Short answer: It depends on who you name as beneficiary. If your spouse inherits the HSA, it becomes their HSA. If anyone else inherits it, the account ends and the full value becomes taxable income.
Health Savings Accounts follow specific rules at death, and the tax treatment depends entirely on the beneficiary designation on file with the HSA custodian.
If your spouse is the named beneficiary, the HSA transfers to them and becomes their own HSA. The account keeps its tax-advantaged status, and your spouse can continue using the funds for qualified medical expenses on a tax-free basis. This is the only situation where an HSA can continue after the account holder’s death without triggering income taxes.
If the beneficiary is someone other than your spouse, the HSA terminates as of the date of death. The fair market value of the account is treated as taxable income to the beneficiary for the year of death. The amount is taxed at ordinary income tax rates, but no additional 20 percent penalty applies.
If no beneficiary is named, the HSA becomes part of your estate. In that case, the value of the account is generally included as income on your final individual income tax return.
Because beneficiary designations control the outcome, it is important to review them periodically, especially after major life events such as marriage, divorce, or the birth of a child.
Sources
- IRS, Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans, “Death of HSA Holder” section:
https://www.irs.gov/publications/p969
- IRS, Instructions for Form 8889, “Death of HSA Holder”: https://www.irs.gov/instructions/i8889
Content history
Originally published: March 27, 2025
Last reviewed: January 29, 2026