Question:  What does JTWROS stand for and what does it mean?

Question:  My mom just died and left me $13,000. I paid down and off some bills.  How bad is it going to be come tax time?

Question:  I have recently lost my mom and am being told that there was no will to disperse her assets. My surviving stepfather is claiming no will and he has retained all the assets. Do I have any legal recourse that I should be pursuing?

Question:  A close relative recently passed away and had life insurance.  I believe I may have been one of the beneficiaries. I am not on good speaking terms with my close relativeís spouse. Is there a way I can find out if I am indeed one of the beneficiaries?

Question:  What happens to a personís belongings after that person passes away?

Question:  I have a custodial mutual fund account with my 4 year-old son. Is there a limit to the amount I can contribute to the fund during the year before I must declare the dividends on my taxes?  What about gift tax?

Question:  What does JTWROS stand for and what does it mean?

Answer:  JTWROS stands for Joint Tenants With Rights of Survivorship. It represents a type of title to an investment or an account. There are many ways a JTWROS titled account works, but let's take the most simple, most common example. A JTWROS is often set up between two people. Both people have an ownership interest in the account and it usually is 50% each. If one person passes away, the other person will receive all the assets in the account. This contrasts with a Joint Tenants in Common (JTIC), where the assets of the deceased person go into that personís estate and not to the other joint tenant.

Like a trust, a JTWROS account avoids probate. A will does not avoid probate. A JTWROS is a simple form of ownership and is very easy to set up. This is a major positive. There is no cost to title an asset with a JTWROS. It allows someone to easily designate who will receive their assets should they pass away. The other primary vehicle that allows this feature is a trust. But, a trust can be expensive to set up and is more restrictive. You typically assign the title and fill out the appropriate forms when you open up the account. You can use JTWROS for bank, stock accounts, real estate, and most other types of accounts.

There are several negative features about titling with JTWROS. Normally, when a person passes away, there is a step-up in cost basis to full market value on the assets that the person holds. In a JTWROS account, there may not be a step up in basis on that portion of the personís assets, who passed away. Thus, it may not be appropriate to place assets that currently have a low cost basis or are expected to appreciate greatly in the future. Second, the setting up of JTWROS accounts may be considered a gift from one person to another. This could result in a gift tax and/or the inclusion of most or all of the assets in the deceased personís estate. This could result in greater estate taxes. Third, if you have a high net worth or are anticipating having a high net worth in the future, the use of a JTWROS account may not be the best way to save on estate taxes.

To summarize, a JTWROS account is easy and cost free to set up. It avoids probate and effectively allows the transfer of assets to another person. It is appropriate for simpler situations. For more complex situations, for situations where a person wants to direct the distribution of his/her assets long after he/she passes away, for estates that are over $1,000,000, and for accounts that hold low cost basis assets, a trust may be more appropriate.

Question:  My mom just died and left me $13,000. I paid down and off some bills.  How bad is it going to be come tax time?

Answer:  As of 2000, a person can distribute $675,000 either during or after her lifetime without paying any gift or estate taxes. If your mom falls below this amount, her estate will not be subject to any estate taxes. If your mom has exceeded this amount your momís estate may have to pay estate taxes. If this is the case, please write back with more details and we can cover this in more detail.

Question:  I have recently lost my mom and am being told that there was no will to disperse her assets. My surviving stepfather is claiming no will and he has retained all the assets. Do I have any legal recourse that I should be pursuing?

Answer:  Yes, you may have legal recourse. The lack of a will does not give your stepfather the right to take her assets. Unless your mother's assets were in a trust, a JTWROS account (Joint Tenants with Rights of Survivorship) account, or under a certain minimum, her assets (known as her estate) will probably have to go through probate. Probate is a process by which the courts decide how the estate will be distributed.

I know this is a trying time, but there will be work ahead. Here are some options:

1.  Contact your state or county courts system.  Explain what happened and ask them what steps you have to follow. You can find the number in the white pages under the government section.

