Health Savings Account Custodial Agreement

Transcription

1 Health Savings Account Custodial Agreement The Participant named on the HSA Application is establishing a Health Savings Account under Code Section 223, as amended; naming Branch Banking & Trust Company the Custodian, and the Custodian has given the Participant a disclosure statement required under the law. The Participant has assigned the custodial account the sum indicated on the initial HSA Application. The Participant and the Custodian make the following agreement: ARTICLE I DEFINITIONS 1.1 Account means the account established for the Participant pursuant to this Agreement. 1.2 Participant means the person who executes this Agreement and for whose benefit this Health Savings Account is being established. 1.3 Agreement means this Health Savings Account Custodial Agreement, as amended from time to time. 1.4 Beneficiary means the beneficiary or beneficiaries named by the Participant to receive the funds in the Health Savings Account remaining upon the Participant s death. 1.5 Code means the Internal Revenue Code of 1986, as amended or replaced from time to time and any regulations thereto. 1.6 Custodial Fund or Fund means the fund maintained in accordance with the terms of this Agreement. 1.7 Health Savings Account or HSA means a health savings account within the meaning of Code Section Plan Sponsor means the employer who is offering or sponsoring the Health Savings Account ARTICLE II CONTRIBUTIONS 2.1 Except in the case of a rollover contribution described in Code Sections 220(f)(5) or 223(f)(5), no contribution will be accepted unless it is in cash, or to the extent such contribution, when added to previous contributions to the HSA for the calendar year, exceeds the sum of the dollar amount in effect under Code Section 223(b)(2)(B)(ii) and the dollar amount in effect under Code Section 223(b)(3)(B). 2.2 The Custodian may require the Participant to furnish written evidence that property offered as a rollover contribution so qualifies under the Code prior to accepting the contribution as a rollover. 2.3 A separate account shall be maintained for the Participant. The Account shall be credited with contributions and earnings and shall be debited for distributions, losses, expenses and fees, unless such fees are paid by the Participant. 3.1 The Participant s HSA shall at all times be non-forfeitable. ARTICLE III NON-FORFEITABILITY 3.2 This HSA shall be maintained for the exclusive benefit of the Participant or his or her Beneficiaries and may not be attached or alienated, unless permitted by law. ARTICLE IV INVESTMENT OF HSA ASSETS 4.1 The Custodian will invest the HSA in a BB&T interest-bearing account. 4.2 Notwithstanding anything in this Agreement to the contrary, the following restrictions on investments shall apply: (a) (b) (c) The assets of this HSA may not be merged or commingled with other property, except as a part of a common trust fund or common investment fund; No part of this HSA may be invested in life insurance contracts; and No part of this HSA may be invested in any collectible as defined in Code Section 408(m), including, but not limited to, stamps, coins, antiques and works of art.

