1034-00004 · Group Strathmore Corp · Correspondence

letter-northgate-fiduciary-acceptance.docx DOCUMENT M&A / Corporate

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CALDERWOOD & HARKNESS LLP 375 Park Avenue, 42nd Floor New York, NY 10152

Telephone: (212) 455-7800 Facsimile: (212) 455-7801

April 5, 2023

Philip A. Rossiter Senior Vice President, Trust Administration Northgate Trust Company of Delaware 1201 North Market Street, Suite 1600 Wilmington, DE 19801

Re: Acceptance of Fiduciary Appointments — Caldwell Family Dynasty Trust and Caldwell Family Insurance Trust C&H Matter No. 1034-00004

Dear Mr. Rossiter:

I am writing on behalf of Calderwood & Harkness LLP in connection with the generational estate plan of Jonathan R. Caldwell (the "Grantor"), currently residing at 418 East 72nd Street, Apt. 14A, New York, NY 10021. As you are aware, this firm has been working closely with Mr. Caldwell and his advisory team over the past several months to design and implement a comprehensive estate planning structure intended to preserve and transfer wealth for the benefit of Mr. Caldwell's descendants across multiple generations. I write in reference to the prior discussions and coordination between our respective offices, as well as the discussions between your institution and its Delaware counsel, regarding Northgate Trust Company of Delaware's agreement in principle to serve in fiduciary capacities under two irrevocable trust instruments that form a central component of Mr. Caldwell's overall plan.

The purpose of this letter is twofold: first, to transmit to you the executed trust agreements and related schedules pertaining to the Caldwell Family Dynasty Trust and the Caldwell Family Insurance Trust; and second, to formally request Northgate Trust Company of Delaware's written acceptance of each fiduciary appointment designated under the respective trust instruments. I set forth below a summary of the relevant background, the terms of each trust, the documents enclosed with this letter, and the specific actions we respectfully request Northgate undertake in connection with its acceptance of these fiduciary roles.

1. Background and Engagement Context

Calderwood & Harkness LLP was engaged by Jonathan R. Caldwell on February 15, 2023, to design and implement a comprehensive generational estate plan structured to achieve the Grantor's principal objectives of tax-efficient wealth transfer, asset protection, and long-term stewardship for the benefit of his three children and their descendants. The planning engagement has been conducted under the supervision of Victoria Chambers, Responsible Partner in our Trusts, Estates & Private Client group, with support from Sylvia Hartwell, Tax Specialist Partner, and the undersigned.

The generational estate plan encompasses, among other structures, a dynasty trust and an irrevocable life insurance trust, both of which designate Northgate Trust Company of Delaware as institutional trustee. In addition to these two trusts, the estate plan includes three Grantor Retained Annuity Trusts — designated as GRAT A, GRAT B, and GRAT C — for which the Grantor serves as trustee during the respective annuity terms. Northgate is not being asked to serve as trustee of the GRATs at this time; however, as discussed in further detail in Section 5 of this letter, upon termination of each GRAT, the remainder interests will pour into the Caldwell Family Dynasty Trust, of which Northgate serves as institutional co-trustee. Accordingly, Northgate should be aware of the GRAT structures as a matter of context for its anticipated fiduciary responsibilities going forward.

Delaware situs was selected for both the Dynasty Trust and the Insurance Trust following careful analysis and consultation with the Grantor and his advisory team. The selection of Delaware was driven by several considerations of particular importance to the overall plan design, including Delaware's perpetual trust statute, which eliminates the common law rule against perpetuities and permits trust assets to remain in trust for an unlimited duration, and the absence of Delaware state income tax on undistributed trust income for out-of-state beneficiaries. These features are essential to maximizing the long-term compounding and tax efficiency of the trust assets for the benefit of the Grantor's descendants across multiple generations.

In connection with Northgate's acceptance of these fiduciary roles, we understand that Northgate has retained Ridgewell & Thorn LLP as its Delaware counsel. Margaret A. Colvin, Esq., Partner in the Fiduciary Practice group at Ridgewell & Thorn LLP, located at 1000 North King Street, Suite 300, Wilmington, DE 19801, is serving as lead counsel to Northgate in this matter. Copies of all enclosed documents are being simultaneously provided to Ms. Colvin under separate cover to facilitate Northgate's independent review and counsel's analysis of the terms of each trust instrument and the corresponding acceptance forms.

2. Caldwell Family Dynasty Trust

2.1 Trust Agreement Details

The first trust instrument for which we request Northgate's acceptance of appointment is the Caldwell Family Dynasty Trust. The principal terms and identifying details of this trust are as follows:

Full Name: Caldwell Family Dynasty Trust

Date of Execution: April 1, 2023

Grantor: Jonathan R. Caldwell

Governing Law: State of Delaware

Situs: State of Delaware

Entity Type: Irrevocable trust

The executed original of the Caldwell Family Dynasty Trust Agreement, together with all related schedules and ancillary documents described below, is enclosed with this letter.

2.2 Co-Trustee Structure

The Caldwell Family Dynasty Trust employs a co-trustee structure designed to balance professional fiduciary administration with the active involvement of a family member who can provide context regarding the needs and circumstances of the beneficiaries. Under the terms of the Trust Agreement:

(a) Institutional Co-Trustee. Northgate Trust Company of Delaware is designated as the institutional co-trustee. In this capacity, Northgate will be responsible for the administration and investment management of the trust assets, maintenance of fiduciary accounts and records, preparation and filing of fiduciary income tax returns (in coordination with the Grantor's tax advisors), and such other duties as are set forth in the Trust Agreement.

(b) Family Co-Trustee. Thomas R. Caldwell, son of the Grantor, currently residing at 55 Perry Street, Unit 3, New York, NY 10014, is designated as the family co-trustee. Mr. Thomas Caldwell's separate acceptance of his appointment as family co-trustee is being executed concurrently with the submission of this letter, and a copy of his executed acceptance will be forwarded to Northgate upon receipt. As family co-trustee, Mr. Thomas Caldwell will participate in discretionary distribution decisions and serve as a liaison between the beneficiaries and the institutional trustee with respect to matters involving the personal circumstances and needs of the beneficiary class.

(c) Distribution Committee. A Distribution Committee has been established under Article VII of the Trust Agreement, composed of all three of the Grantor's children: Thomas R. Caldwell, Katherine C. Hartfield (residing at 210 Briarcliff Lane, Greenwich, CT 06830), and Olivia G. Caldwell (residing at 1240 North Dearborn Street, Apt. 807, Chicago, IL 60610). The Distribution Committee governs discretionary distributions exceeding $100,000 per beneficiary per calendar year. Any such distribution requires the unanimous approval of all members of the Distribution Committee. The operating procedures for the Distribution Committee are set forth in a separate document enclosed with this letter, and Northgate should familiarize itself with these procedures as they directly affect Northgate's obligations in processing distribution requests.

2.3 Trust Protector

The Trust Agreement designates Victoria Chambers, Responsible Partner at Calderwood & Harkness LLP, as trust protector in a non-fiduciary capacity. The trust protector appointment is intended to provide a mechanism for adapting the trust's administrative framework in response to changes in law, family circumstances, or other developments that may arise over the potentially perpetual duration of the trust. The trust protector's powers include, without limitation, the authority to modify administrative provisions of the Trust Agreement, to change the situs of the trust to another jurisdiction, and to remove and appoint successor trustees (including the institutional trustee). The trust protector does not have any power to make, direct, or approve distributions, and the trust protector role is expressly non-fiduciary in nature. Northgate should take note of the trust protector provisions set forth in Article XII of the Trust Agreement.

