Beneficiaries and Estate Consequences of Health Savings Accounts
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Beneficiaries and Estate Consequences of Health Savings Accounts
You can name anyone you want (including your estate) the beneficiary of your HSA account. If your spouse is the named beneficiary, he/she takes over ownership of the account and it becomes their HSA account when you die. If he/she has HSA-qualified insurance, he/she may continue to contribute to the account as if it were their own. If your spouse does not have a qualifying plan, he/she may not contribute any more money to the account but may continue to use the account as his/her own HSA for qualified medical expenses tax-free.
Things To Know
- Designate a beneficiary for your account, especially if you are married.
- You can name anyone you want (including your estate) the beneficiary of your HSA account.
If you name someone other than your spouse
If you designate anyone other than your spouse as the beneficiary, the funds in your account will no longer be treated as an HSA upon your death. If the beneficiary is your estate, the fair market value of the account (as of the date of your death) will be taxable on your final tax return. Qualified medical expenses incurred by you (or your spouse or dependents) prior to your death may be reimbursed from your account before determining the "fair market value" of the account.
If the beneficiary is another individual, your account will become taxable to the recipient. The amount that is taxable may be reduced by any qualified medical expenses incurred by you prior to your death and paid by the recipient of the HSA. The taxable amount will also be reduced by the amount of estate tax paid due to inclusion of the HSA in your estate.
Buyer’s Guide
Consult your tax advisor or financial planner if you have questions about the estate tax consequences of your account. Be sure to designate a beneficiary for your account, especially if you are married. If you do not designate a beneficiary, your spouse may have to go through probate court after your death to claim ownership of your HSA (depending on the laws of your state) even though the HSA rules allow the transfer of ownership to occur tax-free.