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25 March
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Turning Your HSA Into an Estate Planning Tool

Posted by KarenLewis
in Bobby's Blog

In a prime example of how estate planning is an ever-evolving area of law, there are some articles published recently discussing how you can utilize a health savings account (“HSA”) for estate planning purposes.

Why should you consider an HSA as an investment vehicle? Well, consider the fact that this type of account has a rather tempting trifecta of features:

(1) tax-deductible contributions
(2) tax-free growth
(3) tax-free distributions.

These features offer major income tax advantages, according to an article published by Steven Latterell on Lexology.com.

Along with the financial benefits, there is the simple fact that more people are going to access HSAs since many employees participating in employer-provided health plans are being offered health plans with extremely high deductibles (anywhere in the range of $4,000 to $10,000). This means, as more people utilize HSAs, they could become a rather large asset in an individual’s investment portfolio. Why? Because HSAs pass on to whomever is listed as the designated beneficiary by the account owner.

But keep this in mind – if your estate is listed as the beneficiary of the HSA, then the account ceases to be an HSA when you pass on. At that point, the HSA’s fair market value may be included in your gross estate on your final personal income tax return. This could have potential estate tax ramifications.

However, if you are married, the best option is to make sure you have the proper beneficiary designation on the HSA. The proper beneficiary designation is a counseling issue and depends on your goals and weighing your options.

So what’s the moral of the story? From the perspective of estate planning, it means you should include language in your estate plan about who will manage your HSA when you pass away.

Tags:

401(k)estate planhealth insurancehealth planHealth Savings AccountHSA

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