2.4 Beneficiaries. The beneficiary class of the Caldwell Family Dynasty Trust is defined as follows:

Primary Beneficiaries. The primary beneficiaries are the Grantor's three children — Thomas R. Caldwell, Katherine C. Hartfield, and Olivia G. Caldwell — and their respective issue, per stirpes, to the remotest generation. The trust is designed to benefit multiple generations of the Caldwell family in perpetuity, consistent with Delaware law.

Current Grandchildren. As of the date of this letter, the Grantor has four grandchildren, each of whom is a current beneficiary of the trust: James W. Hartfield (age 8), Charlotte M. Hartfield (age 5), Lucas T. Caldwell (age 3), and Nora E. Caldwell (age 1). The Beneficiary Designation and Per Stirpes Schedule enclosed herewith sets forth the complete list of current beneficiaries and the applicable per stirpes framework.

Spousal Beneficiaries. Spouses of the primary beneficiaries and their issue are eligible for distributions, but only to the extent of distributions for health, education, maintenance, and support ("HEMS") as defined under Internal Revenue Code § 2041(b)(1)(A). Spouses are not eligible for broader discretionary distributions, even with Distribution Committee approval.

Distribution Standard. The general distribution standard applicable to non-spousal beneficiaries is the HEMS standard, with the trustees authorized to make distributions for health, education, maintenance, and support in their discretion. In addition, broader discretionary distributions beyond the HEMS standard may be made with the unanimous approval of the Distribution Committee, as described in Section 2.2(c) above.

2.5 Initial Funding

The Caldwell Family Dynasty Trust was initially funded on April 1, 2023, with a cash contribution of $5,000,000 by Jonathan R. Caldwell. The gift tax and generation-skipping transfer ("GST") tax implications of this initial funding are summarized as follows:

(a) Lifetime Gift Tax Exemption. The Grantor's 2023 applicable exclusion amount under Internal Revenue Code § 2010(c) is $12,920,000. Prior to this gift, the Grantor had utilized $6,750,000 of his lifetime exemption through prior taxable gifts, leaving a remaining exemption of $6,170,000. The $5,000,000 cash contribution to the Dynasty Trust will be reported on a timely filed Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) for the 2023 calendar year, utilizing $5,000,000 of the Grantor's remaining lifetime exemption. After giving effect to this gift, the Grantor's remaining lifetime gift tax exemption will be $1,170,000.

(b) GST Exemption Allocation. The Grantor will allocate $5,000,000 of his GST exemption to the initial funding of the Dynasty Trust. This allocation will be made on the Grantor's 2023 Form 709 in coordination with the Grantor's tax advisors at Strathmore Corporation & Greaves LLP. The trust is intended to have an inclusion ratio of zero, and the Grantor's GST exemption allocation is critical to achieving this result.

(c) Additional Funding. The Dynasty Trust is expected to receive substantial additional funding upon the termination of GRATs A, B, and C, as described in Section 5 of this letter. The remainder interests in each GRAT — representing the excess growth of the GRAT assets above the applicable 5.0% Section 7520 hurdle rate — will pour into the Dynasty Trust at the conclusion of each GRAT's annuity term. These remainder transfers will not require additional gift tax exemption, as each GRAT is structured as a "zeroed-out" GRAT for gift tax purposes, and the GST exemption allocation to each GRAT will be addressed separately.

2.6 Enclosed Documents for Dynasty Trust

The following documents pertaining to the Caldwell Family Dynasty Trust are enclosed with this letter:

(a) Executed original of the Caldwell Family Dynasty Trust Agreement dated April 1, 2023;

(b) Schedule A (Initial Trust Property), listing $5,000,000 in cash as the initial contribution;

(c) Investment Policy Statement for the Dynasty Trust, prepared in consultation with Havensbrook Wealth Advisors LLC (Diana R. Linden, CFP®, Managing Director, Family Office Services, 900 Third Avenue, 18th Floor, New York, NY 10022), which sets forth the investment objectives, asset allocation guidelines, risk parameters, and performance benchmarks applicable to the trust portfolio;

(d) Distribution Committee Operating Procedures, setting forth the procedural requirements for convening meetings of the Distribution Committee, the process for submitting and approving distribution requests exceeding the $100,000 per beneficiary per year threshold, and the record-keeping obligations associated with committee actions;

(e) Beneficiary Designation and Per Stirpes Schedule, identifying all current beneficiaries and setting forth the per stirpes framework for the division of trust interests among the Grantor's descendants.

3. Caldwell Family Insurance Trust (ILIT)

3.1 Trust Agreement Details

The second trust instrument for which we request Northgate's acceptance of appointment is the Caldwell Family Insurance Trust. The principal terms and identifying details of this trust are as follows:

Full Name: Caldwell Family Insurance Trust

Date of Execution: March 15, 2023

Grantor: Jonathan R. Caldwell

Governing Law: State of Delaware

Situs: State of Delaware

Entity Type: Irrevocable trust

The executed original of the Caldwell Family Insurance Trust Agreement, together with all related schedules and ancillary documents described below, is enclosed with this letter. As you will note, the Insurance Trust was executed approximately two weeks prior to the Dynasty Trust in order to facilitate the timely transfer and assignment of the life insurance policy described below.

3.2 Trustee Role

Unlike the Dynasty Trust, the Caldwell Family Insurance Trust does not employ a co-trustee structure. Northgate Trust Company of Delaware is designated as the sole trustee of the Insurance Trust. As sole trustee, Northgate will have exclusive authority and responsibility for the administration of the trust, including the ownership and maintenance of the life insurance policy, the collection and remittance of premium payments, the issuance of Crummey withdrawal notices to beneficiaries, and, upon the occurrence of the insured event, the receipt, investment, and distribution of insurance proceeds in accordance with the terms of the Trust Agreement.

3.3 Insurance Policy

The principal asset of the Caldwell Family Insurance Trust is a second-to-die universal life insurance policy issued by Beacon Life Assurance Company, with its principal offices located at 100 Constitution Plaza, Hartford, CT 06103. The relevant details of the policy are as follows:

Issuing Company: Beacon Life Assurance Company

Policy Number: BLA-2023-77419

Policy Type: Second-to-die universal life insurance

Insured Lives: Jonathan R. Caldwell (date of birth: March 14, 1956; current age 67) and Eleanor V. Caldwell (date of birth: September 22, 1958; current age 64)

Death Benefit: $15,000,000

Annual Premium: $187,500

The policy was procured through Glenmore Insurance Brokerage LLC (Nathan C. Freed, Senior Vice President, Private Client Division, 44 Wall Street, Suite 1200, New York, NY 10005). Mr. Freed has been instrumental in coordinating the underwriting and issuance of the policy and remains available to Northgate for any questions regarding the policy terms, premium schedule, or carrier communications. An assignment of the life insurance policy from Jonathan R. Caldwell to Northgate Trust Company of Delaware, as trustee of the Caldwell Family Insurance Trust, is enclosed with this letter, as described further in Section 3.6 below.

3.4 Crummey Withdrawal Rights

The Insurance Trust incorporates Crummey withdrawal rights to ensure that a portion of the annual premium contributions qualifies for the federal gift tax annual exclusion under Internal Revenue Code § 2503(b). The structure of the Crummey withdrawal rights is as follows:

(a) Crummey Beneficiaries. Three individuals hold Crummey withdrawal rights under the Insurance Trust: Thomas R. Caldwell, Katherine C. Hartfield, and Olivia G. Caldwell.

(b) Annual Withdrawal Right. Each Crummey beneficiary has a withdrawal right of $5,000 per year, or, if greater, five percent (5%) of the value of the contribution giving rise to the withdrawal right, consistent with the "five-or-five" safe harbor under Internal Revenue Code § 2514(e). The withdrawal right lapses at the end of each calendar year to the extent not exercised.