2 ARTICLE V DISTRIBUTIONS 5.1 The Participant shall have the right to withdraw any part of the assets in this HSA at any time. 5.2 The Custodian shall withhold from any distributions from the HSA, the amount of federal withholding tax then required by applicable provisions of the Code unless the Participant elects not to have taxes withheld. 5.3 The Custodian shall have no duty to determine the tax treatment of any withdrawal. ARTICLE VI REPORTS 6.1 The Participant agrees to provide to the Custodian, in a form acceptable to the Custodian, information required by the Custodian to prepare any reports or forms required by Code Section 223 and any regulations thereunder. 6.2 The Custodian shall furnish annual reports to the Internal Revenue Service and to the Participant concerning the status of the HSA in a time and manner as required under the Code. ARTICLE VII DESIGNATION OF BENEFICIARIES 7.1 The Participant may, on forms provided by the Custodian, designate one or more Beneficiaries to receive the balance in the HSA upon the Participant s death. If no Beneficiary is named, or if all the named Beneficiaries predecease the Participant, the Participant s surviving spouse, or, if there is no surviving spouse, the Participant s estate shall be deemed to be the Beneficiary of the Participant s HSA. ARTICLE VIII QUALIFICATION AND AMENDMENT OF THIS AGREEMENT 8.1 This Agreement has not been approved by the Internal Revenue Service. This Agreement has been drafted with the intention that it complies with the provisions of Code Section 223 and any regulations thereunder. However, the adoption of this HSA, its qualification by the IRS, and the related tax consequences are the responsibility of the Participant and the Participant s tax and legal advisors. 8.2 The Custodian shall have the right to amend or modify this Agreement at any time, including, but not limited to, amendments needed to maintain continued compliance with the requirements of the Code. The Custodian will provide written notice to the Participant of any such amendment. ARTICLE IX DUTIES, RIGHTS AND RESPONSIBILITIES OF THE PARTICIPANT 9.1 The Participant may not borrow from the HSA, nor pledge any portion of the HSA as security, or otherwise create a lien on any part of the HSA. 9.2 The Participant shall notify, in writing, the Plan Sponsor in the event of a change of address. 9.3 The Participant shall fully indemnify the Custodian from any and all liability which may arise in connection with the HSA, except that which arises from negligent or willful misconduct of the Custodian. 9.4 The Participant agrees to pay the Custodian the fees specified in its current published fee schedule. The Custodian may replace its fee schedule at any time, upon giving Participant 30 days written notice. The Participant or Plan Sponsor shall pay the Custodian s fees and other expenses incurred in the performance of its duties related to this HSA, including, but not limited to, brokerage and other costs incurred in carrying out the Participant s investment directions. The Custodian may charge its fees against the assets of the HSA and be paid from these assets. 9.5 The Participant shall have the right to terminate this HSA by giving 30 days written notice to the Plan Sponsor. 9.6 The Participant shall not have the right to remove the Custodian unless terminating the HSA with the Plan Sponsor. A 30 day written notice to the Custodian is required. The Participant shall then appoint a successor custodian or trustee authorized to act as such in relation to Health Savings Accounts under the Code. As soon as is practicable following written notice of this appointment, the Custodian shall transfer all assets and records of the HSA to the successor trustee or custodian. The Custodian, however, may retain a portion of the assets of the HSA as a reserve for payment of anticipated remaining fees and expenses, and shall pay over any remainder of this reserve to the successor custodian or trustee upon satisfaction of these fees and expenses.

3 ARTICLE X DUTIES, RIGHTS AND RESPONSIBILITIES OF THE CUSTODIAN 10.1 Notwithstanding any other provision herein to the contrary, the Custodian shall not engage, directly or indirectly, in any prohibited transaction as defined in Code Section The Custodian shall, upon receipt of written notice from the Participant or the Internal Revenue Service, return any contribution, or portion thereof, that is found to exceed the limitations stated in Article II, or found to be in violation of the rules relating to rollovers or transfers from other HSAs. Such contribution, plus earnings thereon, shall be returned to the Participant as soon as is practicable The Custodian shall receive and invest contributions, hold and distribute assets and investments of the HSA pursuant to the written directions of the Participant or Plan Sponsor. The Custodian shall keep records and reports and shall furnish a report to the Participant concerning the status of the account at least once annually, or more often if required by the Code The Custodian is only required to mail distributions to the address of record or to electronically transfer distributions to the account of record unless otherwise instructed, in writing, by the Participant The Custodian shall have no responsibility for determining the tax effect of contributions from, or on account of, the Participant. Likewise, the Custodian shall have no responsibility for determining the tax effect of distributions to, or on account of, the Participant The Custodian shall not be obligated to commence or defend any legal action or proceeding in connection with this HSA unless agreed upon by the Custodian and the Participant or their legal representatives The Custodian shall have the following powers and rights in addition to those stated elsewhere and/or granted by law to: (A) (B) (C) (D) to pay any tax attributable to any asset of the HSA or any benefit or distribution paid from the HSA. Prior to release of any asset or distribution from the HSA, the Custodian may require a release or similar document from the applicable taxing authority