exceeds the limitation for such 
     year under section 2503(b), such aggregate amount shall, at 
     the election of the donor, be taken into account for purposes 
     of such section ratably over the 5-year period beginning with 
     such calendar year.
       ``(d) Qualified Rollover Contribution.--For purposes of 
     this section, the term `qualified rollover contribution' 
     means a contribution to a Long-Term Care Trust Account--
       ``(1) from another such account of the same beneficiary, 
     but only if such amount is contributed not later than the 
     60th day after the distribution from such other account, and
       ``(2) from a Long-Term Care Trust Account of a spouse of 
     the beneficiary of the account to which the contribution is 
     made, but only if such amount is contributed not later than 
     the 60th day after the distribution from such other account.
       ``(e) Tax Treatment of Distributions.--
       ``(1) In general.--Any distribution from a Long-Term Care 
     Trust Account shall be includible in the gross income of the 
     distributee in the manner as provided under section 72 to the 
     extent not excluded from gross income under any other 
     provision of this subsection.
       ``(2) Long-term care insurance premiums.--If at the time of 
     any distribution, the designated beneficiary is not a 
     chronically ill individual (as defined in section 
     7702B(c)(2)), no amount shall be includible in gross income 
     under paragraph (1) if the aggregate premiums for any 
     qualified long-term care insurance contract for such 
     beneficiary during the taxable year are not less than the 
     aggregate distributions during the taxable year.
       ``(3) Distributions for qualified long-term care 
     services.--For purposes of this subsection, if at the time of 
     any distribution, the designated beneficiary is a chronically 
     ill individual (as so defined)--
       ``(A) In-kind distributions.--No amount shall be includible 
     in gross income under paragraph (1) by reason of a 
     distribution which consists of providing a benefit to the 
     distributee which, if paid for by the distributee, would 
     constitute expenses for any qualified long-term care services 
     (as defined in section 7702B(c)).
       ``(B) Cash distributions.--In the case of distributions not 
     described in subparagraph (A), if--
       ``(i) such distributions do not exceed the expenses for 
     qualified long-term care services (as so defined), reduced by 
     expenses described in subparagraph (A), no amount shall be 
     includible in gross income, and
       ``(ii) in any other case, the amount otherwise includible 
     in gross income shall be reduced by an amount which bears the 
     same ratio to such amount as such expenses bear to such 
     distributions.
       ``(4) Change in beneficiaries or accounts.--Paragraph (1) 
     shall not apply to that portion of any distribution which, 
     within 60 days of such distribution, is transferred--
       ``(A) to another Long-Term Care Trust Account for the 
     benefit of the designated beneficiary, or
       ``(B) to the credit of another designated beneficiary under 
     a Long-Term Care Trust Account who is a spouse of the 
     designated beneficiary with respect to which the distribution 
     was made.
       ``(5) Operating rules.--For purposes of applying section 
     72--
       ``(A) to the extent provided by the Secretary, all Long-
     Term Care Trust Accounts of which an individual is a 
     designated beneficiary shall be treated as one account,
       ``(B) except to the extent provided by the Secretary, all 
     distributions during a taxable year shall be treated as one 
     distribution, and
       ``(C) except to the extent provided by the Secretary, the 
     value of the contract, income on the contract, and investment 
     in the contract shall be computed as of the close of the 
     calendar year in which the taxable year begins.
       ``(6) Special rules for death and divorce.--
       ``(A) In general.--Rules similar to the rules of paragraphs 
     (7) and (8) of section 220(f) shall apply.
       ``(B) Amounts includible in estate of donor making excess 
     contributions.--In the case of a donor who makes the election 
     described in subsection (c)(2)(B) and who dies before the 
     close of the 5-year period referred to in such subsection, 
     the gross estate of the donor shall include the portion of 
     such contributions properly allocable to periods after the 
     date of death of the donor.
       ``(7) Additional tax.--The tax imposed by this chapter for 
     any taxable year on any taxpayer who receives a payment or 
     distribution from a Long-Term Care Trust Account which is 
     includible in gross income shall be increased by 25 percent 
     of the amount which is so includible under rules similar to 
     the rules of section 530(d)(4).
       ``(8) Denial of double benefit.--For purposes of 
     determining the amount of any deduction under this chapter, 
     any payment or distribution out of a Long-Term Care Trust 
     Account shall not be treated as an expense paid for medical 
     care.
       ``(f) Designated Beneficiary.--For purposes of this 
     section, the term `designated beneficiary' means the 
     individual designated at the commencement of participation in 
     the Long-Term Care Trust Account as the beneficiary of 
     amounts paid (or to be paid) to the account.
       ``(g) Loss of Taxation Exemption of Account Where 
     Beneficiary Engages in Prohibited Transaction.--Rules similar 
     to the rules of paragraph (2) of section 408(e) shall apply 
     to any Long-Term Care Trust Account.
       ``(h) Custodial Accounts.--For purposes of this section, a 
     custodial account or an annuity contract issued by an 
     insurance company qualified to do business in a State shall 
     be treated as a trust under this section if--
       ``(1) the custodial account or annuity contract would, 
     except for the fact that it is not a trust, constitute a 
     trust which meets the requirements of subsection (b), and
       ``(2) in the case of a custodial account, the assets of 
     such account are held by a bank (as defined in section 
     408(n)) or another person who demonstrates, to the 
     satisfaction of the Secretary, that the manner in which he 
     will administer the account will be consistent with the 
     requirements of this section.

