According to a recent study by Fidelity Investments, only 29% of parents have discussed inheritance plans with their children. This lack of communication can lead to misunderstandings and disputes among beneficiaries when the time comes to distribute assets. Therefore, it is crucial for parents to have open and honest conversations with their heirs about their inheritance plans and intentions. This can help to ensure that the beneficiaries understand the wishes of their parents and are better equipped to manage the inheritance they receive.
Why Is Estate Planning Important When You Have a Child With Special Needs?
All Cummins Inc employees with children confront the challenge of preparing for the day when they will be unable to care for their families. However, as a parent of a child with special needs, you have complex estate planning requirements. Your will, and other estate planning documents you prepare, must address your unique concerns. These issues might include:
Providing sufficient care or assistance for a lifetime
Appointing a financial manager for your adult offspring
Maintaining your child's eligibility for public assistance
Avoiding family disputes
A lawyer and other financial professionals with expertise in planning for children with special needs can assist you in drafting a comprehensive estate plan to ensure that your child will be provided for after your demise. We recommend that our Cummins Inc clients who are parents of children with special needs consult a professional before drafting a plan. For our Cummins Inc clients who already have an estate plan, all existing legal documents should be reviewed (and, if necessary, revised) to ensure that they address your family's requirements.
Wills
A will is essential to any estate plan. It ensures that your assets are distributed in accordance with your wishes and allows you to choose a guardian for your minor children. Without a will, probate assets will be distributed according to the laws of intestacy, which typically allocate a portion to the surviving spouse and a portion to the children. If your child requires more financial resources than other beneficiaries, it is crucial that your wishes are reflected in your will.
Trusts
A trust is a legal entity that allows you to leave your special-needs child (and others) assets outside of your will. You can establish a trust either during your lifetime (a living trust) or through your will (a testamentary trust). As the creator of a trust, you can determine which assets will be transferred to the trust, who will be the beneficiaries, the terms and conditions of the trust, and who will administer the trust. Typically, trusts are used to:
- Avoid probate
- Manage property
- Provide for infants under age
- Avoid estate taxes
- Protect property against creditors
Special needs trusts can play a significant role in your estate plan. A special needs trust can enable you to provide for your child without jeopardizing his or her eligibility for government benefits, a benefit not offered by traditional trusts.
Why Use a Special Needs Trust?
Medicaid and Supplemental Security Income (SSI) can be crucial sources of support for your child with special needs, particularly if he or she cannot purchase or afford private health insurance. Because these government programs are need-based, however, your child will no longer be eligible for benefits if his or her countable assets (such as cash and other liquid assets) exceed $2,000, which is the limit in most states. A bequest, a gift from a relative, or a settlement for a personal injury may cause your child's assets to exceed the limit, resulting in the loss of government assistance.
Unfortunately, the majority of government benefits only provide minimal support. The portion of assets your child is permitted to retain and the small allowance for personal care he or she receives in accordance with government benefit eligibility rules may not be sufficient to pay for necessities such as eyeglasses and dental care. It is almost surely insufficient to provide the child with 'luxuries' like vacations or gifts for others.
Consider establishing a special needs trust if four Cummins Inc employees want to provide funds for expenses not covered by government benefits while preserving their child's eligibility for those benefits. Because assets deposited into and income generated by a properly drafted special needs trust will not be deemed 'available' to your child, they will not affect his or her Medicaid and SSI eligibility.
In addition, establishing a special needs trust is frequently the best method to ensure that your child's inheritance is used for their benefit. Although disinheriting your child or leaving money to other family members on his or her behalf may initially preserve your child's eligibility for government benefits, if these benefits are reduced or eliminated, your child may be left without adequate support. These Cummins Inc clients should also consider the possibility that creditors may attach money left to a family member if, for example, that family member is held liable for an automobile accident or declares bankruptcy.
Consult an attorney experienced in special needs issues (including Medicaid planning) and your state's laws regulating special needs trusts if you are interested in establishing a special needs trust.
Note: An additional planning tool you may want to consider is an ABLE account. Money in an ABLE account generally does not count toward SSI and Medicaid asset limits. An ABLE account may be opened by an individual whose disability began before age 26. As a parent, you may also be able to open and oversee an account on your child's behalf. Your child will be the account owner and the account beneficiary. Contributions to the account can be made by you, your child, and others who want to provide financial support. Earnings on contributions accumulate tax deferred at the federal (and sometimes state) level, and distributions will be tax-free if they are used to pay qualified expenses. These include housing costs, transportation, health care, personal assistance, education, and many other types of expenses related to living with a disability. ABLE accounts are intended to supplement, but not supplant, benefits from other sources, and may be used in addition to a special needs trust.