in order to protect itself from possible tax liability; to employ suitable agents and counsel; to perform any and all acts it deems necessary to effect the proper management of this HSA; and to begin, maintain, or defend any litigation necessary in connection with the administration of this HSA, but the Custodian shall not be required to do so unless indemnified to its satisfaction The Custodian may resign at any time upon 30 days written notice to the Participant and shall turn over to the successor custodian or trustee all assets, minus expenses, and records of the HSA. The Custodian shall not be liable for the acts or omissions of any successor custodian or trustee After the Custodian has transferred the assets of the HSA, including any reserve as provided in Article IX, it shall be relieved of all further liability with respect to this HSA The assets of this HSA shall be valued at least annually. ARTICLE XI MISCELLANEOUS 11.2 Any notice provided for in this Agreement shall be effective when sent by first class mail to the address of record, or, if applicable, to the Custodian at its business address All terms and provisions contained herein shall be interpreted so as to be in compliance with Code Section 223 and any regulations thereunder The Participant and his or her surviving spouse shall have no right to pledge or in any way create a lien on any part of the assets of this HSA and these assets may not be attached or otherwise affected by the Participant s creditors This Agreement shall be governed by the laws of the State of North Carolina, except to the extent preempted by any federal law The Participant has received and read the Disclosure Statement relating to this Account and the Agreement under which the Account is maintained.

4 Disclosure Statement Right to Revoke If, within seven days from the date you sign the written agreement establishing your Health Savings Account ( HSA ), you decide for any reason that you do not wish to establish the HSA, then you may revoke your HSA by notifying Stanley, Hunt, DuPree & Rhine, Inc. in writing of your revocation. The written notice must either be delivered in person or mailed within the seven-day period to the following address: Stanley, Hunt, DuPree & Rhine, Inc. 3 Independence Pointe, Suite 102 Greenville, SC If you choose to mail the notice of revocation, the date of the postmark will be considered the date of mailing, unless the notice is sent by certified or registered mail, in which case the date of certification or registration will be considered the date mailed. The notice must be mailed from within the United States in an envelope or other appropriate wrapper, postage prepaid, properly addressed, and sent by first class, certified, or registered mail. If you elect to revoke your HSA, you are entitled to receive a refund of the entire amount paid into the account without any adjustment or penalty. If, during the seven-day period in which you are entitled to revoke your account, a material adverse change in the information set forth in this Disclosure Statement or in the Agreement establishing your HSA becomes effective, you will be notified of that change and a new seven-day period during which you may revoke will begin on the date you receive notice of such changes. I. Introduction This Disclosure Statement is given to you to explain, in plain English, the various rules governing your HSA. The content of the Disclosure Statement relates to your rights as an HSA Participant. Please note that the Disclosure Statement is a summary and should be read in conjunction with the Health Savings Account Custodial Agreement. In the event of any conflict, the provisions of the Agreement will prevail. In addition, your tax advisor should be consulted regarding the tax effects of an HSA. II. General Rules An HSA must satisfy certain requirements of the Internal Revenue Code ( Code ). The HSA Custodial Agreement incorporates those requirements. In brief, the HSA must satisfy the following requirements: (1) a written instrument must govern the HSA; (2) the Custodian, except in the case of a rollover or a direct transfer, may accept only cash contributions; (3) the HSA may not invest in life insurance contracts; (4) your interest in the HSA must be non-forfeitable at all times; and (5) with certain limited exceptions, the Custodian may not commingle your HSA with other property. Amounts contributed to your HSA are generally not subject to federal income taxes. In addition, distributions from your HSA that are used to pay qualified medical expenses will not be subject to federal income taxes. Amounts which are not used for qualified medical expenses will be subject to federal income taxes and may be subject to a 10% penalty tax unless the distribution is due to your death, or total disability, or is made after your attainment of the age set forth in Section 1811 of the Social Security Act (which is generally age 65). In addition, any earnings on investments in the HSA will only be taxed based on the distribution rules. This means that any earnings on amounts in your HSA will not be taxed unless you withdraw them for any reason other than the payment of qualified medical expenses. III. HSA Contributions A. Eligibility In order to be eligible to have contributions made to your HSA, there are two (2) general requirements that must be satisfied as of the first day of any month for which you want to make a contribution. 1. You must be covered under a high deductible health plan with no co-pays. A high deductible health plan is a health plan with a deductible of at least $1,000 in the case of single coverage and at least $2,000 in the case of family coverage. In addition, the maximum out-of-pocket expenses with respect to allowed costs (including the deductible) must be no more than $5,000 in the case of individual coverage and no more than $10,000 in the case of family coverage. These amounts may be increased annually due to inflation. The provider of the high deductible health plan should be able to tell you whether or not the plan satisfies the HSA eligibility requirements.

