Contract analysis

I. Executive Summary This memorandum analyzes the estate-planning, gift-tax, income-tax, and generation-skipping transfer ("GST") tax implications of the proposed sale of hospitality membership interests to a newly established intentionally defective grantor trust (an "IDGT"). The purpose of this memorandum is to provide Salvatore A. Pellegrino ("Salvatore" or the "Grantor") with a comprehensive overview of the trans

II. Background and Current Estate Profile A. Salvatore A. Pellegrino — Personal and Financial Overview Salvatore A. Pellegrino is seventy-one (71) years of age, a United States citizen, and is domiciled in Coral Gables, Miami-Dade County, Florida. Florida is a common-law property state; accordingly, community-property considerations do not apply to the transactions contemplated herein. Salvatore and his spouse, Adria

III. Transaction Structure The proposed transaction consists of three principal steps, which are described in detail below. The steps must be executed in the order presented to ensure that the Trust has economic substance and independent equity prior to the installment sale. A. Step 1 — Establishment of the 2025 IDGT Salvatore will execute an irrevocable trust agreement establishing The Salvatore A. Pellegrino 2025 F

IV. Promissory Note Terms A. Principal Terms The promissory note to be issued by the Trust in connection with the installment sale will contain the following principal terms: • Principal Amount: $40,000,000. • Interest Rate: 4.40% per annum, compounded annually, equal to the applicable September 2025 mid-term AFR as published by the Internal Revenue Service in Revenue Ruling 2025-18 (or the applicable revenue ruling

Section 7872 of the IRC provides that if a loan between related parties bears interest at a rate below the applicable federal rate, the loan is treated as a below-market loan, with imputed interest consequences. Additionally, IRC § 1274 provides original issue discount ("OID") rules for debt instruments issued for property, which require the stated interest rate to equal or exceed the applicable federal rate for the

V. Grantor Trust Status — Income Tax Analysis A. Grantor Trust Rules (IRC §§ 671–679) The grantor trust rules, codified at IRC §§ 671 through 679, provide that where a grantor retains certain powers or interests in a trust, the grantor (rather than the trust) is treated as the owner of the trust's assets for federal income-tax purposes. The specific grantor trust powers enumerated in the Code include, among others: t

VI. Estate and Gift Tax Analysis A. Gift Tax — Seed Gift The $2,000,000 Seed Gift to the 2025 IDGT is a completed, taxable gift for federal gift-tax purposes. A gift is "complete" when the donor has so parted with dominion and control as to leave in him no power to change its disposition. Treasury Regulation § 25.2511-2(b). Because the 2025 IDGT is an irrevocable trust and Salvatore retains no power to revoke the tru

VII. Valuation and discount Analysis A. Valuation Methodology The fair market value of the hospitality membership interests will be determined by a qualified appraisal prepared by Hargrove & Lindquist LLP (Dennis W. Hargrove, ASA, CFA, Managing Director), a nationally recognized independent valuation firm. The appraisal will satisfy the requirements of a "qualified appraisal" under Treasury Regulation § 1.170A-13(c)

VIII. Structural Safeguards and Best Practices The success of the proposed IDGT structure depends not only on the correctness of the legal analysis but also on the meticulous implementation of structural safeguards and best practices. The following measures are designed to maximize the likelihood that the transaction will be respected by the IRS as a bona fide sale for full and adequate consideration, and that the tr

IX. Risk Factors and Mitigation No estate-planning transaction is without risk. The following discussion identifies the principal risk factors associated with the proposed IDGT structure and the mitigation strategies available to address each risk. A. IRS Challenge to Valuation discounts Risk. The IRS may challenge the 20% combined DLOM/DLOC discount as excessive, unsupported, or otherwise inappropriate, thereby incr