CALDWELL 2023 SECURITIES GRAT
TRUST AGREEMENT
Grantor Retained Annuity Trust Agreement
Dated as of April 15, 2023
Jonathan Robert Caldwell as Grantor and Trustee
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CALDWELL 2023 SECURITIES GRAT — TRUST AGREEMENT
This Grantor Retained Annuity Trust Agreement (this "Agreement") is made and entered into as of the 15th day of April, 2023, by Jonathan Robert Caldwell, an individual residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021 (the "Grantor"), acting both individually as Grantor and in his capacity as Trustee of the trust created hereby.
RECITALS
WHEREAS, the Grantor desires to establish an irrevocable trust to be known as the "Caldwell 2023 Securities GRAT" (the "Trust") and to transfer certain publicly traded securities to the Trust;
WHEREAS, the Trust is intended to constitute a "grantor retained annuity trust" within the meaning of Section 2702 of the Internal Revenue Code of 1986, as amended (the "Code"), and Treasury Regulation Section 25.2702-3;
WHEREAS, the Grantor desires to retain a qualified annuity interest in the Trust for a fixed term of two (2) years, with the remainder passing to the Caldwell Family Dynasty Trust upon the expiration of such annuity term;
WHEREAS, the Grantor intends that the present value of the retained annuity interest, calculated using the applicable Section 7520 rate, shall equal the full fair market value of the property transferred to the Trust, thereby resulting in a taxable gift of zero ($0) upon the creation and funding of the Trust; and
WHEREAS, the Grantor desires to serve as the initial Trustee of the Trust during the Annuity Term (as defined below);
NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor hereby declares and agrees as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below, unless the context otherwise requires:
(a) "Annuity Amount" shall mean the sum of Thirty-Two Million One Hundred Ninety-Five Thousand One Hundred Twenty-Two Dollars ($32,195,122) per year, payable to the Grantor during the Annuity Term in accordance with the provisions of Article III of this Agreement. The Annuity Amount is a fixed dollar amount determined as of the date of this Agreement and shall not be subject to adjustment or modification for any reason whatsoever, including, without limitation, changes in the value of the Trust Estate, changes in applicable interest rates, or any other circumstance.
(b) "Annuity Term" shall mean the period commencing on the date of this Agreement, April 15, 2023, and ending on the second anniversary thereof, April 15, 2025, unless earlier terminated by reason of the death of the Grantor. The Annuity Term shall consist of exactly two (2) annuity years, each commencing on an anniversary of the date of this Agreement (or, in the case of the first annuity year, commencing on the date of this Agreement).
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. References to specific sections of the Code include, without limitation, references to Section 2702 (special valuation rules for transfers of interests in trusts), Section 7520 (valuation tables), Section 2036 (transfers with retained life estate), Section 2039 (annuities), Section 672(a) (definitions applicable to grantor trust rules), Section 675 (administrative powers), Section 676 (power to revoke), and Section 677 (income for benefit of grantor). All references to sections of the Code shall include any corresponding provisions of any future federal tax statute and shall also be deemed to include references to all applicable Treasury Regulations promulgated thereunder.
(d) "Dynasty Trust" shall mean the Caldwell Family Dynasty Trust, an irrevocable trust established under a trust agreement dated April 1, 2023, having its situs in the State of Delaware, with Thomas R. Caldwell and Northgate Trust Company of Delaware serving as co-trustees thereof. The Dynasty Trust is the sole Remainder Beneficiary of this Trust.
(e) "Fair Market Value" shall mean the fair market value of property as determined in accordance with Section 7520 of the Code, applicable Treasury Regulations, and general federal tax valuation principles. With respect to publicly traded securities, Fair Market Value shall mean the mean between the highest and lowest quoted selling prices on the applicable valuation date (or, if no sales occurred on such date, the weighted average of the means of the highest and lowest quoted selling prices on the nearest trading dates before and after the valuation date), as reported on the principal exchange on which such securities are traded, in accordance with Treasury Regulation Section 20.2031-2.
(f) "Grantor" shall mean Jonathan Robert Caldwell, an individual residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021, whose Social Security number ends in 4781. The term "Grantor" shall include the Grantor's estate, personal representatives, and legal successors, as the context may require, but only with respect to rights expressly conferred upon such persons by this Agreement.