5 2. You must not have any other health coverage other than certain permissible health coverage. Permissible health coverage includes coverage for accidents, disability, dental care, vision care or long-term care. In addition, the following types of insurance are permitted: (a) (b) (c) insurance where substantially all of the coverage relates to certain permitted liability coverage (e.g., auto insurance); insurance for a specified disease or illness; and insurance paying a fixed amount per day (or other period) of hospitalization. Caution: You must be careful in determining whether you have no other coverage. All health care coverage available to you, and possibly to your spouse and your dependents, must be examined to make certain that the requirement is met. Coverage under a spouse s health plan, a Health Reimbursement Arrangement ( HRA ) or a Health Care Flexible Spending Account ( health FSA ) offered through a cafeteria plan under Code Section 125 could all be potential problems. To the extent these provide coverage that is not subject to a deductible or limited to the permissible types of coverage, then coverage under one of these plans of either you, your spouse, or your dependents could affect your eligibility to have contributions made to an HSA. Example: Assume John has family coverage under a high deductible health plan through his employer. John s wife, Mary, participates in a typical health FSA offered through her employer s cafeteria plan. Neither John nor Mary is eligible to contribute to an HSA because they have other coverage in addition to the high deductible health plan. This is because Mary s health FSA can reimburse expenses of either Mary or John; it is not limited to permissible benefits (e.g., dental, vision, etc.) and is not subject to a deductible. Further, due to the restrictions on changing elections in a cafeteria plan, John and Mary may need to wait until the beginning of the next cafeteria plan year before being able to opt out of the health FSA in order to be eligible to establish an HSA. B. Maximum Contributions You and/or your employer may make contributions to your HSA. The maximum amount that may be contributed to your HSA for a calendar year is equal to the sum of the monthly limitations for each month during the year that you were eligible (as described in A. above). Also, the maximum annual contribution is reduced by the amount of any Archer Medical Savings Account ( MSA ) contributions you have made for the year. The monthly limitation for any month is 1/12 of either 1. or 2.: 1. If you have self-only coverage, 100% of the annual deductible or, if less, $2,600 (as adjusted for cost-of-living increases after 2005). 2. If you have family coverage, 100% of the annual deductible, or if less, $5,150 (as adjusted for cost-of-living increases after 2005). In addition, if you are age 55 or older as of the end of the taxable year, the limits above are increased by $500 in 2005 (this figure increases by $100 each year until 2009 when the limit is $1,000). Example: Assume you are age 55 and are eligible to contribute to an HSA for each month during a year. In addition, assume you have selfonly coverage (with a deductible of $2,250) for 7 months and family coverage (with a deductible of $4,500) for 5 months. The maximum contribution that may be made to your HSA for the year is: 100% X (1/12 X $2,250) X 7 = $1, % X (1/12 X $4,500) X 5 = $1, Maximum Annual Contribution = $3, $500 = $3, There are some other special rules you need to be aware of: 1. No contribution may be made if you can be claimed as a dependent on another taxpayer s return. 2. The contribution limit is $0 as of the first month you are entitled to benefits under Title XVIII of the Social Security Act. 3. If you and your spouse are both covered by high deductible health plans, the plan with the lower deductible is used to determine the maximum contribution that may be made to an HSA. 4. If you have family coverage under a high deductible health plan, the maximum HSA contribution limit applies to you and your spouse on a combined basis, but you may split up the amount among your HSAs in any manner you want. However, the additional $500 contribution for individuals age 55 or older is an individual limit and if you and your spouse are both over age 55, each of you may make the additional $500 contribution. IV. Deadline for Making HSA Contributions Once the HSA has been established, contributions for a year may be made as of the first day of such year. The latest date on which contributions can be made for a year is the due date of your Federal Income Tax Return for that year. Except under unusual circumstances, this date is April 15th; extensions are not included. You may withdraw an HSA contribution that you made for a year at any time before April 15th of the following year. If you do so, you must also withdraw the earnings attributable to that portion and report the earnings as income for the year for which the contribution was made.

