If the deceased account holder’s beneficiary is a spouse
The HSA is treated as the surviving spouse’s HSA. Withdrawals to the surviving spouse for eligible expenses are tax free.
If a non-spouse beneficiary is named
The HSA ceases to be an HSA as of the date of death. In this case, the value of the HSA is taxable to the beneficiary or to the estate of the account holder if a beneficiary is not named. The non-spouse beneficiary includes the balance of the HSA in his or her income for the year of the account holder’s death.