(g) "Initial Trust Property" shall mean the property described on Schedule A attached hereto and incorporated herein by reference, consisting of publicly traded securities having an aggregate Fair Market Value of Sixty Million Dollars ($60,000,000) as of the date of funding, April 15, 2023. The Initial Trust Property constitutes the sole contribution to the Trust, and no additional contributions shall be made to the Trust after the initial funding.
(h) "Remainder Beneficiary" shall mean the Caldwell Family Dynasty Trust, as defined in Section 1.1(d) above. The Remainder Beneficiary is the sole beneficiary of the Trust's remainder interest following the expiration of the Annuity Term and the payment of all annuity amounts due to the Grantor.
(i) "Section 7520 Rate" shall mean the applicable federal rate under Section 7520 of the Code for March 2023, which is five percent (5.0%) per annum. The Section 7520 Rate is used for purposes of computing the present value of the Grantor's retained annuity interest and the gift tax value of the remainder interest in the Trust.
(j) "Trust" or "Trust Estate" shall mean the Caldwell 2023 Securities GRAT created by this Agreement, together with all property at any time held by the Trustee under this Agreement, including the Initial Trust Property, all investments and reinvestments thereof, all income and gains thereon, and all proceeds and additions thereto, less any distributions and payments made by the Trustee in accordance with the terms hereof.
(k) "Trustee" shall mean Jonathan Robert Caldwell, serving as Trustee during the Annuity Term, and any successor trustee appointed in accordance with Article VIII of this Agreement. The term "Trustee" shall refer to the individual or entity serving in such capacity at the relevant time.
(l) "Valuation Date" shall mean April 15, 2023, the date on which the Initial Trust Property was transferred to the Trust and the date as of which the Fair Market Value of the Initial Trust Property has been determined for purposes of this Agreement.
ARTICLE II — CREATION OF TRUST; TRANSFER OF PROPERTY
Section 2.1 — Establishment of Trust
The Grantor hereby establishes an irrevocable trust to be known as the "Caldwell 2023 Securities GRAT." The Grantor creates this Trust for the purpose of retaining a qualified annuity interest for the Annuity Term, with the remainder passing to the Remainder Beneficiary upon the expiration of the Annuity Term, subject to the terms and conditions of this Agreement.
The Trust is intended to constitute a "grantor retained annuity trust" within the meaning of Section 2702 of the Code and Treasury Regulation Section 25.2702-3, and all provisions of this Agreement shall be construed and interpreted in a manner consistent with that intent. The Grantor's retained interest in the Trust is intended to constitute a "qualified annuity interest" as defined in Treasury Regulation Section 25.2702-3(b), and no provision of this Agreement shall be construed or applied in a manner that would cause the Grantor's retained interest to fail to qualify as such.
The Trust is irrevocable and may not be amended, revoked, or terminated by the Grantor or any other person, except as expressly provided herein or as may be required by applicable law to maintain the Trust's qualification as a grantor retained annuity trust under Section 2702 of the Code. The Grantor expressly acknowledges that, upon the execution of this Agreement and the transfer of the Initial Trust Property to the Trustee, the Grantor shall have no right to recover, reclaim, or revoke any property transferred to the Trust, except as expressly provided in this Agreement with respect to the annuity payments described in Article III and the substitution power described in Section 7.2.
Section 2.2 — Transfer of Initial Trust Property
The Grantor hereby irrevocably transfers, assigns, conveys, and delivers to the Trustee, and the Trustee hereby accepts, the property described on Schedule A attached hereto and incorporated herein by reference, consisting of publicly traded securities having an aggregate Fair Market Value of Sixty Million Dollars ($60,000,000) as of April 15, 2023, the Valuation Date. The Trustee acknowledges receipt of the Initial Trust Property and agrees to hold, administer, and distribute such property and the proceeds thereof in accordance with the terms of this Agreement.
The transfer of the Initial Trust Property to the Trust is intended to be a completed transfer for federal gift tax purposes as of the date of this Agreement. The Grantor represents and warrants that, as of the date of transfer, the Grantor is the sole owner of the Initial Trust Property and has full right, power, and authority to transfer such property to the Trust free and clear of all liens, claims, encumbrances, and security interests of any kind.
