Medical Expense Accounts and Estate Planning

As an estate planning lawyer in Folsom, some of my clients have specialized healthcare accounts through their employers. Medical expense accounts, such as Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs), can play a role in estate planning, particularly in terms of managing healthcare costs and optimizing tax advantages. Here’s how they can be relevant to estate planning:

1. Funding Healthcare Costs: HSAs and FSAs are designed to help individuals save for qualified medical expenses on a tax-advantaged basis. These accounts can be useful in planning for and covering healthcare costs during your lifetime, including medical bills, prescription medications, and other eligible expenses. Properly managing healthcare expenses during your lifetime can help preserve other assets for your heirs and beneficiaries.
2. Beneficiary Designation: In some cases, you can designate beneficiaries for your HSA, and these beneficiaries can inherit the account upon your death. The rules for beneficiary designations may vary based on the type of account and the financial institution managing it. Be sure to understand the specific procedures and requirements for beneficiary designations related to your account.
3. Estate Tax Considerations: The value of your HSA or FSA is generally included in your taxable estate for federal estate tax purposes. If your estate is potentially subject to federal estate tax, it’s important to consider the impact of including these accounts when developing your estate plan. Proper planning can help mitigate estate tax liabilities.
4. Spousal Transfer: For HSAs, if your spouse is the named beneficiary, they may be able to inherit your HSA tax-free and continue to use the funds for qualified medical expenses. The rules for non-spousal beneficiaries may differ, and any funds not used for qualified medical expenses may be subject to income tax.
5. Charitable Contributions: You can include provisions in your estate plan to donate the remaining balance of your HSA to a qualified charity upon your death. This can be a tax-efficient way to support a charitable cause while reducing the potential estate tax liability.
6. Estate Planning Tools: Some individuals may use HSAs strategically as a financial tool within their estate plan. For example, they may contribute to an HSA to accumulate tax-advantaged assets that can be used for healthcare expenses in retirement or passed on to heirs. The combination of potential growth and tax benefits makes HSAs an attractive option for certain estate planning scenarios.
7. Coordination with Other Estate Planning Documents: Your estate plan should consider how HSAs and FSAs fit into your overall financial and healthcare planning. Ensure that your healthcare directives and power of attorney documents align with your wishes for the management and use of these accounts in the event of incapacity.

Conclusion

Estate planning is highly individualized, and the role of medical expense accounts in your plan will depend on your specific financial situation, goals, and family circumstances. It’s advisable to work with an experienced estate planning attorney in Folsom and a financial advisor who can help you integrate these accounts into your broader estate planning strategy. If you have any questions about medical expense accounts and estate planning, contact Thapar Law at 916-579-0605 or send us a message.