MW 'I've opened a hornet's nest': My mother-in-law lists my husband as beneficiary on her $1 million IRA. But her will says otherwise. Which wins?

By Quentin Fottrell

'All of this is causing a lot of turmoil in the family. Does her will trump the IRA beneficiary?'

Dear Quentin,

My mother-in-law is 86 and my sister-in-law is 58. My sister-in-law wants to have guardianship of my mother-in-law. They both reside in an apartment my husband and I built in Wisconsin to accommodate and care for my mother-in-law after my father-in-law passed. My sister-in-law is disabled and has been married and divorced and raised her children who are now adults and also have an interest in their grandmother's estate.

She has a traditional IRA worth $1 million left to her by her late husband, in addition to checking and savings accounts, and a small life-insurance policy. My husband is listed as a beneficiary on all three accounts. However, she also created a will naming each child as an heir for her remaining investments. My husband is the executor of her will. All of this is causing a lot of turmoil in the family.

I asked her to make an appointment with her financial planner, but I'm looking for some guidance on how to handle this most efficiently and cost-effectively for everyone. I feel like I have opened a hornet's nest, but I want to do right by everyone, especially as my mother-in-law's biggest fear is her daughter getting guardianship and controlling her inheritance. She's already asked mother-in-law numerous times for large sums of money.

What are our next steps to help my mother-in-law plan her estate? Is guardianship necessary? Does her will trump the IRA beneficiary?

Daughter-in-law

Related: 'I don't want the government involved in my affairs': My husband lists me as his beneficiary. We don't have children. Do we need a will?

Dear Daughter-in-law,

Your mother-in-law's wishes are paramount. But changes to the beneficiary designations will be difficult to make if your mother-in-law is no longer of sound mind. What's more, such designations can be challenged if the person was not of sound mind and/or if they were under undue influence, or if there is evidence of fraud or forgery. It's not clear, from your letter, why only one child, your husband, was listed as beneficiary when she has two other children.

Adding a beneficiary to a bank or brokerage account, or a life-insurance policy ensures that the funds go directly to those listed and avoid probate. The beneficiary, in other words, will trump your mother-in-law's last will and testament. So if you want your mother-in-law's estate to be distributed equally among her children, by all means, enlist the help of a trust and estate attorney or a financial adviser to help her navigate her estate plan.

Choosing the right person and role to oversee your mother's estate, assuming it's necessary, is also critical. You need a trustworthy person and, yes, someone who does not have bad actors putting pressure on them to take advantage of your mother-in-law's diminished capacity. In Wisconsin, a guardian takes over a person's financial affairs in the event that they become mentally incapacitated; a conservator does not require mental incapacity.

Guardianships vs. conservatorships

Adult guardianships are typically put in place when a person has suffered from dementia and can no longer make decisions or has had a severe accident, according to Horn & Johnsen, a law firm with offices in Wisconsin. "In such an event, unless the injured person had previously signed medical directives and a durable power of attorney, the court would appoint a guardian to make health care and financial decisions on the injured person's behalf."

"Conservatorships do not require mental incompetency, unlike guardianships," it adds. "An individual chooses a conservator to handle their financial affairs, but they do not give up the right to make important decisions such as voting, marrying, signing contracts or getting a driver's license. In a guardianship, the court may or may not appoint the guardian that the ward wishes, depending on what the court considers as being in the ward's best interests."

Your mother-in-law may consider a special-needs trust $(SNT)$ for her daughter so she can avail of federal benefits. There are rules, says Moertl, Wilkins & Campbell, a law firm based in Milwaukee. "The SNT must be irrevocable; trust assets can be expended only for the benefit of the trust beneficiary; trust assets must be used only for things the beneficiary cannot obtain through public benefits; trust assets cannot be paid directly to the beneficiary."

A third party will hopefully help resolve any family discord.

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.

More columns from Quentin Fottrell:

'I want to enjoy the rest of my years': I'm 65, retired and own my home. I have $300,000 to invest. What should I do with it?

My ex-husband is worth 10 times what I'm worth. Is it fair that we contribute equally to our son's college education?

'I hate to be the interfering mother-in-law': My son bought a house with his wife - so why is his father-in-law on the deed?

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-Quentin Fottrell

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February 24, 2025 06:44 ET (11:44 GMT)

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