I was under the impression that she would be able to cash out those prior expenses (which include her two knee replacement surgeries). While I'm alive, my HSA can reimburse my medical expenses as well as her medical expenses, and her HSA can do the same, though we've scored all of our family medical expenses on my HSA spreadsheets. If she inherits my HSA, I know of no rule that precludes her from using the combined HSA (my old account which became added to hers) to cover my past medical expenses. I think the transitional rule you mentioned is for a non-spouse beneficiary of an inherited HSA, where a one year rule applies to cash out/reimburse expenses of the decedent after the original account holder died.
http://www.irs.gov/pub/irs-pdf/p969.pdf
ChrisC......I don't know the answer here......I brought it up as something to be concerned about.
I checked that link you provided...........it is not clear to me what it means.
"It will be treated as your spouse's HSA after your death." To me that sounds like it can reimburse your spouse's expenses only.
And the transitional rule under TIP.....not clear to me what that means either.
Organizationally it seems to be grouped w/ non-spouse beneficiary but the words say "any beneficiary but estate" so my guess would have been that it
applies for spousal beneficiary also so only recent charges paid could be reimbursed from the HSA.
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Spouse is the designated beneficiary. If your spouse
is the designated beneficiary of your HSA, it will be treated
as your spouse's HSA after your death.
Spouse is not the designated beneficiary. If your
spouse is not the designated beneficiary of your HSA:
The account stops being an HSA, and
The fair market value of the HSA becomes taxable to
the beneficiary in the year in which you die.
If your estate is the beneficiary, the value is included on
your final income tax return.
TIP:
The amount taxable to a beneficiary other than
the estate is reduced by any qualified medical expenses
for the decedent that are paid by the beneficiary
within 1 year after the date of death.