When an account holder passes away, he or she may have money left over in a spending account. Some accounts, such as health savings accounts (HSAs) or voluntary employee beneficiary association (VEBA) accounts, are owned by the account holder and may be able to be transferred. However, flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs) are owned by the employer, but they can still be used to file some reimbursement claims under the right conditions.
Depending on which type of accounts the account holder owned, there are different rules in place regarding taking control of the accounts and filing for reimbursements. The guide below should help you understand what will happen when an account holder dies, and what will happen to the funds in any of these accounts.
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Since health savings accounts (HSAs), are owned by the account holder, the funds in an HSA can be passed to a beneficiary or the account-holder's estate.
The account-holder’s spouse will be deemed the beneficiary if no other beneficiaries are listed on the account. If there is no spouse and no beneficiaries are listed, Blue Cross and Blue Shield of Vermont will need a document naming the estate the executor of the account.
If the beneficiary is the spouse, the spouse has the option to transfer the HSA funds into his or her own HSA. If the beneficiary is anyone else or the estate, the only option is to spend down and close the account, and an administrative check for the remaining balance of the HSA will be sent to the beneficiary or the estate.
When reporting the death of an account holder, the spouse, beneficiary, or estate must provide the following documentation:
- Death certificate
- Proof of identity for the spouse and any beneficiaries
- HSA Transfer Form if the account is going to be transferred to the spouse's HSA (see steps below)
- HSA Close Form if the account is going to be closed (see steps below)
Spending down the HSA
Before the HSA is closed or transferred, the beneficiary or the estate can spend down the funds in the HSA. Any unclaimed eligible expenses that took place before the date of the account holder's death can still be reimbursed from the HSA. That includes eligible expenses made by the account holder, the spouse (if filing jointly), or any of the account holder's tax dependents.
To file a reimbursement claim after the death of the account holder, the estate administrator must sign an HSA Withdrawal Request form and send it to Blue Cross and Blue Shield of Vermont.
Any expenses that take place after the account holder's death are not eligible for reimbursement from the account holder's HSA.
Transferring the HSA to the surviving spouse's HSA
Only the spouse has the right to transfer the money to an HSA. Any other beneficiary or the estate can only receive an administrative check for the remaining balance of the deceased's HSA.
- The spouse must send a copy of the death certificate to Blue Cross and Blue Shield of Vermont
- If the spouse wants to transfer the deceased's HSA to his or her Blue Cross and Blue Shield of Vermont HSA, use the HSA Transfer Request Form. If the spouse's HSA is with another administrator, the spouse must use the other administrator's transfer form.
If the surviving spouse wants the funds internally transferred to their HSA at Blue Cross and Blue Shield of Vermont, the surviving spouse would put their information on the top left of the transfer form and the deceased's info on the top right. The rest of the form would be filled out as normal with the signature and date at the bottom.
- If the spouse does not have a current HSA with Blue Cross and Blue Shield of Vermont, he or she can open one. Once the HSA is set up, they must complete the HSA Transfer Request Form. The HSA application and HSA Transfer Request Form can be sent in together.
If the spouse does not have a qualifying health plan, it will not affect the application. The spouse is giving Blue Cross and Blue Shield of Vermont his or her information to move the funds into the spouse's name. However, without the qualifying health plan, the spouse will not be able to make contributions to the account or use the account for eligible expenses that took place after the death of the account holder.
Closing the HSA
If and when the beneficiary or estate is ready to close the account, complete the HSA Close Account Request Form
Since HSA funds are contributed on a pre-tax basis, the beneficiary may be subject to income tax on the fair market value of the HSA if he or she receives an administrative check from the closing of the account. If the estate receives the check, taxes would be paid out of the estate. However, the beneficiary can reduce the tax burden by spending down the HSA by filing reimbursement claims for any eligible expenses made before the account holder's death.
A Medical FSA is made up of funds contributed to an account, usually out of an account holder's paycheck. However, it is a use-it-or-lose-it account owned by the employer. It cannot be transferred to a surviving spouse or another beneficiary.
Rules for FSA reimbursement
- If the deceased account holder held a medical FSA, the surviving spouse can continue to submit reimbursement claims and sign his or her own name on the the claim form.
- The expenses can be incurred by the deceased account holder, the surviving spouse, or any tax dependents as long as the expenses took place before the death of the account-holder.
