The ownership of a health savings account passes according to the beneficiary designation on file.
If the beneficiary is the deceased account owner’s spouse, the funds are moved to a health savings account owned by the surviving spouse. Subsequent account distributions to pay for qualified medical expenses are not subject to tax.
Alternatively, if the beneficiary of a HSA is someone other than a surviving spouse, the health savings account is closed and the funds are distributed to the named beneficiary(ies). The amount of the distribution is treated as taxable income to the non-spouse recipients.
A non-spouse beneficiary can reduce the value of a decedent’s health savings account (and thus reduce the beneficiary’s taxable distribution) by using the funds to pay qualified expenses for the decedent. These qualified distributions must be made within one year after the account owner’s passing.
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The articles presented on this blog are general in nature and should not be assumed to be applicable to your situation. In addition, tax law changes daily and the articles on this blog are not updated to reflect these changes. Anyone receiving any part of the information on this blog should not rely on or act or refrain from acting on the basis of any matter or information contained in this blog without seeking appropriate tax, legal or other professional advice. The transmission and receipt of information contained on this blog does not form or constitute a client relationship. Nothing in this blog constitutes legal advice. Opinions rendered by tax professionals are not authority. You agree to hold Brendan Willmann, EA, forever harmless from any liability for your use or failure to use the information, advice, referrals, or suggestions provided by this blog at any time.
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