No additional contributions of property, whether in cash, securities, or any other form, shall be made to the Trust after the initial funding on April 15, 2023. The prohibition on additional contributions is intended to comply with the requirements of Treasury Regulation Section 25.2702-3(b) and to ensure that the value of the Grantor's retained annuity interest is properly determined as of the Valuation Date.
Section 2.3 — Intent Regarding Gift Tax Consequences
The Trust is designed and intended to be a "zeroed-out" grantor retained annuity trust such that the present value of the Grantor's retained annuity interest, as determined under Section 7520 of the Code, equals the full Fair Market Value of the property transferred to the Trust on the Valuation Date. The Grantor intends that no taxable gift shall result from the creation and funding of this Trust.
The zeroed-out computation is based upon the following factors and assumptions:
(a) The aggregate Fair Market Value of the Initial Trust Property transferred to the Trust on the Valuation Date is $60,000,000;
(b) The Section 7520 Rate applicable to transfers made in March 2023 (the month preceding the month of the transfer, elected by the Grantor as the applicable valuation month pursuant to Treasury Regulation Section 25.7520-2(b)) is 5.0%;
(c) The Grantor's age as of the nearest birthday to the Valuation Date is sixty-seven (67) years, the Grantor having been born on March 14, 1956;
(d) The Annuity Term is two (2) years, commencing on April 15, 2023, and ending on April 15, 2025;
(e) The annual Annuity Amount is $32,195,122; and
(f) Based on the foregoing, the present value of the annuity stream of $32,195,122 per year for two (2) years, discounted at the Section 7520 Rate of 5.0% and adjusted for the mortality component applicable to a person aged 67, equals $60,000,000, resulting in a gift tax value of the remainder interest of zero dollars ($0.00).
The detailed annuity calculation is set forth on Exhibit A attached hereto and incorporated herein by reference. The Grantor intends to report the creation and funding of this Trust on a timely filed Federal Gift Tax Return (IRS Form 709) for the 2023 tax year, reporting a taxable gift of zero dollars ($0.00) with respect to the remainder interest in the Trust.
ARTICLE III — ANNUITY PAYMENTS
Section 3.1 — Amount of Annuity
During the Annuity Term, the Trustee shall pay to the Grantor, or if the Grantor is deceased, to the Grantor's estate, an annuity amount equal to Thirty-Two Million One Hundred Ninety-Five Thousand One Hundred Twenty-Two Dollars ($32,195,122) per year (the "Annuity Amount"). The Annuity Amount is a fixed dollar amount determined as of the date of this Agreement and shall not be subject to adjustment, increase, decrease, or modification for any reason, including, without limitation, any change in the Fair Market Value of the Trust Estate, any change in applicable interest rates, any change in the law, or any other event or circumstance.
The Annuity Amount payable each year represents a fixed annuity within the meaning of Treasury Regulation Section 25.2702-3(b)(1)(ii)(A), and the Grantor's right to receive the Annuity Amount constitutes a "qualified annuity interest" within the meaning of Treasury Regulation Section 25.2702-3(b).
Section 3.2 — Timing of Annuity Payments
The Annuity Amount shall be payable in annual installments during the Annuity Term, as follows:
(a) First Annuity Payment. The first annuity payment of $32,195,122 shall be due and payable on or before April 15, 2024, which is the first anniversary of the date of this Agreement and the funding date of the Trust.
(b) Second and Final Annuity Payment. The second and final annuity payment of $32,195,122 shall be due and payable on or before April 15, 2025, which is the second anniversary of the date of this Agreement and the expiration of the Annuity Term.
Each annuity payment shall be made no later than one hundred five (105) days after the anniversary date of the Trust's creation for the applicable annuity year, in compliance with Treasury Regulation Section 25.2702-3(b)(4). To the extent that any annuity payment is not made by the applicable anniversary date, the unpaid amount shall bear interest from such anniversary date at the rate applicable under Section 7520 of the Code until paid, provided that such payment is made within the 105-day grace period. Any annuity payment not made within the 105-day grace period may jeopardize the qualification of the Grantor's retained interest as a qualified annuity interest under Treasury Regulation Section 25.2702-3, and accordingly, the Trustee shall use all reasonable efforts to ensure that each annuity payment is made on or before the applicable anniversary date.