6 V. Excess Contributions Contributions to your HSA may not exceed the amount determined in Section III above. There is an exception for rollovers, which are explained in Section VI. Should you make a contribution in excess of the above limits, called an excess contribution, you are required by law to remove it from your HSA, plus any interest it may have earned. The removal must be made prior to the due date of your Federal Income Tax Return, without extensions, for the taxable year in which it was made. Excess contributions may not be excluded or deducted from your income. Excess rollover contributions must also be removed from your HSA. Similar rules cover both regular and rollover excess contributions. However, if your excess rollover contribution was made due to erroneous information given to you by the payor of the funds that make up the rollover, there will be no penalty, provided you take prompt action upon receipt of correct information. There is a penalty excise tax of 6% on excess contributions, and this tax will be imposed each year until the excess is removed from your HSA, or, in subsequent years, can be used as deductible contributions. In addition, excess rollovers are fully taxable when received and no deduction may be taken for any excess rollovers. VI. Rollovers The HSA can accept rollovers from another HSA or an Archer MSA. Rollovers must satisfy certain requirements of the Internal Revenue Code. The rules governing rollovers are complicated and adverse tax consequences can result if they are not followed exactly. You should consult your own tax counsel if you become eligible for a rollover. If acceptable to the Custodian, rollover contributions may be in cash or in property, such as stocks and bonds. Rollover contributions are not tax deductible and there is no limit on their size. VII. Distributions A. In General You may make withdrawals from your HSA at any time. If you make a withdrawal for a qualified medical expense, then the withdrawal will not be subject to Federal income tax. If the withdrawal is not for a qualified medical expense, then the distribution will be included in your gross income for Federal income tax purposes. In addition, a withdrawal which is not for a qualified medical expense and which is made prior to your attainment of the age specified in Section 1811 of the Social Security Act (generally age 65), your death, your disability, or which is a refund of excess contributions will be subject to a 10% excise tax. B. Qualified Medical Expenses A qualified medical expense is an amount paid for medical care as defined in Code Section 213(d) for you, your spouse or your dependents, but only to the extent such amounts are not compensated for by insurance or otherwise. IRS Publication 502 generally describes expenses that are deemed to be for medical care within the meaning of Code Section 213(d) (these expenses include over-the-counter medications). However, there are certain expenses that are for medical care and are listed in Publication 502 but are not qualified medical expenses for purposes of obtaining a tax-free withdrawal from your HSA. In particular, most premiums paid for heath coverage are not qualified medical expenses. However, the following types of expenses for health care coverage are still treated as qualified medical expenses: 1. Any expenses for a health plan during any period of continuation of coverage pursuant to federal law (e.g., COBRA); 2. Certain long-term care insurance contracts; 3. Health plan expenses which are incurred while receiving federal or state unemployment compensation; and 4. Health insurance (other than a Medicare supplemental policy) once you have reached the age specified in Section 1811 of the Social Security Act (generally age 65). C. Death Upon your death, your surviving spouse may treat the HSA as his or her own HSA. If you have a non-spouse beneficiary, then the value of your HSA must be included in the income of the beneficiary. If you have no beneficiary, then the value of your HSA becomes part of your estate.