(c) Annual Exclusion Coverage. With three Crummey beneficiaries and the 2023 annual exclusion amount of $17,000 per donee under Internal Revenue Code § 2503(b), the annual exclusion coverage for premium contributions is calculated as follows: 3 beneficiaries multiplied by $17,000 equals $51,000 in annual exclusion coverage.

(d) Balance of Premium. The balance of the annual premium in excess of the annual exclusion coverage — that is, $187,500 minus $51,000, equaling $136,500 — will be funded by the Grantor using his remaining lifetime gift tax exemption and reported on the Grantor's Form 709 for each applicable year.

(e) Crummey Notice Obligations. Northgate, as trustee, is responsible for the timely issuance of Crummey withdrawal notices to each Crummey beneficiary upon receipt of each premium contribution. The notices must be issued promptly — generally within a reasonable period following receipt of the contribution and prior to the lapse of the withdrawal right — to satisfy the requirements established under case law, including Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968), and subsequent Internal Revenue Service guidance. A template Form Crummey Withdrawal Notice is enclosed with this letter for Northgate's use and adaptation. We strongly recommend that Northgate maintain a log of all Crummey notices issued, including dates of issuance and acknowledgment of receipt by each beneficiary, to support the Grantor's annual exclusion claims on his gift tax returns.

3.5 Purpose. The Caldwell Family Insurance Trust is designed to serve a specific and critical function within the Grantor's overall estate plan: to provide estate tax liquidity upon the second death of Jonathan R. Caldwell and Eleanor V. Caldwell. Given the substantial size of the Grantor's taxable estate, it is anticipated that significant federal estate taxes will be payable upon the second death, particularly to the extent that estate tax exemption amounts are reduced in future years. The $15,000,000 death benefit under the second-to-die policy will be held outside of the taxable estates of both Mr. and Mrs. Caldwell, provided that the three-year lookback period under Internal Revenue Code § 2035 has been satisfied with respect to the policy assignment and the trust has been properly administered throughout its existence. The insurance proceeds, when received by the trustee, will be available to provide liquidity to the estates of the insureds — for example, through the purchase of assets from the estate or the making of loans to the estate — without increasing the size of the taxable estate.

3.6 Enclosed Documents for ILIT

The following documents pertaining to the Caldwell Family Insurance Trust are enclosed with this letter:

(a) Executed original of the Caldwell Family Insurance Trust Agreement dated March 15, 2023;

(b) Schedule A (Trust Property), containing a description of the Beacon Life Assurance Company second-to-die universal life insurance policy, Policy No. BLA-2023-77419, including the names of the insured lives, the death benefit amount, and the annual premium;

(c) Assignment of Life Insurance Policy — an executed original of the assignment instrument effectuating the transfer of ownership of Policy No. BLA-2023-77419 from Jonathan R. Caldwell, individually, to Northgate Trust Company of Delaware, as trustee of the Caldwell Family Insurance Trust. This assignment should be promptly delivered by Northgate to Beacon Life Assurance Company for recording on its books and records;

(d) Form Crummey Withdrawal Notice — a template notice for annual use by Northgate in connection with each premium contribution, in the form approved by Calderwood & Harkness LLP;

(e) Annual Premium Funding Letter — a template form letter to be coordinated with Calderwood & Harkness LLP regarding the procedures and timing for premium payment remittances from the Grantor to the trustee and from the trustee to Beacon Life Assurance Company.

4. Requested Actions

In light of the foregoing, we respectfully request that Northgate Trust Company of Delaware undertake the following actions at its earliest convenience.

4.1 Formal Written Acceptance

We request that Northgate execute and return formal written acceptance of its appointment in each of the following fiduciary capacities:

(a) Institutional co-trustee of the Caldwell Family Dynasty Trust, in accordance with the terms of the Caldwell Family Dynasty Trust Agreement dated April 1, 2023; and

(b) Sole trustee of the Caldwell Family Insurance Trust, in accordance with the terms of the Caldwell Family Insurance Trust Agreement dated March 15, 2023.

Enclosed with this letter are two separate acceptance forms — one for each trust — prepared for Northgate's execution by a duly authorized officer. Each acceptance form recites the essential terms of the respective appointment and contains an acknowledgment of Northgate's willingness to be bound by the terms of the applicable Trust Agreement. We request that the signed acceptance instruments be returned to Calderwood & Harkness LLP, to the attention of Monica Reyes, at the address set forth in the letterhead of this letter. If Northgate prefers to execute its acceptance on its own form of acceptance instrument, we are amenable to that approach, provided that the acceptance contains the essential terms set forth in the enclosed forms and is acceptable to both Northgate's counsel and this firm.

4.2 Fee Schedule Confirmation

We request that Northgate confirm its fee schedule applicable to each fiduciary role, consistent with the fee quotations discussed in prior correspondence and meetings between our offices. As you will recall, we discussed preliminary fee terms during our meeting of March 8, 2023, and in subsequent email correspondence. We ask that the confirmed fee schedule for each trust be attached to or expressly referenced in each acceptance instrument, so that the fee arrangement is documented contemporaneously with the commencement of the fiduciary relationship. To the extent that Northgate's fee schedule has been updated or revised since our prior discussions, we would appreciate receiving the revised schedule at your earliest opportunity so that we may review it with the Grantor before the acceptance instruments are finalized.

4.3 Administrative Setup

We request that Northgate take the following administrative steps in connection with the establishment of its fiduciary accounts:

(a) Trust Account Establishment. Northgate should establish fiduciary trust accounts for each of the Caldwell Family Dynasty Trust and the Caldwell Family Insurance Trust. Upon establishment, we request that Northgate provide account numbers and wire transfer instructions for each trust account. For the Dynasty Trust, the wire instructions are needed promptly to facilitate the deposit of the $5,000,000 initial cash funding, which was contributed by the Grantor on April 1, 2023, and is currently being held in a segregated escrow pending Northgate's acceptance and account setup. For the Insurance Trust, the wire instructions are needed to coordinate premium payment remittances in connection with the annual premium obligation under Policy No. BLA-2023-77419.

(b) Primary Administrative Contact. We request that Northgate designate a primary administrative contact for ongoing coordination with Calderwood & Harkness LLP, the Grantor, and the Grantor's other advisors. Based on our prior discussions, we understand that Philip A. Rossiter will serve in this capacity, and we ask that Northgate confirm this designation or advise us of any change in assignment.

(c) Tax Reporting Coordination. With respect to tax reporting matters, we anticipate that close coordination will be necessary between Northgate and Strathmore Corporation & Greaves LLP (Martin J. Prescott, CPA, Senior Partner, Private Client Group, 600 Third Avenue, 28th Floor, New York, NY 10016), which serves as the Grantor's tax advisors and will be responsible for the preparation and filing of the Grantor's individual income tax returns and gift tax returns. We request that Northgate provide the Employer Identification Number ("EIN") for each trust once obtained from the Internal Revenue Service, or, alternatively, confirm whether Calderwood & Harkness LLP should apply for EINs on behalf of the trusts using IRS Form SS-4. Given the grantor trust status of both trusts during Mr. Caldwell's lifetime, coordination on income tax reporting — including the issuance of grantor trust information letters or the filing of Forms 1041 with grantor trust election statements — will be an ongoing requirement, and we wish to establish clear protocols from the outset.

4.4 Coordination with Delaware Counsel

As noted in Section 1 above, copies of all enclosed documents are being provided simultaneously to Margaret A. Colvin, Esq., at Ridgewell & Thorn LLP, for Northgate's independent review. We invite Northgate and its counsel to raise any questions regarding the terms of the trust instruments, the acceptance forms, or any other aspect of the proposed fiduciary arrangements. Should Ms. Colvin or Northgate wish to propose modifications to the acceptance instruments or request additional documentation, we are prepared to work collaboratively to address any such requests in an expeditious manner. Our goal is to ensure that Northgate is fully comfortable with the terms of its engagement before executing the acceptance instruments.