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Letter of Intent
A letter of intent describes how you would like your infant to be cared for after your death. Despite not being a legal document, it can provide essential information to guardians, trustees, family members, and others involved in your child's care. The letter may discuss your child's medical requirements, daily routine, interests, likes and dislikes, religious practices, living situation, social activities, behavior management, and level of independence. Such a letter can be invaluable to your child's attendants after you pass away, and it can also make the transition to a new living situation as easy as possible for your child.
Beneficiary Designations
You must designate beneficiaries and/or contingent beneficiaries for certain assets (including life insurance policies, retirement plans, and annuities). Additionally, you will designate beneficiaries in your will. Your initial inclination may be to designate your child with special needs as your beneficiary, but doing so could compromise his or her eligibility for government benefits. These Cummins Inc clients should instead consider establishing a special needs trust for their infant and naming the trust as their beneficiary.
Guardianship Issues
Who will care for your child with special needs after your demise, even though you are the natural guardian during your lifetime? Choosing a guardian who will act on behalf of your child after your death is one of the most essential decisions you must make. The individual you choose must be capable of handling your child's complex financial, legal, and personal requirements.
Depending on the requirements of your child, you may also need to select a guardian who is willing to continue serving even after your child reaches adulthood. The law does not presume that an adult with special needs cannot manage their own affairs. After attaining the age of majority, which is typically 18 years old, your child is a legal adult. Unless a court determines otherwise, he or she will be deemed competent to manage his or her own affairs. If such a determination is required, the guardian you select now may be required to serve for the duration of your child's existence.
Guardian Defined
A guardian is a person with the legal authority to care for and/or manage the personal and/or financial affairs of another individual. After your death, a guardian can advise your child, manage their assets, and supervise their care. Typically, you will name a primary guardian and several contingent guardians in your will. The court has the final say, but it will generally accept whoever you nominate unless there are compelling reasons not to.
Types of Guardians
There are two fundamental types of guardians: a person guardian and an estate guardian. A guardian of the person is a court-appointed individual authorized to make only personal and medical decisions regarding your offspring. Any medical procedure performed on a minor requires parental or guardian consent. A person's guardian has the authority to consent to medical procedures and determine where your child will reside. Typically, the court explicitly specifies the guardian's authority. (The guardian will be required to submit periodic reports to the court.)
A custodian of the estate (also known as a conservator) safeguards and manages the money and other assets of your child. The guardian is legally responsible for the following:
To acquire real and personal property and administer it for the benefit of one's charge.
To use the estate for the necessary care and support of the ward.
To invest estate property productively
You can designate separate individuals as guardians of the person and guardians of the estate, or you can designate a single individual to handle both responsibilities.
Caution: Each state has its own laws regarding guardianship. Consult an estate planning attorney before choosing a guardian.
Full Guardianship
A plenary guardianship is another name for a complete guardianship. In this instance, the guardian has authority over both your child's personal and financial affairs. The most prevalent variety of guardianship. If your child's issues are so severe that he or she cannot make any informed decisions, you will typically choose full guardianship.
Limited Guardianship
In a limited guardianship, the guardian's authority over the dependent is restricted to certain matters. Other than that, the child with special needs has some autonomy over his or her existence. The court must carefully monitor this type of arrangement to ensure that it remains suitable for the child.
Caution: One problem with limited guardianships is that your child may encounter a legal situation you haven't considered. You have to anticipate the future when you set up a limited guardianship.
Temporary Guardianship
If the court appoints a temporary guardian, the problem or duration of the guardian's authority is specified. Typically, a temporary guardian is appointed only in situations involving drugs, transient illness, or exceptional medical circumstances.
What to Consider When Choosing a Guardian
These Cummins Inc clients may choose a relative, a close associate, or a reputable legal professional to be their child's guardian. Consider the following factors as you make your choice:
- Does the prospective guardian reside near your child?
- Does he or she have sufficient time for your child?
- Does he or she possess the interpersonal skills required to effectively represent your child?
- Is he or she willing to shoulder the burden?
- Do you believe he or she will act in your child's best interests?
- Does this person have an existing relationship with your child?
- Is he or she willing to remain abreast of new opportunities and programs for your child
- Will he or she acclimate to the changing circumstances of your child?
- Does he or she have the financial means to administer the estate of your child?
Caution: Make sure to periodically review your choice of guardian. Your child's needs may change, or the person you initially chose may become unable or unwilling to serve as guardian.