- If the spouse submits a reimbursement claim, the spouse must include a copy of the account holder's death certificate when submitting the claim.
- If a check is issued as a result of the claim, the check will be issued in the account holder's name.
- Any reimbursement claims must be made by the end of the run out period of the plan year. The end of the run-out period depends on the employer's plan set up, but it is usually a few months after the end of the plan year.
- Any remaining balance in the account at the end of the run out period will be forfeited to the employer unless the employer has a different arrangement set up in their plan.
A Dependent Care FSA (DCAP) is similar to a Medical FSA, only the funds are specifically set aside for dependent care reimbursements. Like a Medical FSA, the funds in the account are usually made as payroll deductions from the account holder.
However, a significant difference between a DCAP and Medical FSA is that as long as the surviving spouse is working or seeking employment, the spouse can file reimbursement claims for services incurred up to the end of the plan year. That means that regardless of the date of the account holder's death, the surviving spouse can continue to make reimbursement claims for services through the end of the plan year as long as funds are in the account.
It is also a use-it-or-lose-it account, so any funds in the account must be claimed by the end of the plan year or will be forfeited to the employer unless the employer's plan is set up differently.
A VEBA account is owned by the account holder and can be passed on to the surviving spouse and/or eligible dependents if the account holder dies. If the account was established prior to 2008, the employer can allow the account holder to name beneficiaries if there are no eligible medical dependents.
To transfer the VEBA to a surviving dependent or beneficiary, the following documentation will need to be provided:
- Death Certificate of deceased account holder and any paperwork assigning executor or beneficiary information
- Clarification if the account is being transferred to a surviving dependent or a beneficiary
- Beneficiary's name
- Proof of beneficiary or executor's identity (driver's license, state ID, or passport
- Beneficiary's social security number
- Beneficiary's email and phone number
- Beneficiary's physical address (If different than account holder)
- Beneficiary's birth date
Once the beneficiary's identity is verified, the VEBA will be transferred into the beneficiary's name with the same Blue Cross and Blue Shield of Vermont SA ID. If the beneficiary does not have an account, one will be opened in the beneficiary's name and the balance will be transferred to it. If more than one beneficiary is named, the balance will be transferred to the new accounts according to the beneficiary percentages designated by the account holder.
Beneficiaries will be taxed on any reimbursements made from the account and receive a 1099 to file with their taxes.
Rules for VEBA reimbursement:
Reimbursement claims for the account holder's eligible expenses can be submitted by either the surviving spouse, surviving dependents, or the estate executor with documentation naming them as executor and signed by the executor. Additional rules include:
- Beneficiaries can use the funds in the account for their qualified medical expenses. They cannot use it to reimburse expenses for their dependents nor can they they add a beneficiary to the account.
- The VEBA cannot be cashed out - the balance must be spent down.
- The new account holder will be responsible for any fees
- If the account holder had no spouse, eligible dependents or other beneficiaries, the funds will revert to the employer's trust.
Some groups in Minnesota may have special rules for establishing VEBA beneficiaries. Please contact Blue Cross and Blue Shield of Vermont for additional information.
The funds in a health reimbursement arrangement (HRA) are contributed by the employer. The account holder does not contribute money to the account, and the account is owned by the employer, so a remaining balance in an HRA cannot be transferred or cashed out.
Rules for HRA reimbursement
If the account holder still had funds in his or her HRA on the date of the death, it is possible for the survivors to claim reimbursements from the account.
- If the account holder, spouse, or tax dependents incurred any eligible expenses before the account holder's death, they can file a reimbursement claim from the account holder's HRA if there are remaining funds in the account.
Some HRA's are set up to allow reimbursement claims after the death of the account holder. Check with Blue Cross and Blue Shield of Vermont or account holder's employer to determine if those expenses are eligible for reimbursement.
- Reimbursement claims can be submitted until the end of the claim year. Depending on how the employer set up the plan, there may be a run out period after the plan year when reimbursement claims can still be made. Check with the employer for your plan details.
- A reimbursement claim can be submitted with a copy of the death certificate, and the claim form must be signed by the surviving spouse and/or the executor or the estate.
- If a check is issued, it will be issued in the account holder's name.
- Any remaining unused balance will be forfeited to the employer.