What happens to an HSA if the owner dies?
A. The tax treatment of an HSA after the death of the account beneficiary depends on whether a spouse or nonspouse is designated as the death beneficiary of the account. Spouse as Death Beneficiary: If the deceased account beneficiary’s death beneficiary is his or her spouse, the HSA is treated as the surviving spouse’s own HSA. Distributions to the surviving spouse for qualified medical expenses would be exempt from federal income tax and penalties. Nonspouse as Death Beneficiary: If a nonspouse beneficiary is the HSA’s death beneficiary, the HSA ceases to be an HSA as of the date of death, and the nonspouse death beneficiary includes the fair market value of the HSA in his or her income for the year of the death.
