As you present team members with their health care options, many employees may wonder what happens to these benefits after they die. It’s a tough thing to consider, but employees want to make sure that their loved ones will be taken care of.
During their career, an employee may save a significant amount of money using their health savings account (HSA), so employers should be sure that employees know there are steps they can take to ensure their HSA funds are protected at time of death. The following information outlines details on designating a beneficiary for an HSA and what happens to an account after the holder’s death.
Designating a beneficiary
When an employee first adopts an HSA, they will be asked to designate a beneficiary in the event of death. In doing so, their HSA funds can be dispersed quickly and appropriately.
Employees are able to designate two types of beneficiaries:
- Primary beneficiary: Receives 100% of the account balance upon death
- Contingent beneficiary: Receives the account balance if the primary beneficiary has already passed away before the account holder’s death
The account holder can name multiple people as primary and contingent beneficiaries, but they should be sure to indicate what percentage of the account balance each beneficiary should receive.
Head to our Learning Center to learn more about adding, editing or removing a beneficiary from a Further account.
A spouse as beneficiary
If an employee designates a spouse as their beneficiary, that partner will receive the HSA balance after the account holder’s death. The account will then be treated as the surviving spouse’s HSA, and they are able to make tax-free withdrawals for their own eligible medical expenses. (Note: If no beneficiary is named on an HSA but the account holder is married at the time of death, their spouse still legally becomes the beneficiary.)
If the spouse already has his or her own HSA, they have the option to transfer the deceased’s funds into their account. Even if a surviving spouse does not have a current HSA, they can open one with us and transfer that account balance. To transfer funds, the spouse must provide a copy of the account holder’s death certificate and fill out required forms. Find out more details about transferring an HSA after death here.
A non-spouse beneficiary
If an employee designates someone other than their spouse as the beneficiary — their children, for example — the account cannot remain an active HSA after death. Any remaining funds will be distributed to the beneficiary or must be spent down (see next section of this post), and the account will be closed. (If the deceased has no beneficiaries listed and no spouse, the HSA becomes part of the estate, which is handled the same as a non-spouse beneficiary.)
Spending down and closing an HSA
Before the account is closed or transferred to a spouse, the beneficiary can use funds to pay for any unclaimed eligible medical expenses for the deceased account holder that took place before death, which could be sizable. Eligible expenses include copays, deductibles, prescriptions, home health care, and transportation costs to medical care, to name a few.
To file tax-free reimbursement claims, the estate administrator must fill out an HSA Withdrawal Request Form and send it to us.
Note: Any eligible medical expenses incurred after the account holder’s death are not reimbursable through the HSA.
When the beneficiary or estate is ready to close the deceased’s account, they must complete an HSA Close Account Request Form. If there are any remaining funds in the account when it closes, the beneficiary or estate will receive a check for the balance, which will be taxed as income.
The Further team knows that handling a loved ones’ accounts after death can be a stressful and difficult process. Our customer team is always available to assist employees and answer questions at 800-859-2144 and CustomerSolutions@HelloFurther.com.