A HSA generally permits you to place untaxed funds into a trust account so that you may utilize them to pay medical bills with pre-tax dollars. The Eighth Circuit was faced with a situation to determine if such funds are exempt. The Court found that the funds are not exempt and are property of the Bankruptcy Estate. The Court determined that the funds are held in a "trust account" and can be utilized for any purpose. Although the primary purpose was for medical bills, an employee can utilize such funds for any purpose. Clearly, if you utilize the funds for something besides medical bills, the individual will be taxed!
In re Leitch July 16, 2013 - Eighth Circuit
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