7 VIII. Prohibited Uses of Your HSA Your HSA may not be used as security for a loan. If you do so, the amount you use will be treated as a distribution and it will be fully taxable as ordinary income. If you are younger than 65, the 10% excise tax will also apply. This also applies to any funds you borrow from your HSA. In addition, you may not use any portion of your HSA to purchase life insurance. IX. Participant s HSA Always 100% Non-Forfeitable Your interest in your HSA is always 100% non-forfeitable. X. Approval of HSA by the Internal Revenue Service The HSA was established with the intention that it complies with all provisions of the Internal Revenue Code regarding Health Savings Accounts. However, the Internal Revenue Service has not made a determination that the HSA you have established meets the applicable requirements of the Internal Revenue Code. The adoption of the HSA, its qualification by the IRS, and the related tax consequences are the responsibility of you and your tax and legal advisors. The Custodian has the right to amend the HSA at any time in order to meet the requirements of the Code. The Custodian will notify you in writing of any such amendment. XI. Prohibited Transactions The Custodian may not engage in certain transactions relating to an HSA. These prohibited transactions include: (a) (b) (c) (d) (e) sale, exchange, or lease of any property between the HSA and an interested party; loan of money or extension of credit between the HSA and an interested party; furnishing of goods, services, or facilities between the HSA and an interested party; use for the benefit of an interested party of any portion of the assets of the HSA; and any self-dealing or breach of fiduciary duty by an interested party as it relates to the HSA. An interested party includes you, the Participant, your beneficiaries and any persons or entities, such as relatives, corporations and partnerships, which are connected in any substantial fashion to you. If you engage in a prohibited transaction, your HSA will lose its tax exemption and its entire value will be included in your taxable income during the year in which the prohibited transaction occurs. XII. Custodian s Fees The Custodian of your HSA will charge you or the Plan Sponsor fees based on the fee schedule in effect as of the date you executed the HSA Custodial Agreement. Upon 30 days written notice, a new fee schedule may be put into effect. These fees, plus other expenses such as brokerage costs and legal expenses, may be paid out of the assets of your HSA. XIII. Directed Investment of Your HSA The Custodian will invest the assets of your HSA in accordance with your written instructions, subject to any restrictions set forth in the HSA Custodial Agreement. In addition, under the law, you may not invest any portion of your HSA in collectibles, which include: (a) (b) (c) (d) (e) stamps or coins, other than certain U.S. gold and silver coins; antiques; works of art; precious metals or gems; or anything else specified by the IRS as a collectible. No guarantees can be made as to the investment return of your HSA. The amount of assets that are in your HSA at any one time will depend on: (1) the amount of contributions and withdrawals, (2) investment gains and/or losses, including interest and dividends, on your HSA investments, (3) investment expenses, such as brokerage costs, and (4) the Custodian s fees. Because an HSA is exempt from paying taxes, any earnings on amounts in your HSA will generally not be taxed unless you make a withdrawal from your HSA for anything other than to pay qualified medical expenses.

8 XIV. Filing Requirement You must file Form 8853 (or any other form designated by the IRS for HSA reporting) and attach it to Form 1040 if you (or your spouse, if married filing a joint return) had any activity on your HSA during the year. You must file the form even if your employer or your spouse s employer made contributions to the HSA. XV. Additional Information If you desire further information on HSAs, you should contact your personal tax advisor or the local office of the IRS.