If the Trust is in existence for only a portion of a taxable year (whether because the Trust was created during such year, because the Trust terminates during such year, or because the Grantor dies during such year), the Annuity Amount for such partial year shall be prorated on a daily basis. The prorated Annuity Amount for any partial year shall equal the product of (i) $32,195,122 and (ii) a fraction, the numerator of which is the number of days in such partial year during which the Trust is in existence, and the denominator of which is 365 (or 366 in the case of a leap year).
Section 3.3 — Form of Annuity Payment
Annuity payments may be made in any one or more of the following forms, in the sole and absolute discretion of the Trustee:
(a) Cash. Payment in cash, including by wire transfer to an account designated by the Grantor.
(b) In Kind. Payment in kind, by distribution of Trust property to the Grantor at the then-current Fair Market Value of such property, as determined on the date of distribution.
(c) Combination. Payment partly in cash and partly in kind, provided that the aggregate Fair Market Value of all property distributed (including cash) equals or exceeds the Annuity Amount for the applicable annuity year.
If an annuity payment is satisfied in whole or in part by a distribution of Trust property in kind, the Fair Market Value of the distributed property shall be determined as of the date of distribution. With respect to publicly traded securities distributed in kind, Fair Market Value shall be determined in the manner described in Section 1.1(e) of this Agreement. The Trustee shall provide the Grantor with a written statement identifying any property distributed in kind and its Fair Market Value as of the date of distribution.
Distribution of property in kind in satisfaction of an annuity payment shall be treated as a sale or exchange by the Trust to the Grantor for federal income tax purposes to the extent applicable; provided, however, that during any period in which the Trust is treated as a grantor trust under Sections 671 through 679 of the Code, the distribution of Trust property to the Grantor shall not be treated as a taxable event, and no gain or loss shall be recognized by the Trust or the Grantor upon such distribution, in accordance with Revenue Ruling 85-13 and its progeny.
Section 3.4 — Source of Annuity Payments
The Annuity Amount payable in each annuity year shall be paid from the following sources, in the following order of priority:
(a) First, from the income of the Trust for the taxable year in which the annuity payment is due, including dividends, interest, and other investment income;
(b) Second, to the extent that the income of the Trust for such taxable year is insufficient to pay the full Annuity Amount, from the principal of the Trust Estate.
If the net income of the Trust for any taxable year exceeds the Annuity Amount payable for that year, the excess income shall be added to and retained as principal of the Trust Estate. Under no circumstances shall the Grantor be entitled to receive any amount in excess of the Annuity Amount for any annuity year, regardless of the amount of income earned by the Trust.
Section 3.5 — No Additional Payments
The Grantor shall not receive any payment or distribution from the Trust other than the Annuity Amounts described in this Article III. No amount other than the Annuity Amount may be paid to or for the benefit of the Grantor or any other person during the Annuity Term, other than the distribution of the remainder to the Remainder Beneficiary as described in Article IV upon the expiration of the Annuity Term.
This prohibition extends to all forms of payment, distribution, loan, advance, guarantee, or other transfer of value from the Trust to the Grantor or any person other than the Remainder Beneficiary upon the expiration of the Annuity Term. This Section is intended to comply with the requirements of Treasury Regulation Section 25.2702-3(b)(1)(i), which provides that no amount other than the annuity amount may be payable from the trust to or for the benefit of the grantor during the annuity term.
Section 3.6 — Insufficient Trust Property
If the Trust Estate is at any time insufficient to pay the Annuity Amount in full for the applicable annuity year, the Trustee shall distribute the entire remaining Trust Estate to the Grantor in complete satisfaction of the annuity obligation for such year, and the Trust shall thereupon terminate. Under no circumstances shall the Trustee be required or expected to pay an Annuity Amount in excess of the value of the Trust Estate at the time such payment is due.
In the event that the Trust terminates pursuant to this Section 3.6, all remaining obligations of the Trustee under this Agreement shall cease, and neither the Trustee, the Trust Estate, nor any other person shall have any further liability to the Grantor with respect to any unpaid balance of the Annuity Amount or any future annuity payments.
