Q&A: What Happens to a Health Savings Account After Death?

January 28, 2025

Understand different ways health savings accounts are inheritable after the passing of the account holder.

Q&A: What Happens to a Health Savings Account After Death?

For the first time this year, we are offering our employees the option of enrolling in a health plan that qualifies them to open a health savings account (HSA). We’re anticipating resistance and want to make sure our employees are fully aware of the advantages of doing so. One thing I’ve seen mentioned is that unlike Flexible Spending Accounts (FSAs), HSAs are inheritable. Can you explain how that works?

Anyone who has an HSA should designate a beneficiary, the same as they would with any other bank account. The form for doing so should be included with the HSA enrollment form provided by the bank or other vendor.

The ownership and tax treatment of an HSA upon the account holder’s death depends on who (or what) the beneficiary is.

  1. Surviving spouse: If the beneficiary is a surviving spouse, then ownership of the HSA transfers to them and will be subject to the same rules and limitations as if they were the original account holder. There may also be other options such as: 1) combining the deceased spouse’s HSA with the beneficiary’s HSA, or 2) keeping the deceased spouse’s HSA open and continuing to contribute to it (assuming the beneficiary meets the eligibility requirements to make HSA contributions). In either case, the beneficiary must use the HSA only for qualified medical expenses or pay taxes and penalties if it is used for some other purpose.
  2. Other individual: If the HSA beneficiary is someone other than a surviving spouse, then the HSA will be converted into a regular bank account. Any amount remaining in the account is considered taxable income to the beneficiary. However, the taxable amount may be reduced by any of the deceased’s medical expenses that are paid by the beneficiary within one year.
  3. No designated beneficiary: If there is no designated beneficiary, the HSA balance would go to the deceased account holder’s estate and be subject to estate taxes. (The estate may also be the designated beneficiary, although this is uncommon.)
  4. Charity: It is also possible to select a charity as the HSA beneficiary, in which cases no taxes will be owed.

HSA holders should regularly check to make sure their beneficiary designations are up to date. Many HSA administrators allow this to be completed online. It may also be advisable to consult a tax advisor regarding the tax ramifications of beneficiary selection, especially for significant HSA balances. Note that this is a very generalized discussion, and different factual scenarios may result in different results. It’s always best to discuss these types of issues with a tax or financial advisor when they arise

About The Author

Julie Athey, J.D.

Julie Athey, J.D.
Email As Director of Compliance & Legal, Benefits, Julie has more than 20 years of experience in compliance and law. Julie provides in-depth hands-on compliance training, advice and consulting for benefits and HR professionals. She has authored numerous manuals for HR professionals – including FMLA Compliance: Practical Solutions for HR and Wage and Hour Compliance: Practical Solutions for HR. Julie is also a frequent presenter at seminars, webinars and audio conferences on a variety of benefits, employment law and human resources topics.