5. Additional Context — GRAT Remainder Interests

For completeness, and to provide Northgate with a comprehensive understanding of the asset flows that will ultimately come under its fiduciary stewardship, we set forth below a summary of the three Grantor Retained Annuity Trusts that will pour their remainder interests into the Caldwell Family Dynasty Trust upon termination of each GRAT's annuity term.

(a) GRAT A — Caldwell 2023 Securities GRAT. GRAT A is scheduled to be funded on April 15, 2023, with $60,000,000 in publicly traded securities. The GRAT has a two-year annuity term with annuity payments of $32,195,122 per year. The GRAT is structured as a "zeroed-out" GRAT based on the applicable Section 7520 rate of 5.0% for the month of funding, resulting in a taxable gift of approximately zero (subject to rounding).

(b) GRAT B — Caldwell 2023 Realty GRAT. GRAT B is scheduled to be funded on May 1, 2023, with $80,000,000 in membership interests in Stonecrest Realty Holdings LLC, representing approximately 59.7% of the total membership interests in Stonecrest (total entity value: $134,000,000). The GRAT has a three-year annuity term with annuity payments of $29,375,859 per year. A combined valuation discount of 25% has been applied to the contributed membership interests, reflecting lack of marketability and minority interest discounts supported by a qualified appraisal. The GRAT is zeroed-out at the 5.0% Section 7520 rate.

(c) GRAT C — Caldwell 2023 Carried Interest GRAT. GRAT C is scheduled to be funded on June 1, 2023, with $38,000,000 in limited partnership interests and carried interests in Caldwell Ridgeline Capital Funds IV, V, and VI. The GRAT has a three-year annuity term with annuity payments of $13,953,759 per year. A blended discount has been applied to the contributed interests, yielding a post-discount fair market value of $25,300,000 for gift tax purposes. The GRAT is zeroed-out at the 5.0% Section 7520 rate.

We note that, as of the date of this letter, GRAT B and GRAT C have not yet been funded; GRAT B is expected to fund on May 1, 2023, and GRAT C is expected to fund on June 1, 2023. GRAT A is scheduled to fund on April 15, 2023. Jonathan R. Caldwell serves as trustee of each GRAT during the annuity term. No fiduciary role is being requested of Northgate with respect to any of the GRATs themselves.

Upon termination of each GRAT at the expiration of its respective annuity term, the remainder interest — representing the excess appreciation of the GRAT assets above the applicable Section 7520 hurdle rate of 5.0% — will transfer to the Caldwell Family Dynasty Trust. At that point, Northgate's fiduciary responsibilities as institutional co-trustee of the Dynasty Trust will extend to the assets received from the GRATs. The total pre-discount value of assets funded into the three GRATs is $178,000,000. Based on the Grantor's projections and the analysis prepared by Havensbrook Wealth Advisors LLC, the projected excess appreciation transferring to the Dynasty Trust over the combined GRAT terms is estimated at approximately $35,000,000 to $50,000,000, assuming approximately 4% annual outperformance above the 5.0% Section 7520 hurdle rate across the three GRAT portfolios. Actual results will, of course, depend on market conditions and the performance of the underlying assets during the GRAT terms.

We will keep Northgate informed as each GRAT is funded and as the GRAT terms progress toward termination. Closer to the termination date of each GRAT, we will coordinate with Northgate regarding the transfer of remainder assets, including any necessary retitling of securities, transfer of partnership interests, and updated investment policy considerations.

6. Enclosure List

The following twelve (12) documents are enclosed with this letter:

1. Caldwell Family Dynasty Trust — Trust Agreement (executed April 1, 2023) — original

2. Caldwell Family Dynasty Trust — Schedule A (Initial Trust Property: $5,000,000 cash) — original

3. Caldwell Family Dynasty Trust — Investment Policy Statement — copy

4. Caldwell Family Dynasty Trust — Distribution Committee Operating Procedures — copy

5. Caldwell Family Dynasty Trust — Beneficiary Designation and Per Stirpes Schedule — copy

6. Caldwell Family Dynasty Trust — Institutional Trustee Acceptance Form (for Northgate's execution)

7. Caldwell Family Insurance Trust — Trust Agreement (executed March 15, 2023) — original

8. Caldwell Family Insurance Trust — Schedule A (Trust Property: Beacon Life Policy No. BLA-2023-77419) — original

9. Caldwell Family Insurance Trust — Assignment of Life Insurance Policy — executed original

10. Caldwell Family Insurance Trust — Form Crummey Withdrawal Notice — template

11. Caldwell Family Insurance Trust — Annual Premium Funding Letter — template

12. Caldwell Family Insurance Trust — Trustee Acceptance Form (for Northgate's execution)

7. Copies to Delaware Counsel

Please be advised that identical sets of all twelve enclosed documents are being sent simultaneously by hand delivery and electronic transmission to Margaret A. Colvin, Esq., Ridgewell & Thorn LLP, 1000 North King Street, Suite 300, Wilmington, DE 19801, for Northgate's independent review and for Ms. Colvin's analysis in her capacity as Delaware counsel to Northgate.

8. Request for Timely Response

We respectfully request that Northgate review, execute, and return the acceptance instruments at its earliest convenience. The overall estate plan implementation is proceeding on a compressed timeline through September 2023, with significant GRAT funding milestones occurring in April, May, and June of this year. As noted above, the Caldwell Family Dynasty Trust has already been funded with the initial $5,000,000 cash contribution, which was made on April 1, 2023, and which should be deposited into the trust's fiduciary account as soon as such account has been established. Prompt account setup is therefore essential.

In addition, the first annual premium payment of $187,500 under the Beacon Life Policy No. BLA-2023-77419 will need to be coordinated in the near term. The policy's premium due date is approaching, and the timely issuance of Crummey withdrawal notices to each of the three Crummey beneficiaries is essential to preserving the Grantor's annual exclusion claims for the 2023 gift tax year. We ask that Northgate prioritize the administrative setup of the Insurance Trust account and the implementation of Crummey notice procedures as soon as practicable following its acceptance of the trusteeship.

We wish to express our sincere appreciation for Northgate Trust Company of Delaware's willingness to serve in these important fiduciary capacities. The Grantor and his family place great value on Northgate's institutional expertise, its deep experience in the administration of Delaware trusts, and the quality of its fiduciary services. We are confident that this engagement will serve the long-term interests of the Caldwell family for generations to come.

Should you have any questions regarding the enclosed documents, the terms of either trust instrument, or any other aspect of the matters described in this letter, please do not hesitate to contact me directly. I am also happy to arrange a conference call or in-person meeting among Calderwood & Harkness LLP, Northgate Trust Company of Delaware, Ridgewell & Thorn LLP, and Havensbrook Wealth Advisors LLC to discuss investment policy, administrative coordination, and any open items. Such a meeting may be particularly useful as we finalize the administrative protocols for both trusts and prepare for the GRAT funding milestones over the coming months.

