Bush Budget Addresses Savings, Estate Taxes, Trusts

Under current law, individuals can make tax-deductible contributions to a health savings account if, among other things, the individual is covered by a high-deductible insurance policy.

Under the administration's plan, individuals without employer-provided health insurance would receive the above-the-line deduction for the high-deductible policy if the policy qualifies the individual for an HSA.

An above-the-line deduction is one that is available to all taxpayers, whether or not they itemize.

The administration also is calling for an above-the-line deduction for long term care insurance premiums. The deduction would be available to those who purchase individual policies or who pay at least 50% of the cost of employer-provided coverage.

Finally, the administration is proposing to modify the tax rules on unrelated business taxable income of charitable remainder trusts.

Currently, charitable remainder annuity trusts and charitable remainder unitrusts are exempt from federal taxation, but the trusts lose their exemption for any year in which they have unrelated business taxable income.

Under the administration's plan, a 100% excise tax would be levied on the unrelated business taxable income of charitable remainder trusts in lieu of removing the tax exemption in those years during which there is unrelated business income.

The administration says this is a more appropriate remedy than loss of the tax exemption.

The change would be effective Jan. 1, 2004, regardless of when the trust was created.