Many individuals think about various accounts listed in their estate plan—financial bank accounts, insurance policies, and others. However, health savings accounts function differently than most other accounts but can be critical. They benefit both the creator of the estate plan and their beneficiaries—the individuals who will receive the assets and property after the creator of the estate plan has passed away. Below are common questions and solutions to estate planning problems involving health savings accounts. While Texans will have various uses for their health savings account, this information can assist individuals in their estate planning decisions.
What is a Health Savings Account?
A health savings account is an account that allows an individual to set aside money to pay for health expenses in the future. These funds are placed on a pre-tax basis, meaning they can be used to pay for deductibles, copayments, or other medical necessities.
Health savings accounts are provided through a person’s health insurance policy. Sometimes, an employer will help contribute funds toward this account. The IRS allows individuals to contribute themselves to their health savings account if they have a high-deductible, eligible health insurance plan. If they are eligible, people can contribute up to $3,600 per year—or $7,200 if they are part of a family plan.
What Happens to the Funds in a Health Savings Account When the Owner Dies?
The answer to this question depends on what is written in the person’s will. If the health savings account owner designates their spouse as the beneficiary, then the spouse becomes the owner of the account when the owner passes away. The money remains in the account, and the spouse then can use all of the funds to pay for their own medical expenses, as the spouse’s name is just added to the account.
If the listed beneficiary of the health savings account in the will is listed as someone who is not the owner’s spouse, such as a child, then the situation is different. The non-spouse beneficiary is not added as the new owner of the account, but instead, the beneficiary receives the entire balance of the account in a single distribution. This becomes taxable income that the beneficiary must report on their taxes for the upcoming year. However, whatever of these funds the beneficiary uses within a year of the account owner’s death to pay for medical expenses of the account owner will not be taxed.
Because health savings accounts can provide great benefits to an individual and their loved ones—both during their life and after they pass away—individuals who have this account should discuss its inclusion in an estate plan with an attorney.
Contact a Houston Estate Planning Attorney
If you or a loved one wants assistance incorporating a health savings account into your estate plan, contact the Houston estate planning attorneys at McCulloch & Miller, PLLC. Our attorneys have a breadth of experience with all types of estate plans. We will make sure to work with you and your loved ones to craft an estate plan that fits your needs. To speak with one of our knowledgeable attorneys and to schedule a consultation, give us a call today at 713-333-8900.