The HSA is then handled in certainly one of two methods, relying upon whether or not the beneficiary is the account holder’s surviving partner.
A partner “mechanically and immediately” turns into the HSA account holder, Levine defined. Importantly, such a switch of possession is just not taxable, and future distributions from the HSA will likely be topic to revenue tax solely to the extent that they weren’t used for certified medical bills.
As soon as the account is transferred to their title, the surviving partner can designate a brand new beneficiary to obtain any quantities remaining within the HSA upon their very own demise. Different choices embody rolling some or the entire HSA’s account steadiness into one other HSA they already personal.
All Different Inheritors
Levine and Slott then mentioned what occurs to HSA funds inherited by anybody aside from a surviving partner.
Usually, the HSA then ceases to be an HSA. In flip, an quantity equal to the honest market worth of the account belongings as of the date of the account holder’s demise is included within the beneficiary’s gross revenue.
Notably, a non-spouse beneficiary might scale back that quantity by any funds produced from the HSA for certified medical bills incurred by the deceased account holder earlier than demise. However, as Levine and Slott emphasised, such funds have to be made inside one 12 months after the unique proprietor’s demise.
As well as, the unique proprietor can title their very own property because the HSA beneficiary. In such a case, the remaining quantity is included within the decedent’s gross revenue for the 12 months by which the demise occurred.
Pictured: Jeff Levine and Ed Slott