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What Happens to My Health Savings Account Funds When I Die

Lauren Hargrave · July 21, 2020 · 5 min read


You’re wondering: “What happens to my HSA when I die?”

A benefit of contributing to a Health Savings Account (HSA) is that contributions never expire. They accumulate, tax-advantaged until used for HSA-eligible medical expenses (or other expenses if you’re over the age of 65). Or it’s passed on to a beneficiary once you pass away. That means your HSA could grow to become quite an asset.

The rules governing what happens to your HSA upon your death depend on your beneficiary. You’ll want to include the account in your estate planning process. And think about the most helpful beneficiary.

Have you been tasked with handling someone's estate? If so, you’ll need to know how different beneficiaries affect the status of the deceased person’s HSA. And beneficiaries need to know how their taxes are affected upon inheriting the account.

Who inherits your HSA after death?


Your HSA Beneficiary.

Your HSA is owned by you. This is regardless of your healthcare plan type. Or if your HSA is used on qualifying medical expenses for yourself, spouse, and dependents.

That means it’s just like any other asset. And a single person or entity (like a trust) should be named as the beneficiary of your account. Otherwise, your estate will inherit it and that might not be as helpful for tax purposes.

So what is a beneficiary? It’s the person or entity that inherits an asset once a person dies.

Who can I name as my beneficiary?

When estate planning, you have a few different beneficiary options.

  • Your spouse. As long as you are legally married, it doesn’t matter which state you live in. Or whether you’re of the same or different sex. All spouses are treated the same when it comes to inheritance.

  • An adult child, relative, or non-relative. To name someone other than your spouse as a beneficiary, some states require a spouse’s written approval. If you are part of a civil union or domestic partnership, your partner will be treated as a non-spousal beneficiary.

  • A trust (revocable or irrevocable). This could have tax advantages for non-spousal beneficiaries.

  • Your estate or no beneficiary. These are functionally equivalent.

What happens when my beneficiary inherits my account?


It depends on who that beneficiary is. First, either your spouse, adult child, or executor of your estate will need to notify the administrator of your HSA.

The HSA administrator will prepare a document for the executor of your estate. This document will present the fair market value of your account on the date of your passing. This will be used to assess any income taxes owed by you and what’s taxable to the beneficiary.

What happens next differs depending on who or what you’ve chosen to inherit your account.

Surviving spouse beneficiary

With a spouse beneficiary, there are no tax implications. The HSA remains an HSA and is transferred to your spouse. If he or she is under the age of 65, they can use the money tax-free for qualified medical expenses. If the money is used for something other than qualified medical expenses, they will have to pay income taxes on the distributed amount and a 20% penalty.

If your spouse is over the age of 65, he or she can use the money on anything they want, as you would have been able to do. The difference is that your spouse doesn’t have to have a high-deductible health plan. Instead, they can have any health insurance.

Non-spouse designated beneficiary


For a non-spouse designated beneficiary, the HSA ends on the date of your death. The funds are distributed and taxes at the fair market value of the account on the date of your death. The beneficiary can use the HSA funds to pay for any qualified medical expenses of the account holder for up to 12-months after their death. And will not tax on that amount.

If the HSA money is invested, the account can make gains between the time of the account holder’s death and the closing of the account. Capital gains are taxable just like any other investment account.

Revocable or irrevocable trust

Like with a non-spouse beneficiary, the HSA ends on the date of your death. The fair market value of your account will be included on your final tax return. This structure will allow you to pass the account to beneficiaries under the more favorable estate-tax exemption. This is especially valuable if any potential beneficiaries are still minors at the time of your death.

Estate or no beneficiary is designated

Like the previous examples, the HSA ends on the date of your death. The fair market value of your account will be included on your final income tax return. And the HSA will be distributed to your estate.

What to do next?


The death of a loved one can be a stressful time for families. But estate planning can help ease the administrative burden that comes with it. If you have questions about choosing the right beneficiary for your HSA account, contact your attorney or accountant. They should be able to walk you through the details of your specific situation.

Regardless of your age or gross income, the most important step is to log into your HSA platform and ensure you have a beneficiary assigned. There is no reason to delay. Do this today. Even if you don’t use your HSA funds, it’s nice knowing that someone will benefit from the health savings.

The HSA Tax Guide

We also put together an HSA Tax Guide. Review the HSA IRS tax details to maximize your tax savings. And gain a clear understanding of your tax liabilities.

Lauren Hargrave

Lauren Hargrave

Lauren Hargrave is a writer from San Francisco who focuses on technology, finance and wellness. She follows comedians like most people follow bands and believes an outdoor sweat session can cure almost any bad mood. She’s also been writing her first novel for so long, her mom doesn’t ask about it anymore.

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Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.



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