I can be reached directly at (212) 455-7842 or by email at mreyes@calderwoodharkness.com.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Monica Reyes Associate Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, NY 10152

cc:

Victoria Chambers, Esq., Calderwood & Harkness LLP (Responsible Partner)

Sylvia Hartwell, Esq., Calderwood & Harkness LLP (Tax Specialist Partner)

Jonathan R. Caldwell (Client)

Margaret A. Colvin, Esq., Ridgewell & Thorn LLP (Northgate's Delaware Counsel)

Diana R. Linden, CFP®, Havensbrook Wealth Advisors LLC (Financial Advisor)

Martin J. Prescott, CPA, Strathmore Corporation & Greaves LLP (Tax Advisors)

Enclosures (12)

CALDERWOOD & HARKNESS LLP 375 Park Avenue, 42nd Floor New York, NY 10152
Telephone: (212) 455-7800 Facsimile: (212) 455-7801
April 5, 2023
Philip A. Rossiter Senior Vice President, Trust Administration Northgate Trust Company of Delaware 1201 North Market Street, Suite 1600 Wilmington, DE 19801
Re: Acceptance of Fiduciary Appointments — Caldwell Family Dynasty Trust and Caldwell Family Insurance Trust C&H Matter No. 1034-00004
Dear Mr. Rossiter:
I am writing on behalf of Calderwood & Harkness LLP in connection with the generational estate plan of Jonathan R. Caldwell (the "Grantor"), currently residing at 418 East 72nd Street, Apt. 14A, New York, NY 10021. As you are aware, this firm has been working closely with Mr. Caldwell and his advisory team over the past several months to design and implement a comprehensive estate planning structure intended to preserve and transfer wealth for the benefit of Mr. Caldwell's descendants across multiple generations. I write in reference to the prior discussions and coordination between our respective offices, as well as the discussions between your institution and its Delaware counsel, regarding Northgate Trust Company of Delaware's agreement in principle to serve in fiduciary capacities under two irrevocable trust instruments that form a central component of Mr. Caldwell's overall plan.
The purpose of this letter is twofold: first, to transmit to you the executed trust agreements and related schedules pertaining to the Caldwell Family Dynasty Trust and the Caldwell Family Insurance Trust; and second, to formally request Northgate Trust Company of Delaware's written acceptance of each fiduciary appointment designated under the respective trust instruments. I set forth below a summary of the relevant background, the terms of each trust, the documents enclosed with this letter, and the specific actions we respectfully request Northgate undertake in connection with its acceptance of these fiduciary roles.
1. Background and Engagement Context
Calderwood & Harkness LLP was engaged by Jonathan R. Caldwell on February 15, 2023, to design and implement a comprehensive generational estate plan structured to achieve the Grantor's principal objectives of tax-efficient wealth transfer, asset protection, and long-term stewardship for the benefit of his three children and their descendants. The planning engagement has been conducted under the supervision of Victoria Chambers, Responsible Partner in our Trusts, Estates & Private Client group, with support from Sylvia Hartwell, Tax Specialist Partner, and the undersigned.
The generational estate plan encompasses, among other structures, a dynasty trust and an irrevocable life insurance trust, both of which designate Northgate Trust Company of Delaware as institutional trustee. In addition to these two trusts, the estate plan includes three Grantor Retained Annuity Trusts — designated as GRAT A, GRAT B, and GRAT C — for which the Grantor serves as trustee during the respective annuity terms. Northgate is not being asked to serve as trustee of the GRATs at this time; however, as discussed in further detail in Section 5 of this letter, upon termination of each GRAT, the remainder interests will pour into the Caldwell Family Dynasty Trust, of which Northgate serves as institutional co-trustee. Accordingly, Northgate should be aware of the GRAT structures as a matter of context for its anticipated fiduciary responsibilities going forward.
Delaware situs was selected for both the Dynasty Trust and the Insurance Trust following careful analysis and consultation with the Grantor and his advisory team. The selection of Delaware was driven by several considerations of particular importance to the overall plan design, including Delaware's perpetual trust statute, which eliminates the common law rule against perpetuities and permits trust assets to remain in trust for an unlimited duration, and the absence of Delaware state income tax on undistributed trust income for out-of-state beneficiaries. These features are essential to maximizing the long-term compounding and tax efficiency of the trust assets for the benefit of the Grantor's descendants across multiple generations.
In connection with Northgate's acceptance of these fiduciary roles, we understand that Northgate has retained Ridgewell & Thorn LLP as its Delaware counsel. Margaret A. Colvin, Esq., Partner in the Fiduciary Practice group at Ridgewell & Thorn LLP, located at 1000 North King Street, Suite 300, Wilmington, DE 19801, is serving as lead counsel to Northgate in this matter. Copies of all enclosed documents are being simultaneously provided to Ms. Colvin under separate cover to facilitate Northgate's independent review and counsel's analysis of the terms of each trust instrument and the corresponding acceptance forms.
2. Caldwell Family Dynasty Trust
2.1 Trust Agreement Details
The first trust instrument for which we request Northgate's acceptance of appointment is the Caldwell Family Dynasty Trust. The principal terms and identifying details of this trust are as follows:
Full Name: Caldwell Family Dynasty Trust
Date of Execution: April 1, 2023
Grantor: Jonathan R. Caldwell
Governing Law: State of Delaware
Situs: State of Delaware
Entity Type: Irrevocable trust
The executed original of the Caldwell Family Dynasty Trust Agreement, together with all related schedules and ancillary documents described below, is enclosed with this letter.
2.2 Co-Trustee Structure
The Caldwell Family Dynasty Trust employs a co-trustee structure designed to balance professional fiduciary administration with the active involvement of a family member who can provide context regarding the needs and circumstances of the beneficiaries. Under the terms of the Trust Agreement:
(a) Institutional Co-Trustee. Northgate Trust Company of Delaware is designated as the institutional co-trustee. In this capacity, Northgate will be responsible for the administration and investment management of the trust assets, maintenance of fiduciary accounts and records, preparation and filing of fiduciary income tax returns (in coordination with the Grantor's tax advisors), and such other duties as are set forth in the Trust Agreement.
(b) Family Co-Trustee. Thomas R. Caldwell, son of the Grantor, currently residing at 55 Perry Street, Unit 3, New York, NY 10014, is designated as the family co-trustee. Mr. Thomas Caldwell's separate acceptance of his appointment as family co-trustee is being executed concurrently with the submission of this letter, and a copy of his executed acceptance will be forwarded to Northgate upon receipt. As family co-trustee, Mr. Thomas Caldwell will participate in discretionary distribution decisions and serve as a liaison between the beneficiaries and the institutional trustee with respect to matters involving the personal circumstances and needs of the beneficiary class.
(c) Distribution Committee. A Distribution Committee has been established under Article VII of the Trust Agreement, composed of all three of the Grantor's children: Thomas R. Caldwell, Katherine C. Hartfield (residing at 210 Briarcliff Lane, Greenwich, CT 06830), and Olivia G. Caldwell (residing at 1240 North Dearborn Street, Apt. 807, Chicago, IL 60610). The Distribution Committee governs discretionary distributions exceeding $100,000 per beneficiary per calendar year. Any such distribution requires the unanimous approval of all members of the Distribution Committee. The operating procedures for the Distribution Committee are set forth in a separate document enclosed with this letter, and Northgate should familiarize itself with these procedures as they directly affect Northgate's obligations in processing distribution requests.
2.3 Trust Protector
The Trust Agreement designates Victoria Chambers, Responsible Partner at Calderwood & Harkness LLP, as trust protector in a non-fiduciary capacity. The trust protector appointment is intended to provide a mechanism for adapting the trust's administrative framework in response to changes in law, family circumstances, or other developments that may arise over the potentially perpetual duration of the trust. The trust protector's powers include, without limitation, the authority to modify administrative provisions of the Trust Agreement, to change the situs of the trust to another jurisdiction, and to remove and appoint successor trustees (including the institutional trustee). The trust protector does not have any power to make, direct, or approve distributions, and the trust protector role is expressly non-fiduciary in nature. Northgate should take note of the trust protector provisions set forth in Article XII of the Trust Agreement.