ARTICLE IV — DISPOSITION OF REMAINDER
Section 4.1 — Distribution of Remainder Upon Expiration of Annuity Term
Upon the expiration of the Annuity Term on April 15, 2025, and after payment of the final Annuity Amount due to the Grantor under Article III, the Trustee shall distribute the entire remaining Trust Estate (the "Remainder") to the Caldwell Family Dynasty Trust, as the sole Remainder Beneficiary of this Trust. The Remainder shall include all property then held in the Trust Estate, including cash, securities, accrued income, and any other assets, net of any unpaid expenses of Trust administration.
The Remainder shall be added to the principal of the Caldwell Family Dynasty Trust and shall thereafter be held, administered, and distributed in accordance with the terms of the trust agreement establishing the Dynasty Trust, dated April 1, 2023, as the same may have been or may hereafter be amended or restated in accordance with its terms. The distribution of the Remainder shall be made as soon as administratively practicable following the final annuity payment, but in no event later than a reasonable time after the expiration of the Annuity Term, taking into account the need to liquidate any Trust assets, settle final accounts, and discharge any remaining administrative obligations.
The Trustee shall provide the co-trustees of the Dynasty Trust with a complete accounting of the Trust Estate as of the date of the Remainder distribution, together with all relevant tax information necessary for the Dynasty Trust to report the receipt of the Remainder on its fiduciary income tax returns.
Section 4.2 — No Commutation
The Grantor's annuity interest may not be commuted (that is, prepaid, accelerated, or satisfied by a lump-sum payment), in whole or in part, at any time during the Annuity Term. This prohibition on commutation is imposed in compliance with Treasury Regulation Section 25.2702-3(d)(4), which requires that no person shall hold a power to commute, prepay, or accelerate the annuity interest as a condition to the annuity interest qualifying as a "qualified annuity interest."
No person, including the Grantor, the Trustee, the Remainder Beneficiary, or any beneficiary of the Dynasty Trust, shall have the power to commute, prepay, or accelerate the Grantor's annuity interest, or to direct or cause the commutation, prepayment, or acceleration thereof. Any purported commutation, prepayment, or acceleration of the annuity interest shall be void and of no effect.
Section 4.3 — No Additional Contributions from Trust to Grantor After Annuity Term
After the expiration of the Annuity Term, neither the Grantor nor any other person (other than the Remainder Beneficiary, to the extent provided in Section 4.1) shall have any right, title, or interest in or to the Trust Estate or the Remainder. Upon the distribution of the Remainder to the Dynasty Trust, the Trust shall terminate and the Trustee shall be discharged of all further duties and obligations under this Agreement, except for any obligations relating to the preparation of final tax returns and accountings and the delivery of records.
ARTICLE V — MORTALITY CONTINGENCY
Section 5.1 — Death of Grantor During Annuity Term
If the Grantor dies during the Annuity Term (that is, prior to April 15, 2025), the Trust shall terminate as of the date of the Grantor's death. Upon the Grantor's death during the Annuity Term, the Trustee (or the successor Trustee appointed in accordance with Article VIII) shall pay to the Grantor's estate the prorated Annuity Amount for the period from the beginning of the then-current annuity year through the date of the Grantor's death, calculated on a daily basis.
The prorated Annuity Amount for the partial annuity year in which the Grantor dies shall be calculated as follows:
Prorated Annuity Amount = $32,195,122 × (Number of days elapsed in the current annuity year through and including the date of death) / 365 (or 366 in the case of a leap year)
For purposes of this calculation, the "current annuity year" shall mean the annuity year in which the Grantor's death occurs. The first annuity year commences on April 15, 2023, and the second annuity year commences on April 15, 2024. The prorated Annuity Amount shall be paid to the duly appointed executor or administrator of the Grantor's estate, or if no executor or administrator has been appointed within a reasonable time after the Grantor's death, to such other person or persons as may be entitled to receive payment on behalf of the Grantor's estate under applicable law.
Section 5.2 — Distribution of Remaining Trust Property Upon Grantor's Death
After payment of the prorated Annuity Amount described in Section 5.1, the remaining Trust Estate, if any, shall be distributed to the Caldwell Family Dynasty Trust, as the Remainder Beneficiary, in the same manner and subject to the same conditions as set forth in Section 4.1 of this Agreement. The distribution shall be made as soon as administratively practicable following the payment of the prorated Annuity Amount and the settlement of any outstanding claims or administrative expenses of the Trust.
