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What Happens To Your HSA When You Die?

It’s a question many of us wonder about, but few people ask. And does it really matter? To your spouse and heirs, it might. There are three possible scenarios.

Scenario 1: Your spouse is your beneficiary. In this scenario, your spouse is your primary beneficiary and will receive 100% of your HSA. That means your HSA is automatically the property of your spouse on the day you die and he/she is therefore treated as the owner. The owner can use the HSA funds to pay for your qualified medical expenses incurred before death, as well as the medical expenses of his/her tax dependents moving forward. And don’t forget that your spouse can get reimbursed tax-free at any time for medical expenses you paid out of pocket prior to your death as long as you saved your receipt(s).

Scenario 2: Your beneficiary is not your spouse. If your beneficiary is not your spouse, your HSA will end and he/she will inherit the fair market value of your account on the date of your death. Your non-spouse beneficiary has one year to pay for your qualified medical expenses incurred before death, reducing the amount of the inheritance and the subsequent tax burden.

Scenario 3: Your estate is your beneficiary. If you don’t designate a beneficiary, your HSA funds will be distributed to your estate. The fair market value of the account will be included in your gross income for that year, and the estate taxes will be reduced by the same amount.

To update your beneficiary(ies) or learn more about HSAs, visit the HSA xChange website.

Author: James Denison