2.4 Beneficiaries. The beneficiary class of the Caldwell Family Dynasty Trust is defined as follows:
Primary Beneficiaries. The primary beneficiaries are the Grantor's three children — Thomas R. Caldwell, Katherine C. Hartfield, and Olivia G. Caldwell — and their respective issue, per stirpes, to the remotest generation. The trust is designed to benefit multiple generations of the Caldwell family in perpetuity, consistent with Delaware law.
Current Grandchildren. As of the date of this letter, the Grantor has four grandchildren, each of whom is a current beneficiary of the trust: James W. Hartfield (age 8), Charlotte M. Hartfield (age 5), Lucas T. Caldwell (age 3), and Nora E. Caldwell (age 1). The Beneficiary Designation and Per Stirpes Schedule enclosed herewith sets forth the complete list of current beneficiaries and the applicable per stirpes framework.
Spousal Beneficiaries. Spouses of the primary beneficiaries and their issue are eligible for distributions, but only to the extent of distributions for health, education, maintenance, and support ("HEMS") as defined under Internal Revenue Code § 2041(b)(1)(A). Spouses are not eligible for broader discretionary distributions, even with Distribution Committee approval.
Distribution Standard. The general distribution standard applicable to non-spousal beneficiaries is the HEMS standard, with the trustees authorized to make distributions for health, education, maintenance, and support in their discretion. In addition, broader discretionary distributions beyond the HEMS standard may be made with the unanimous approval of the Distribution Committee, as described in Section 2.2(c) above.
2.5 Initial Funding
The Caldwell Family Dynasty Trust was initially funded on April 1, 2023, with a cash contribution of $5,000,000 by Jonathan R. Caldwell. The gift tax and generation-skipping transfer ("GST") tax implications of this initial funding are summarized as follows:
(a) Lifetime Gift Tax Exemption. The Grantor's 2023 applicable exclusion amount under Internal Revenue Code § 2010(c) is $12,920,000. Prior to this gift, the Grantor had utilized $6,750,000 of his lifetime exemption through prior taxable gifts, leaving a remaining exemption of $6,170,000. The $5,000,000 cash contribution to the Dynasty Trust will be reported on a timely filed Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) for the 2023 calendar year, utilizing $5,000,000 of the Grantor's remaining lifetime exemption. After giving effect to this gift, the Grantor's remaining lifetime gift tax exemption will be $1,170,000.
(b) GST Exemption Allocation. The Grantor will allocate $5,000,000 of his GST exemption to the initial funding of the Dynasty Trust. This allocation will be made on the Grantor's 2023 Form 709 in coordination with the Grantor's tax advisors at Strathmore Corporation & Greaves LLP. The trust is intended to have an inclusion ratio of zero, and the Grantor's GST exemption allocation is critical to achieving this result.
(c) Additional Funding. The Dynasty Trust is expected to receive substantial additional funding upon the termination of GRATs A, B, and C, as described in Section 5 of this letter. The remainder interests in each GRAT — representing the excess growth of the GRAT assets above the applicable 5.0% Section 7520 hurdle rate — will pour into the Dynasty Trust at the conclusion of each GRAT's annuity term. These remainder transfers will not require additional gift tax exemption, as each GRAT is structured as a "zeroed-out" GRAT for gift tax purposes, and the GST exemption allocation to each GRAT will be addressed separately.
2.6 Enclosed Documents for Dynasty Trust
The following documents pertaining to the Caldwell Family Dynasty Trust are enclosed with this letter:
(a) Executed original of the Caldwell Family Dynasty Trust Agreement dated April 1, 2023;
(b) Schedule A (Initial Trust Property), listing $5,000,000 in cash as the initial contribution;
(c) Investment Policy Statement for the Dynasty Trust, prepared in consultation with Havensbrook Wealth Advisors LLC (Diana R. Linden, CFP®, Managing Director, Family Office Services, 900 Third Avenue, 18th Floor, New York, NY 10022), which sets forth the investment objectives, asset allocation guidelines, risk parameters, and performance benchmarks applicable to the trust portfolio;
(d) Distribution Committee Operating Procedures, setting forth the procedural requirements for convening meetings of the Distribution Committee, the process for submitting and approving distribution requests exceeding the $100,000 per beneficiary per year threshold, and the record-keeping obligations associated with committee actions;
(e) Beneficiary Designation and Per Stirpes Schedule, identifying all current beneficiaries and setting forth the per stirpes framework for the division of trust interests among the Grantor's descendants.
3. Caldwell Family Insurance Trust (ILIT)
3.1 Trust Agreement Details
The second trust instrument for which we request Northgate's acceptance of appointment is the Caldwell Family Insurance Trust. The principal terms and identifying details of this trust are as follows:
Full Name: Caldwell Family Insurance Trust
Date of Execution: March 15, 2023
Grantor: Jonathan R. Caldwell
Governing Law: State of Delaware
Situs: State of Delaware
Entity Type: Irrevocable trust
The executed original of the Caldwell Family Insurance Trust Agreement, together with all related schedules and ancillary documents described below, is enclosed with this letter. As you will note, the Insurance Trust was executed approximately two weeks prior to the Dynasty Trust in order to facilitate the timely transfer and assignment of the life insurance policy described below.
3.2 Trustee Role
Unlike the Dynasty Trust, the Caldwell Family Insurance Trust does not employ a co-trustee structure. Northgate Trust Company of Delaware is designated as the sole trustee of the Insurance Trust. As sole trustee, Northgate will have exclusive authority and responsibility for the administration of the trust, including the ownership and maintenance of the life insurance policy, the collection and remittance of premium payments, the issuance of Crummey withdrawal notices to beneficiaries, and, upon the occurrence of the insured event, the receipt, investment, and distribution of insurance proceeds in accordance with the terms of the Trust Agreement.
3.3 Insurance Policy
The principal asset of the Caldwell Family Insurance Trust is a second-to-die universal life insurance policy issued by Beacon Life Assurance Company, with its principal offices located at 100 Constitution Plaza, Hartford, CT 06103. The relevant details of the policy are as follows:
Issuing Company: Beacon Life Assurance Company
Policy Number: BLA-2023-77419
Policy Type: Second-to-die universal life insurance
Insured Lives: Jonathan R. Caldwell (date of birth: March 14, 1956; current age 67) and Eleanor V. Caldwell (date of birth: September 22, 1958; current age 64)
Death Benefit: $15,000,000
Annual Premium: $187,500
The policy was procured through Glenmore Insurance Brokerage LLC (Nathan C. Freed, Senior Vice President, Private Client Division, 44 Wall Street, Suite 1200, New York, NY 10005). Mr. Freed has been instrumental in coordinating the underwriting and issuance of the policy and remains available to Northgate for any questions regarding the policy terms, premium schedule, or carrier communications. An assignment of the life insurance policy from Jonathan R. Caldwell to Northgate Trust Company of Delaware, as trustee of the Caldwell Family Insurance Trust, is enclosed with this letter, as described further in Section 3.6 below.
3.4 Crummey Withdrawal Rights
The Insurance Trust incorporates Crummey withdrawal rights to ensure that a portion of the annual premium contributions qualifies for the federal gift tax annual exclusion under Internal Revenue Code § 2503(b). The structure of the Crummey withdrawal rights is as follows:
(a) Crummey Beneficiaries. Three individuals hold Crummey withdrawal rights under the Insurance Trust: Thomas R. Caldwell, Katherine C. Hartfield, and Olivia G. Caldwell.
(b) Annual Withdrawal Right. Each Crummey beneficiary has a withdrawal right of $5,000 per year, or, if greater, five percent (5%) of the value of the contribution giving rise to the withdrawal right, consistent with the "five-or-five" safe harbor under Internal Revenue Code § 2514(e). The withdrawal right lapses at the end of each calendar year to the extent not exercised.