The Grantor acknowledges and understands that if the Grantor dies during the Annuity Term, a portion or all of the Trust Estate may be includible in the Grantor's gross estate for federal estate tax purposes under Section 2036 of the Code (relating to transfers with retained life estates or retained rights to income) or Section 2039 of the Code (relating to annuities). The amount includible in the Grantor's gross estate shall be determined in accordance with applicable provisions of the Code and Treasury Regulations as in effect at the time of the Grantor's death.
Section 5.3 — Inclusion in Gross Estate
The Grantor expressly acknowledges and agrees that the value of the Trust property may be included in the Grantor's gross estate under Section 2036(a) of the Code if the Grantor dies during the Annuity Term, and that such inclusion is a known and expected risk associated with the zeroed-out GRAT structure. The Grantor further acknowledges that the purpose and economic rationale of the zeroed-out GRAT structure is to transfer to the Remainder Beneficiary, free of federal gift tax and federal estate tax, any appreciation in the value of the Trust Estate that exceeds the Section 7520 hurdle rate of 5.0% per annum during the Annuity Term. If the Grantor survives the Annuity Term, the entire Remainder (representing such excess appreciation, if any) will pass to the Dynasty Trust without the imposition of federal transfer taxes.
The Grantor has been advised by counsel regarding the estate tax consequences of death during the Annuity Term and has determined, in consultation with such counsel, that the potential benefits of the GRAT structure outweigh the risks associated with potential inclusion of the Trust Estate in the Grantor's gross estate.
ARTICLE VI — GRANTOR TRUST STATUS
Section 6.1 — Grantor Trust
The Trust shall be treated as a "grantor trust" with respect to the Grantor for federal income tax purposes during the entire Annuity Term, pursuant to Sections 671 through 679 of the Code. The Grantor intends that the Trust be classified as a grantor trust by reason of one or more of the following provisions of the Code: (i) the Grantor's retention of a reversionary interest in excess of five percent (5%) of the value of the Trust, within the meaning of Section 673 of the Code; (ii) the Grantor's power to reacquire Trust property by substituting other property of equivalent value, within the meaning of Section 675(4)(C) of the Code, as set forth in Section 7.2 of this Agreement; and (iii) the Grantor's power to borrow from the Trust without adequate interest or adequate security, within the meaning of Section 675(3) of the Code, as set forth in Section 7.3 of this Agreement.
As a consequence of the Trust's classification as a grantor trust, all items of income, deduction, gain, loss, and credit of the Trust shall be reported on the Grantor's individual federal income tax return (IRS Form 1040) for each taxable year during the Annuity Term, in accordance with Treasury Regulation Section 1.671-4. The Grantor shall be solely responsible for the payment of all federal, state, and local income taxes attributable to Trust income, and such tax payments by the Grantor shall not be treated as additional contributions or gifts to the Trust. The Grantor acknowledges that the payment of income taxes attributable to Trust income constitutes an economic benefit to the Trust and its beneficiaries, but the Grantor does not intend, and this Agreement shall not be construed to provide, that the Trust or any beneficiary thereof has any obligation to reimburse the Grantor for any income taxes so paid.
Section 6.2 — Tax Identification
During the Annuity Term (and during any period in which the Trust is treated as a grantor trust with respect to the Grantor), the Trust shall use the Grantor's Social Security number (ending in 4781) as its taxpayer identification number for all federal income tax purposes. The Trust shall not be required to file a separate fiduciary income tax return (IRS Form 1041) during any period in which it is treated as a grantor trust, except to the extent otherwise required by applicable law or Treasury Regulations, including Treasury Regulation Section 1.671-4(b)(2) (relating to the optional filing of a Form 1041 with an informational statement). If a separate Form 1041 is required or elected to be filed, the Trustee shall report all items of Trust income, deduction, and credit as attributable to the Grantor in accordance with applicable Treasury Regulations.
Upon the termination of the Trust's grantor trust status (whether by reason of the expiration of the Annuity Term, the Grantor's death, or any other event), the Trustee shall promptly obtain a separate employer identification number for the Trust from the Internal Revenue Service on IRS Form SS-4.
