Why Your Will Isn’t Always the Last Word on Who Gets Your Assets
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This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. Listen at schwab.com slash Washington Wise.
Here's your money briefing for Friday, October 27th. I'm J.R. Whalen for The Wall Street Journal. You might think your will automatically gives you control over who gets your belongings when you die. But some have found that is not the case.
There are actually a lot of documents that can override wills, and the chances are you've already filled them out. There are the beneficiary forms for retirement accounts, life insurance policies, and some bank and brokerage accounts.
How can beneficiary forms override your will?
We'll talk to Wall Street Journal reporter Ashley Ebeling after the break.
and how they may affect your finances and portfolio.
Listen at schwab.com slash Washington Wise.
Estate planners and financial professionals often recommend people make out a will to direct who gets their assets when they die. But it turns out a will may not actually be the final word. Wall Street Journal personal finance reporter Ashleya Ebling joins me. So Ashleya, most people would probably be surprised to learn that their last will and testament doesn't necessarily call all the shots. What could supersede what somebody spells out in a will?
There are actually a lot of documents that can override wills, and the chances are you've already filled them out through the beneficiary forms for retirement accounts, life insurance policies, and some bank and brokerage accounts. And it's true whether the accounts are open through your workplace or on your own.
So let's talk about how people's assets could wind up in unintended hands. You wrote about somebody who listed their spouse as the beneficiary on their life insurance policy, but they got divorced, and then the person changed the beneficiary name.
Which types of accounts commonly bypass wills (401(k), IRA, life insurance)?
What happened after that?
So in that case, the man, he was a veterinarian in Arkansas, married to a third wife. She said she wanted to leave him. He rushed to update his will and other estate planning documents to ensure she wouldn't get anything. But when he faxed in the change of beneficiary form to the insurance company, he failed to sign and date it. So he was trying to put his three children from his first marriage as the new beneficiaries. They ended up in a six-year legal fight that went all the way up to the Arkansas Supreme Court. It's an unusual case. Usually the person on the policy named on the beneficiary form is the one who gets it. So in these cases, very often an ex-spouse can get the proceeds.
But why initially would the spouse be named the beneficiary even if he sent in those signed documents?
What happened in the Arkansas case when a beneficiary form was unsigned?
That's the kind of crazy thing with these forms. It's often in the case of 401k plans, it's federal law that applies in the case of the life insurance policies. It's whatever the company's policy says. So you can really get stuck with these unintended consequences.
How are IRAs different from life insurance policies and 401ks in a situation like this?
For 401 s, the married spouses are essentially automatically entitled to the money unless they sign a notarized formal waiver. With individual retirement accounts, it's different. In most states there, you can name someone other than your spouse as a beneficiary without getting a waiver. But then again, there are always exceptions. If you're in a community property state like California or Texas, there you'll still need a waiver. So that would be a case if you want to do a name an adult child. instead of a spouse how common is this issue regarding some people's assets it's practically everybody it affects because anyone with a retirement account and anyone with a life insurance policy part of the problem is people sign up for these accounts maybe when they start a job and then it'll be like one thing you're doing when you're on boarding for a job oh fill out that beneficiary form
And it can be decades later, that's what applies.
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Chapters
6 chapters
1
What is the main topic discussed in this episode?
0:00–0:47
2
How can beneficiary forms override your will?
0:47–2:27
3
Which types of accounts commonly bypass wills (401(k), IRA, life insurance)?
2:27–3:19
4
What happened in the Arkansas case when a beneficiary form was unsigned?
3:19–5:28
5
How do 401(k) rules differ from IRAs and life insurance for spouses and beneficiaries?
5:28–7:10
6
Why should you consolidate accounts and keep beneficiary forms updated?
7:10–9:24
Speakers
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