What If You Die Before Nominating a Guardian for Your Child?
The court may appoint a guardian for your child if you fail to name one in your will or if you pass away without making other arrangements for a caregiver. If a relative declines or is ineligible to serve as guardian, the court may appoint an unrelated professional guardian. The guardianship procedure can be costly, time-consuming, emotionally draining, and publicly observable. In certain circumstances, however, having a guardian with professional expertise can be advantageous.
Public Guardian
If there is no individual guardian for a child with special needs, the court will appoint a public guardian for the child. Typically, this guardian has many other clients, so he or she may not have as much time as you would like to monitor your child's affairs. A public overseer is compensated with public funds, but since he or she frequently negotiates with public agencies, a conflict of interest may arise. Public or nonprofit organizations may also serve as public defenders.
Caution: A public guardian is usually considered a guardian of last resort.
Corporate Guardian
Corporate guardians are employed by businesses that sell guardianship services. Your child's care is managed by a staff member or a volunteer. Typically, parents, life insurance policies, or bequests provide funding for this form of guardianship.
Additionally, the United Way and other charities support corporate protectors.
What If Your Child Does Not Need a Guardian?
Even if your child does not require a guardian (for example, if he or she is already a legally capable adult), he or she may still require care, guidance, and support throughout adulthood. You may want to ask a relative, a friend, or another individual to be your child's caregiver or mentor. However, these Cummins Inc clients must ensure that the selected caregiver has the authority to act on their child's behalf should he or she become incapacitated. This can be achieved by having your child sign a durable power of attorney and advanced medical directives.
Conclusion
Estate planning is like a roadmap for retirement. Just as a map helps you navigate and plan a trip, estate planning helps you navigate and plan for your retirement and beyond. Just as you wouldn't set out on a road trip without a map, you shouldn't go through retirement without a plan for your assets and affairs. Estate planning allows you to chart your course and make sure your wishes are carried out, providing peace of mind for you and your loved ones.
How does Cummins determine eligibility for participation in the Cummins Pension Plan, and what are the implications for employees who temporarily leave the workforce? This inquiry should delve into the specific criteria that define an eligible employee, such as citizenship requirements and exclusions, as well as the continuation of benefits and service credit during approved leaves or breaks in service at Cummins. It would also explore the complexities surrounding vesting and how service prior to a break is credited upon re-employment at Cummins.
Eligibility and Participation in the Cummins Pension Plan: Eligibility for the Cummins Pension Plan requires being an active employee, not participating in another Cummins defined benefit pension plan, and meeting certain citizenship or residency criteria. During approved leaves of absence, employees continue to accrue service credits, ensuring continuous growth in their pension benefits. Notably, vesting occurs after three years of service, securing the employee's entitlement to pension benefits upon leaving the company. The plan handles breaks in service by allowing reemployment within 12 months to count towards vesting and benefit calculations, safeguarding employee benefits against temporary disruptions in their career with Cummins.
What are the potential benefits and limitations of the forms of distribution available under the Cummins Pension Plan, and how should employees prepare for their pension benefit election? This question requires an analysis of various forms of distributions, such as lump sums versus annuities, highlighting the financial implications of each choice, particularly in relation to the IRS rules for 2024 regarding tax treatment. Employees should also consider how their family structure (e.g., marital status, dependents) may influence their decisions when electing a distribution method.
Distribution Forms and Tax Considerations: The Cummins Pension Plan offers various distribution forms, including lump sums and annuities, each with distinct tax implications under IRS rules for 2024. Employees must consider their family structure and tax status when choosing a distribution form, as these factors influence the tax treatment and financial outcome of their pension benefits. The plan provides clear guidelines on these options, ensuring employees can make informed decisions that align with their personal and financial circumstances.
In what ways do pay credits and interest credits accrue within the Cummins Pension Plan, and how can employees gauge their potential retirement benefits over time? This question will focus on the specifics of how pay credits are calculated based on an employee's compensation and service at Cummins, as well as the impact of interest credits on the total account balance and long-term retirement planning. It will also examine how employees can track these credits through the Cummins retirement resources.
Accrual of Pay and Interest Credits: The pension benefits at Cummins accrue through pay credits based on compensation and service, along with interest credits. Employees can monitor their accumulating benefits through the Cummins retirement resources, offering transparency and planning advantages. This structured accrual method supports employees in projecting their future pension benefits and making informed decisions about their retirement timing and financial needs.