2.  Contact a probate lawyer. Explain your situation and ask for advice.

3.  Contact a family member or friend that you know that can help you or knows someone that can help you.

4.  Write back here with more information. Please explain as much as possible including:

   a) What assets your mother owns

   b) What state your mother lived in

    1. How her assets are titled
    2. The existence of any trust documents;
    3. Any other information that you might feel would be helpful.

Please remember that all information is kept strictly confidential. Hang in there. There is work you have to do. You will get through this. Good luck.

Question:  A close relative recently passed away and had life insurance.  I believe I may have been one of the beneficiaries. I am not on good speaking terms with my close relativeís spouse. Is there a way I can find out if I am indeed one of the beneficiaries?

Answer:  An insurance policy usually has beneficiaries stated on it by the owner of the policy. It is the duty of the insurance company to contact the beneficiaries and arrange for the beneficiaries to receive the proceeds. If you are a beneficiary and the insurance company has not contacted you, they may not know that the insured has passed away.

I assume you do not have a copy of the policy, but do you know what the name of the insurance company is? If you do, contact them. If you do not know, see if you can find out from of your other relatives or someone else who knew your relative. When the time is right, you may want to ask your close relativeís spouse directly or perhaps that person may tell you directly.

If you still are not able to find out, contact the department of insurance in your state and explain your situation. They may be able to help you out.

Question:  What happens to a personís belongings after that person passes away?

Answer:  The answer depends on many different factors. The presence of a will or trust is very important. A will or trust lists the plans for the distribution of the assets. A properly written trust contains specific instructions for the exact distribution of the assets and helps to avoid probate. A trust contains an executor who is responsible for the proper distribution of the assets. An executor is considered a fiduciary under a court of law. A will also contains instructions, which may contain specific instructions or very general instructions. It does not prevent probate.

Probate is where the government decides how the assets are distributed to the beneficiaries. The government will usually follow the directions in the will. If there is no will, the estate is said to be "in testate". In this case, there are no instructions (a will) for the distribution of the assets. Again, the government decides how the assets will be distributed but must rely on other means, such as family members, to decide how to distribute the assets. Probate typically takes a long period of time, sometimes years. Probate is performed in a court of law. All information is public knowledge. The expenses of probate are also high. The value of the assets has to meet a certain minimum before they go through probate.

The way the assets are titled is also very important. If all the assets were in an account titled by Joint Tenants with Rights of Survivorship (JTWROS), then generally the assets are distributed to the surviving joint tenant. Assets inside a JTWROS account avoid probate.

If the assets are in an account titled by Joint Tenants in Common (JTIC), then the assets do not go to the surviving joint tenant. Instead, they go to the estate of the person that passed way. They then typically will go through probate if they do not pour over into a trust.

If the assets are in the personís name only, these assets also go to the personís estate and will then typically go to probate. In most states, there needs to be a small minimum net worth to go through probate.

In all cases, the distribution of the assets can be contested in a court of law. It is harder to contest the distribution of assets from a trust.

Question:  I have a custodial mutual fund account with my 4 year-old son. Is there a limit to the amount I can contribute to the fund during the year before I must declare the dividends on my taxes?

Answer:  It is not important how much you can contribute. Although, please be aware that any gift over $10,000 in one year (for one parent) or over $20,000 (for two parents) would be subject to gift taxes. It is what the account earns where you may be subject to taxes.

The tax exclusion for a child under the age of 14 is $700 for year 2000 income. This means that the first $700 in investment income is tax-free. Investment income includes dividends, interest, short-term capital gains and long-term capital gains. The next $700 in investment income is taxed at the child's rate. This is typically 15% for dividends, interest, and short-term capital gains and 10% for long-term capital gains. After that first $1,400, any additional investment income is taxed at your tax rate. This is known as the "kiddie tax". Your rate could be as high as 39.6% at the federal level (depending on your tax bracket) for dividends, interest, and short-term capital gains and 20% for long term capital gains.

Once your child reaches 14, all investment income will be taxed at the child's rate. For investment income received in 2001, the exclusion will be increased to $750 from $700. Hope this helps.