     For purposes of this title, in the case of a custodial 
     account or annuity contract treated as a trust by reason of 
     the preceding sentence, the person holding the assets of such 
     account or holding such annuity contract shall be treated as 
     the trustee thereof.
       ``(i) Reports.--The trustee of a Long-Term Care Trust 
     Account shall make such reports regarding such account to the 
     Secretary and to the beneficiary of the account with respect 
     to contributions, distributions, and such other matters as 
     the Secretary may require. The reports required by this 
     subsection shall be filed at such time and in such manner and 
     furnished to such individuals at such time and in such manner 
     as may be required.''.
       (b) Tax on Excess Contributions.--
       (1) In general.--Subsection (a) of section 4973 of the 
     Internal Revenue Code of 1986 (relating to tax on excess 
     contributions to certain tax-favored accounts and annuities) 
     is amended by striking ``or'' at the end of paragraph (4), by 
     inserting ``or'' at the end of paragraph (5), and by 
     inserting after paragraph (5) the following new paragraph:
       ``(6) a Long-Term Care Trust Account (as defined in section 
     530A),''.

[[Page S1643]]

       (2) Excess contribution.--Section 4973 of such Code is 
     amended by adding at the end the following new subsection:
       ``(h) Excess Contributions to Long-Term Care Trust 
     Accounts.--For purposes of this section--
       ``(1) In general.--In the case of Long-Term Care Trust 
     Accounts (within the meaning of section 530A), the term 
     `excess contributions' means the sum of--
       ``(A) the amount by which the amount contributed for the 
     calendar year to such accounts (other than qualified rollover 
     contributions (as defined in section 530A(d))) exceeds the 
     contribution limit under section 530A(c)(1), and
       ``(B) the amount determined under this subsection for the 
     preceding calendar year, reduced by the excess (if any) of 
     the maximum amount allowable as a contribution under section 
     530A(c)(1) for the calendar year over the amount contributed 
     to the accounts for the calendar year.
       ``(2) Special rule.--A contribution shall not be taken into 
     account under paragraph (1) if such contribution (together 
     with the amount of net income attributable to such 
     contribution) is returned to the beneficiary before June 1 of 
     the year following the year in which the contribution is 
     made.''.
       (c) Failure To Provide Reports on Long-Term Care Trust 
     Accounts.--Paragraph (2) of section 6693(a) of the Internal 
     Revenue Code of 1986 (relating to failure to provide reports 
     on individual retirement accounts or annuities) is amended by 
     striking ``and'' at the end of subparagraph (D), by striking 
     the period at the end of subparagraph (E) and inserting ``, 
     and'', and by inserting after subparagraph (E) the following 
     new subparagraph:
       ``(F) section 530A(i) (relating to Long-Term Care Trust 
     Accounts).''.
       (d) Conforming Amendment.--The table of parts for 
     subchapter F of chapter 1 of the Internal Revenue Code of 
     1986 is amended by adding at the end the following new item:

              ``Part IX. Long-Term Care Trust Accounts''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2006.

     SEC. 3. REFUNDABLE CREDIT FOR CONTRIBUTIONS TO LONG-TERM CARE 
                   TRUST ACCOUNTS.

       (a) In General.--Subpart C of part IV of subchapter A of 
     chapter 1 of the Internal Revenue Code of 1986 (relating to 
     refundable credits) is amended by inserting after section 35 
     the following new section:

     ``SEC. 35A. CONTRIBUTIONS TO LONG-TERM CARE TRUST ACCOUNTS.

       ``(a) General Rule.--In the case of an individual, there 
     shall be allowed as a credit against the tax imposed by this 
     subtitle for the taxable year an amount equal to 10 percent 
     of the contributions to any Long-Term Care Trust Account 
     allowed under section 530A for such taxable year.
       ``(b) Reduction Based on Adjusted Gross Income.--
       ``(1) In general.--The percentage which would (but for this 
     subsection) be taken into account under subsection (a) for 
     the taxable year shall be reduced (but not below zero) by the 
     percentage determined under paragraph (2).
       ``(2) Amount of reduction.--The percentage determined under 
     this paragraph is the percentage which bears the same ratio 
     to the percentage which would be so taken into account as--
       ``(A) the excess of--
       ``(i) the taxpayer's adjusted gross income for such taxable 
     year, over
       ``(ii) $95,000 ($190,000 in the case of a joint return), 
     bears to
       ``(B) $10,000 ($20,000 in the case of a joint return).
       ``(3) Adjusted gross income.--For purposes of this 
     subsection, adjusted gross income shall be determined without 
     regard to sections 911, 931, and 933.
       ``(c) Denial of Double Benefit.--No deduction shall be 
     allowed under this chapter for any amount taken into account 
     in determining the credit under this section.''.
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 1324(b) of title 31, United 
     States Code, is amended by inserting before the period ``, or 
     from section 35A of such Code''.
       (2) The table of sections of subpart C of part IV of 
     subchapter A of chapter 1 of the Internal Revenue Code of 
     1986 is amended by inserting after the item relating to 
     section 35 the following new item:

``Sec. 35A. Contributions to Long-Term Care Trust Accounts.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred in taxable years 
     beginning after December 31, 2005.
                                 ______