Death of an HSA Account Holder

Understanding what happens to a Health Savings Account (HSA) after the account holder passes away is crucial for beneficiaries and family members. Here are some frequently asked questions to guide you through the process.

What happens to your HSA upon your death?

When you open your Community West Bank HSA account, you will be asked to designate one or more beneficiaries to whom distribution of your HSA will be made upon your death. You may revoke this beneficiary designation at any time and designate different individuals as beneficiaries. Any beneficiary designation you make must be delivered to Community West Bank prior to your death on a form provided by or acceptable to Community West Bank.

If you do not make a valid beneficiary designation prior to your death, Community West Bank will distribute the assets in your HSA to your estate. In some states, your spouse’s consent may be necessary if you wish to name a person other than or in addition to your spouse as beneficiary or if you change an existing beneficiary designation. Please consult with your attorney before making your beneficiary designation.

What are the income tax consequences after your death?

If your spouse is the named beneficiary of your HSA, your HSA becomes the HSA of your spouse upon your death, subject to the completion of documents required by Community West Bank. The surviving spouse is subject to income tax only the extent distributions from the HSA are not used for qualified medical expenses.

If your HSA passes to a person other than your surviving spouse, the HSA ceases to be an HSA as of the date of your death, and the beneficiary is required to include the fair market value of the HSA assets as of the date of your death in his or her gross income. The includable amount is reduced by any payments from the HSA for your qualified medical expenses, if such payments are made within one year after your death.

If you have not made a valid beneficiary designation, your HSA ceases to be an HSA upon your death and the fair market value of the assets in your HSA, as of the date of death, is includable in your gross income for the year of death.