How does Cummins ensure compliance with ERISA and other regulatory standards in the management of the Cummins Pension Plan, and what rights do employees have under these regulations? This query should explore Cummins' obligations as a fiduciary in managing employee benefits and highlight the key rights of plan participants. The discussion should include access to plan documents, the process for filing claims, and the significance of ERISA protections for employees retired from Cummins.
Regulatory Compliance and Employee Rights: Cummins diligently adheres to ERISA standards in managing the pension plan, emphasizing fiduciary responsibility and ensuring participants' rights are upheld. Employees have rights to access plan documents, participate in claims and appeals processes, and are protected under ERISA from any plan-related discrimination. This regulatory compliance not only secures the integrity of their pension benefits but also reinforces the legal framework protecting participant rights.
What role does the Pension Benefit Guaranty Corporation (PBGC) play in safeguarding the retirement benefits of Cummins employees, and how does this affect the perception of the plan's reliability? This question would examine the insurance coverage provided by the PBGC, what types of benefits are guaranteed, and under what circumstances benefits may not be fully covered. Employees might analyze how this federal insurance impacts their confidence in the plan, especially in light of changing economic conditions.
Role of the Pension Benefit Guaranty Corporation (PBGC): The PBGC insures the pension benefits under the Cummins Plan, providing a safety net that enhances the reliability of these benefits. Employees covered by the plan can gain confidence in the security of their pensions, knowing that even in the face of potential plan termination, the PBGC guarantees the core benefits, subject to certain legal limits and conditions.
How does the Cummins Pension Plan interface with employees' Social Security benefits, and what should retirees consider when planning for a sustainable retirement income? This inquiry will look at the coordination of benefits under the Cummins plan with Social Security, examining how pension income might influence Social Security calculations. It would require discussions on the timing of retirement elections and how they align with Social Security claims.
Interaction with Social Security Benefits: The Cummins Pension Plan is designed to integrate smoothly with Social Security benefits, offering provisions that help plan participants optimize their total retirement income. Understanding this interaction allows employees to strategically plan their retirement age and benefit commencement, maximizing their financial stability in later life.
What are the specific procedures and deadlines that Cummins employees should follow to successfully elect a distribution from the Cummins Pension Plan upon retirement? This question will necessitate a detailed look at the steps involved in initiating a benefit distribution, including the importance of spousal consent, the timing of application submissions, and any documentation that may be required. Understanding these processes can significantly affect the financial outcomes for retirees.
Procedures and Deadlines for Electing Pension Distribution: The Cummins Pension Plan outlines specific procedures and deadlines for electing a distribution upon retirement, emphasizing the importance of timely and informed decision-making. By understanding these processes, employees can avoid delays and ensure that they receive their pension benefits in the manner that best suits their post-retirement financial plans.
What are the implications of choosing to defer pension benefits and how does the Cummins Plan accommodate employees who opt not to start their benefits at the normal retirement date? This inquiry could address the potential financial consequences of deferring benefits, including eligibility requirements for such deferral and how it aligns with IRS regulations. Employees should critically evaluate their financial situations and retirement goals, weighing the allure of continued employment against starting their retirement benefits sooner.
Deferring Pension Benefits: Employees at Cummins have the option to defer their pension benefits beyond the normal retirement date, which can influence the financial value of their benefits. The plan provides guidelines on how deferral impacts benefit calculations and distributions, assisting employees in making decisions that align with their long-term financial goals.
How can Cummins employees designating beneficiaries ensure that their wishes are respected concerning death benefits, particularly in light of recent changes in the pension landscape? This question focuses on the options available to employees for designating beneficiaries, the process for updating these designations over time, and the specific forms that need to be completed to ensure compliance with the Cummins Pension Plan. It will also discuss the impact of state and federal laws on these designations.
Designating Beneficiaries and Ensuring Compliance: The plan stipulates clear processes for designating beneficiaries for pension benefits, ensuring that employees' wishes are respected and legally documented. This is crucial for planning and securing financial provisions for survivors, reflecting the plan's comprehensive approach to retirement benefits.
How can Cummins employees contact the Cummins Retirement Benefits Service Center to obtain more information about the Cummins Pension Plan and related retirement processes? This question emphasizes the various channels through which employees can reach out to the service center, the types of queries they can address regarding the Cummins Pension Plan, and the resources available online to assist with pension-related inquiries. Employees are encouraged to take advantage of these resources to make informed decisions regarding their retirement planning.
Accessing Information and Assistance: Cummins provides multiple channels for employees to access information and assistance regarding their pension plan, including online resources and a dedicated service center. This accessibility ensures that employees can obtain detailed information and personalized support, enabling them to navigate their pension benefits effectively.
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