What are the income tax consequences for the beneficiary after the HSA accountholders death?
Upon death, any balance remaining in the accountholder’s HSA becomes the property of the individual named in the HSA instrument as the beneficiary of the account. If the accountholder’s surviving spouse is the named beneficiary of the HSA, the HSA is treated as though the surviving spouse were the accountholder, and distributions used for qualified medical expenses are not subject to income tax. If, by reason of the death of the accountholder, the HSA passes to a person other than the accountholder’s surviving spouse, the HSA ceases to be an HSA as of the date of the accountholder’s death, and the person is required to include n their gross income the fair market value of the HSA assets as of the date of death.
