Whether an account holder of an individual or family health plan, an HSA account is ultimately owned by the individual. Therefore, the Health Savings Account is an integral part of the estate planning process. And there are tax considerations that will determine whether an HSA transfer from an individual to a spouse, beneficiary, or estate is the best option.
- Spouse transfer: There are no tax implications. The HSA is transferred directly to the spouse. He/she can then continue using the HSA money for spending, saving, or investing within the standard IRS guidelines. It remains an HSA, and the same tax-advantaged rules continue to apply.1
- Beneficiary (not a spouse) transfer: The HSA ends on the date of the individual’s death. The funds are then distributed and taxed as income to the beneficiary at fair market value. However, the beneficiary can use the HSA funds to pay for medical expenses of the account holder for up to 12-months after their death.2
- Estate or no beneficiary designated transfer: The HSA will be distributed to the estate and taxed as income on their final income tax return.
Read more about estate planning options and what happens to an HSA when the account holder dies.
1. “26 U.S. Code § 223 - Health Savings Accounts: 223(f)(8)(A) Treatment if designated beneficiary is spouse.” Legal Information Institute. Cornell Law School. https://www.law.cornell.edu/uscode/text/26/223.
2. “26 U.S. Code § 223 - Health Savings Accounts: 223(f)(8)(B)(i) Other cases.” Legal Information Institute. Cornell Law School. https://www.law.cornell.edu/uscode/text/26/223.