Designate a beneficiary – what happens to your HSA when you pass away?

First, let’s talk about what a beneficiary is. It’s the person or legal entity who will receive your HSA funds when you pass away. Designating a beneficiary is important to ensure that the funds in your HSA will easily transfer to your loved ones when you’re gone. You can choose one beneficiary or, choose multiple and assign percentages to each. Plus, you can change your beneficiary at any time.

What happens to your HSA when you pass away all depends on your choice of beneficiary:

Your spouse

If your spouse is the only designated beneficiary, your HSA will be transferred to your spouse and they will own the account. Your spouse will receive all the benefits of account ownership and can make tax-free withdrawals to pay for qualified health care expenses. They may use the HSA with any type of health care plan, but if they have an HSA-eligible health insurance plan they can also make contributions to this HSA.

Someone other than a spouse

You may also name your children or other non-spouse individuals as a beneficiary. For someone other than a spouse the tax benefits of account ownership do not transfer. The balance of the account will be distributed to your beneficiary and becomes taxable to them in the year you pass away.

Your estate

You can name your estate as beneficiary. The assets will be transferred to your estate and treated as taxable income on your final tax return.

It’s a good idea to consult with a tax professional if you have any questions about the tax consequences for a beneficiary designation.

What happens if you don’t designate a beneficiary?

If you are married and a spouse notifies Bank of America of the passing of an account holder, we will treat the spouse as the designated beneficiary and the HSA will transfer to the spouse along with all the tax benefits.

If you are single, the balance of your account transfers to your estate to be included in your final tax return.

What your beneficiary needs to know

• In the event of your death, your beneficiary will need to complete and return the HSA Beneficiary Account Distribution Form before the funds in your HSA can be transferred to them. They can find this form on the member website or they can call the Customer Care Center to have one sent to them.
• Your beneficiary has up to one year to use the funds in your HSA to pay for any qualified medical expenses you incurred on a tax-free basis, but also have to be able to provide proof these expenses were not previously paid from your HSA.

Haven’t designated a beneficiary yet?

On the member website, go to Accounts > “Profile Summary” > “Add Beneficiary.”