Divorce or Death of Health Savings Accountholder*
What are the rules that apply if your HSA is transferred pursuant to a divorce decree?
The transfer of your HSA to your spouse pursuant to a divorce decree is not considered a taxable transfer. After such transfer, the former spouse will be treated as the accountholder of the HSA, but the former spouse must request UMB to transfer the account to his or her name, must provide UMB with a certified copy of the divorce decree and property settlement or transfer agreement, and must sign appropriate documents to establish the account in that person's name.
What happens to your HSA upon your death?
You have the right at any time to designate one or more beneficiaries to whom distribution of your HSA will be made upon your death. You also have the right to revoke a prior beneficiary designation and, if desired, designate different individuals as beneficiaries. To be valid, any such beneficiary designation must be delivered to UMB prior to your death on a form provided by or acceptable to UMB.
In the absence of a valid beneficiary designation, UMB will distribute the assets comprising your HSA upon your death to your estate. You should understand that in certain 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 to change an existing beneficiary designation. You should consult with your attorney before making such a beneficiary designation.
What are the tax consequences of HSA distributions following 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 UMB's consent and the completion of applicable documents as required by UMB. The surviving spouse is not required to include any amount in gross income for tax purposes as a result of your death and he or she is subject to income tax only on those distributions that are not made for qualified medical expenses.
If, at your death, your HSA passes to a named beneficiary 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 death in his or her gross income for the taxable year that includes the date of death. The includible amount is reduced by the amount in the HSA used, within one year of your death, to pay your qualified medical expenses incurred prior to death. If there is no named beneficiary of your HSA, the HSA ceases to be an HSA as of the date of your death, and the fair market value of the HSA assets as of the date of death is includible in your gross income for the year of death.
You’ll hear from HSA experts who will cover key topics that your clients and other HSA account holders probably don’t understand and discuss several lesser-known strategies to help them take their HSA game to the next level.‡