(c) Annual Exclusion Coverage. With three Crummey beneficiaries and the 2023 annual exclusion amount of $17,000 per donee under Internal Revenue Code § 2503(b), the annual exclusion coverage for premium contributions is calculated as follows: 3 beneficiaries multiplied by $17,000 equals $51,000 in annual exclusion coverage.
(d) Balance of Premium. The balance of the annual premium in excess of the annual exclusion coverage — that is, $187,500 minus $51,000, equaling $136,500 — will be funded by the Grantor using his remaining lifetime gift tax exemption and reported on the Grantor's Form 709 for each applicable year.
(e) Crummey Notice Obligations. Northgate, as trustee, is responsible for the timely issuance of Crummey withdrawal notices to each Crummey beneficiary upon receipt of each premium contribution. The notices must be issued promptly — generally within a reasonable period following receipt of the contribution and prior to the lapse of the withdrawal right — to satisfy the requirements established under case law, including Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968), and subsequent Internal Revenue Service guidance. A template Form Crummey Withdrawal Notice is enclosed with this letter for Northgate's use and adaptation. We strongly recommend that Northgate maintain a log of all Crummey notices issued, including dates of issuance and acknowledgment of receipt by each beneficiary, to support the Grantor's annual exclusion claims on his gift tax returns.
3.5 Purpose. The Caldwell Family Insurance Trust is designed to serve a specific and critical function within the Grantor's overall estate plan: to provide estate tax liquidity upon the second death of Jonathan R. Caldwell and Eleanor V. Caldwell. Given the substantial size of the Grantor's taxable estate, it is anticipated that significant federal estate taxes will be payable upon the second death, particularly to the extent that estate tax exemption amounts are reduced in future years. The $15,000,000 death benefit under the second-to-die policy will be held outside of the taxable estates of both Mr. and Mrs. Caldwell, provided that the three-year lookback period under Internal Revenue Code § 2035 has been satisfied with respect to the policy assignment and the trust has been properly administered throughout its existence. The insurance proceeds, when received by the trustee, will be available to provide liquidity to the estates of the insureds — for example, through the purchase of assets from the estate or the making of loans to the estate — without increasing the size of the taxable estate.
3.6 Enclosed Documents for ILIT
The following documents pertaining to the Caldwell Family Insurance Trust are enclosed with this letter:
(a) Executed original of the Caldwell Family Insurance Trust Agreement dated March 15, 2023;
(b) Schedule A (Trust Property), containing a description of the Beacon Life Assurance Company second-to-die universal life insurance policy, Policy No. BLA-2023-77419, including the names of the insured lives, the death benefit amount, and the annual premium;
(c) Assignment of Life Insurance Policy — an executed original of the assignment instrument effectuating the transfer of ownership of Policy No. BLA-2023-77419 from Jonathan R. Caldwell, individually, to Northgate Trust Company of Delaware, as trustee of the Caldwell Family Insurance Trust. This assignment should be promptly delivered by Northgate to Beacon Life Assurance Company for recording on its books and records;
(d) Form Crummey Withdrawal Notice — a template notice for annual use by Northgate in connection with each premium contribution, in the form approved by Calderwood & Harkness LLP;
(e) Annual Premium Funding Letter — a template form letter to be coordinated with Calderwood & Harkness LLP regarding the procedures and timing for premium payment remittances from the Grantor to the trustee and from the trustee to Beacon Life Assurance Company.
4. Requested Actions
In light of the foregoing, we respectfully request that Northgate Trust Company of Delaware undertake the following actions at its earliest convenience.
4.1 Formal Written Acceptance
We request that Northgate execute and return formal written acceptance of its appointment in each of the following fiduciary capacities:
(a) Institutional co-trustee of the Caldwell Family Dynasty Trust, in accordance with the terms of the Caldwell Family Dynasty Trust Agreement dated April 1, 2023; and
(b) Sole trustee of the Caldwell Family Insurance Trust, in accordance with the terms of the Caldwell Family Insurance Trust Agreement dated March 15, 2023.
Enclosed with this letter are two separate acceptance forms — one for each trust — prepared for Northgate's execution by a duly authorized officer. Each acceptance form recites the essential terms of the respective appointment and contains an acknowledgment of Northgate's willingness to be bound by the terms of the applicable Trust Agreement. We request that the signed acceptance instruments be returned to Calderwood & Harkness LLP, to the attention of Monica Reyes, at the address set forth in the letterhead of this letter. If Northgate prefers to execute its acceptance on its own form of acceptance instrument, we are amenable to that approach, provided that the acceptance contains the essential terms set forth in the enclosed forms and is acceptable to both Northgate's counsel and this firm.
4.2 Fee Schedule Confirmation
We request that Northgate confirm its fee schedule applicable to each fiduciary role, consistent with the fee quotations discussed in prior correspondence and meetings between our offices. As you will recall, we discussed preliminary fee terms during our meeting of March 8, 2023, and in subsequent email correspondence. We ask that the confirmed fee schedule for each trust be attached to or expressly referenced in each acceptance instrument, so that the fee arrangement is documented contemporaneously with the commencement of the fiduciary relationship. To the extent that Northgate's fee schedule has been updated or revised since our prior discussions, we would appreciate receiving the revised schedule at your earliest opportunity so that we may review it with the Grantor before the acceptance instruments are finalized.
4.3 Administrative Setup
We request that Northgate take the following administrative steps in connection with the establishment of its fiduciary accounts:
(a) Trust Account Establishment. Northgate should establish fiduciary trust accounts for each of the Caldwell Family Dynasty Trust and the Caldwell Family Insurance Trust. Upon establishment, we request that Northgate provide account numbers and wire transfer instructions for each trust account. For the Dynasty Trust, the wire instructions are needed promptly to facilitate the deposit of the $5,000,000 initial cash funding, which was contributed by the Grantor on April 1, 2023, and is currently being held in a segregated escrow pending Northgate's acceptance and account setup. For the Insurance Trust, the wire instructions are needed to coordinate premium payment remittances in connection with the annual premium obligation under Policy No. BLA-2023-77419.
(b) Primary Administrative Contact. We request that Northgate designate a primary administrative contact for ongoing coordination with Calderwood & Harkness LLP, the Grantor, and the Grantor's other advisors. Based on our prior discussions, we understand that Philip A. Rossiter will serve in this capacity, and we ask that Northgate confirm this designation or advise us of any change in assignment.
(c) Tax Reporting Coordination. With respect to tax reporting matters, we anticipate that close coordination will be necessary between Northgate and Strathmore Corporation & Greaves LLP (Martin J. Prescott, CPA, Senior Partner, Private Client Group, 600 Third Avenue, 28th Floor, New York, NY 10016), which serves as the Grantor's tax advisors and will be responsible for the preparation and filing of the Grantor's individual income tax returns and gift tax returns. We request that Northgate provide the Employer Identification Number ("EIN") for each trust once obtained from the Internal Revenue Service, or, alternatively, confirm whether Calderwood & Harkness LLP should apply for EINs on behalf of the trusts using IRS Form SS-4. Given the grantor trust status of both trusts during Mr. Caldwell's lifetime, coordination on income tax reporting — including the issuance of grantor trust information letters or the filing of Forms 1041 with grantor trust election statements — will be an ongoing requirement, and we wish to establish clear protocols from the outset.
4.4 Coordination with Delaware Counsel
As noted in Section 1 above, copies of all enclosed documents are being provided simultaneously to Margaret A. Colvin, Esq., at Ridgewell & Thorn LLP, for Northgate's independent review. We invite Northgate and its counsel to raise any questions regarding the terms of the trust instruments, the acceptance forms, or any other aspect of the proposed fiduciary arrangements. Should Ms. Colvin or Northgate wish to propose modifications to the acceptance instruments or request additional documentation, we are prepared to work collaboratively to address any such requests in an expeditious manner. Our goal is to ensure that Northgate is fully comfortable with the terms of its engagement before executing the acceptance instruments.
5. Additional Context — GRAT Remainder Interests
For completeness, and to provide Northgate with a comprehensive understanding of the asset flows that will ultimately come under its fiduciary stewardship, we set forth below a summary of the three Grantor Retained Annuity Trusts that will pour their remainder interests into the Caldwell Family Dynasty Trust upon termination of each GRAT's annuity term.
(a) GRAT A — Caldwell 2023 Securities GRAT. GRAT A is scheduled to be funded on April 15, 2023, with $60,000,000 in publicly traded securities. The GRAT has a two-year annuity term with annuity payments of $32,195,122 per year. The GRAT is structured as a "zeroed-out" GRAT based on the applicable Section 7520 rate of 5.0% for the month of funding, resulting in a taxable gift of approximately zero (subject to rounding).
(b) GRAT B — Caldwell 2023 Realty GRAT. GRAT B is scheduled to be funded on May 1, 2023, with $80,000,000 in membership interests in Stonecrest Realty Holdings LLC, representing approximately 59.7% of the total membership interests in Stonecrest (total entity value: $134,000,000). The GRAT has a three-year annuity term with annuity payments of $29,375,859 per year. A combined valuation discount of 25% has been applied to the contributed membership interests, reflecting lack of marketability and minority interest discounts supported by a qualified appraisal. The GRAT is zeroed-out at the 5.0% Section 7520 rate.
(c) GRAT C — Caldwell 2023 Carried Interest GRAT. GRAT C is scheduled to be funded on June 1, 2023, with $38,000,000 in limited partnership interests and carried interests in Caldwell Ridgeline Capital Funds IV, V, and VI. The GRAT has a three-year annuity term with annuity payments of $13,953,759 per year. A blended discount has been applied to the contributed interests, yielding a post-discount fair market value of $25,300,000 for gift tax purposes. The GRAT is zeroed-out at the 5.0% Section 7520 rate.
We note that, as of the date of this letter, GRAT B and GRAT C have not yet been funded; GRAT B is expected to fund on May 1, 2023, and GRAT C is expected to fund on June 1, 2023. GRAT A is scheduled to fund on April 15, 2023. Jonathan R. Caldwell serves as trustee of each GRAT during the annuity term. No fiduciary role is being requested of Northgate with respect to any of the GRATs themselves.
Upon termination of each GRAT at the expiration of its respective annuity term, the remainder interest — representing the excess appreciation of the GRAT assets above the applicable Section 7520 hurdle rate of 5.0% — will transfer to the Caldwell Family Dynasty Trust. At that point, Northgate's fiduciary responsibilities as institutional co-trustee of the Dynasty Trust will extend to the assets received from the GRATs. The total pre-discount value of assets funded into the three GRATs is $178,000,000. Based on the Grantor's projections and the analysis prepared by Havensbrook Wealth Advisors LLC, the projected excess appreciation transferring to the Dynasty Trust over the combined GRAT terms is estimated at approximately $35,000,000 to $50,000,000, assuming approximately 4% annual outperformance above the 5.0% Section 7520 hurdle rate across the three GRAT portfolios. Actual results will, of course, depend on market conditions and the performance of the underlying assets during the GRAT terms.
We will keep Northgate informed as each GRAT is funded and as the GRAT terms progress toward termination. Closer to the termination date of each GRAT, we will coordinate with Northgate regarding the transfer of remainder assets, including any necessary retitling of securities, transfer of partnership interests, and updated investment policy considerations.
6. Enclosure List
The following twelve (12) documents are enclosed with this letter:
1. Caldwell Family Dynasty Trust — Trust Agreement (executed April 1, 2023) — original
2. Caldwell Family Dynasty Trust — Schedule A (Initial Trust Property: $5,000,000 cash) — original
3. Caldwell Family Dynasty Trust — Investment Policy Statement — copy
4. Caldwell Family Dynasty Trust — Distribution Committee Operating Procedures — copy
5. Caldwell Family Dynasty Trust — Beneficiary Designation and Per Stirpes Schedule — copy
6. Caldwell Family Dynasty Trust — Institutional Trustee Acceptance Form (for Northgate's execution)
7. Caldwell Family Insurance Trust — Trust Agreement (executed March 15, 2023) — original
8. Caldwell Family Insurance Trust — Schedule A (Trust Property: Beacon Life Policy No. BLA-2023-77419) — original
9. Caldwell Family Insurance Trust — Assignment of Life Insurance Policy — executed original
10. Caldwell Family Insurance Trust — Form Crummey Withdrawal Notice — template
11. Caldwell Family Insurance Trust — Annual Premium Funding Letter — template
12. Caldwell Family Insurance Trust — Trustee Acceptance Form (for Northgate's execution)
7. Copies to Delaware Counsel
Please be advised that identical sets of all twelve enclosed documents are being sent simultaneously by hand delivery and electronic transmission to Margaret A. Colvin, Esq., Ridgewell & Thorn LLP, 1000 North King Street, Suite 300, Wilmington, DE 19801, for Northgate's independent review and for Ms. Colvin's analysis in her capacity as Delaware counsel to Northgate.
8. Request for Timely Response
We respectfully request that Northgate review, execute, and return the acceptance instruments at its earliest convenience. The overall estate plan implementation is proceeding on a compressed timeline through September 2023, with significant GRAT funding milestones occurring in April, May, and June of this year. As noted above, the Caldwell Family Dynasty Trust has already been funded with the initial $5,000,000 cash contribution, which was made on April 1, 2023, and which should be deposited into the trust's fiduciary account as soon as such account has been established. Prompt account setup is therefore essential.
In addition, the first annual premium payment of $187,500 under the Beacon Life Policy No. BLA-2023-77419 will need to be coordinated in the near term. The policy's premium due date is approaching, and the timely issuance of Crummey withdrawal notices to each of the three Crummey beneficiaries is essential to preserving the Grantor's annual exclusion claims for the 2023 gift tax year. We ask that Northgate prioritize the administrative setup of the Insurance Trust account and the implementation of Crummey notice procedures as soon as practicable following its acceptance of the trusteeship.
We wish to express our sincere appreciation for Northgate Trust Company of Delaware's willingness to serve in these important fiduciary capacities. The Grantor and his family place great value on Northgate's institutional expertise, its deep experience in the administration of Delaware trusts, and the quality of its fiduciary services. We are confident that this engagement will serve the long-term interests of the Caldwell family for generations to come.
Should you have any questions regarding the enclosed documents, the terms of either trust instrument, or any other aspect of the matters described in this letter, please do not hesitate to contact me directly. I am also happy to arrange a conference call or in-person meeting among Calderwood & Harkness LLP, Northgate Trust Company of Delaware, Ridgewell & Thorn LLP, and Havensbrook Wealth Advisors LLC to discuss investment policy, administrative coordination, and any open items. Such a meeting may be particularly useful as we finalize the administrative protocols for both trusts and prepare for the GRAT funding milestones over the coming months.
I can be reached directly at (212) 455-7842 or by email at mreyes@calderwoodharkness.com.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Monica Reyes Associate Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, NY 10152
cc:
Victoria Chambers, Esq., Calderwood & Harkness LLP (Responsible Partner)
Sylvia Hartwell, Esq., Calderwood & Harkness LLP (Tax Specialist Partner)
Jonathan R. Caldwell (Client)
Margaret A. Colvin, Esq., Ridgewell & Thorn LLP (Northgate's Delaware Counsel)
Diana R. Linden, CFP®, Havensbrook Wealth Advisors LLC (Financial Advisor)
Martin J. Prescott, CPA, Strathmore Corporation & Greaves LLP (Tax Advisors)
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