ARTICLE VII — POWERS OF THE TRUSTEE
Section 7.1 — General Powers
The Trustee shall have all powers conferred upon trustees by the laws of the State of New York, including the New York Estates, Powers and Trusts Law, and by this Agreement, to be exercised in the Trustee's sole and absolute discretion, subject to the limitations set forth in this Agreement and the fiduciary duties imposed by applicable law. Without limiting the generality of the foregoing, the Trustee shall have the following powers:
(a) Investment. To invest and reinvest the Trust Estate, in whole or in part, in any form of property or investment, real or personal, tangible or intangible, wherever situated, including, without limitation, publicly traded securities (including common stocks, preferred stocks, and debt securities listed on any national securities exchange or traded in any over-the-counter market), mutual funds, exchange-traded funds, money market instruments, certificates of deposit, commercial paper, repurchase agreements, obligations of the United States or any agency thereof, and interests in any other investment vehicle, without regard to any principle of diversification, without being limited to investments authorized by law for the investment of trust funds, and without being required to balance the interests of income beneficiaries and remaindermen.
(b) Collection and Receipt. To collect and receive all income, principal, dividends, interest, distributions, and other payments due to the Trust, and to give full discharge for the same.
(c) Payment of Expenses. To pay from the Trust Estate all reasonable expenses of administering the Trust, including, without limitation, legal fees, accounting fees, investment advisory fees, custodial fees, brokerage commissions, transfer taxes, and all other costs and charges incurred in connection with the management, protection, and administration of the Trust Estate.
(d) Employment of Agents and Advisors. To employ and retain agents, custodians, brokers, investment advisors, attorneys, accountants, and other advisors and service providers as the Trustee deems necessary or appropriate for the proper administration of the Trust, including, without limitation, Havensbrook Wealth Advisors LLC or its successors, and to delegate to such persons such powers and duties as the Trustee deems appropriate, and to pay reasonable compensation to such persons from the Trust Estate.
(e) Execution of Instruments. To execute and deliver any and all instruments, documents, contracts, agreements, certificates, and other writings of any kind that the Trustee deems necessary or appropriate in connection with the administration of the Trust, including, without limitation, stock powers, transfer forms, subscription agreements, brokerage account agreements, custody agreements, and tax returns.
(f) Compromise and Settlement. To compromise, settle, submit to arbitration, or otherwise resolve any claims, debts, or disputes by or against the Trust, on such terms as the Trustee deems advisable, and to release, in whole or in part, any claim or right belonging to the Trust.
(g) Voting and Consent. To vote, in person or by proxy, any securities held in the Trust Estate, and to exercise or refrain from exercising any options, rights, privileges, or powers pertaining to any Trust property, including conversion rights, subscription rights, tender offers, and similar corporate actions.
(h) Holding in Nominee Name. To hold any property of the Trust in the name of a nominee, in bearer form, or in book-entry form, without disclosure of the Trust's interest therein, provided that the Trustee shall be responsible for the acts of any such nominee.
Section 7.2 — Substitution Power (Substitute Asset Authority)
The Grantor, in a non-fiduciary capacity and without the approval or consent of any person acting in a fiduciary capacity (including, without limitation, the Trustee if other than the Grantor, the Remainder Beneficiary, and any beneficiary of the Dynasty Trust), shall have the power to reacquire any property held in the Trust Estate by substituting other property of equivalent Fair Market Value, as determined on the date of substitution. This substitution power shall be exercisable by the Grantor at any time during the Annuity Term, with respect to all or any portion of the Trust Estate, upon written notice to the Trustee (if the Trustee is other than the Grantor) specifying the property to be reacquired and the substitute property to be delivered to the Trust.
This substitution power is granted to ensure, and shall be construed and applied in a manner consistent with the purpose of ensuring, that the Trust is treated as a grantor trust with respect to the Grantor under Section 675(4)(C) of the Code, which provides that a trust shall be treated as a grantor trust if any person, in a non-fiduciary capacity, has the power to reacquire Trust corpus by substituting other property of equivalent value.
The Trustee (if other than the Grantor) shall have the fiduciary obligation to ensure, and shall not permit or acquiesce in any substitution unless the Trustee is satisfied, that the substitute property tendered by the Grantor has a Fair Market Value equivalent to the Fair Market Value of the Trust property being reacquired, determined as of the date of the substitution. The Trustee may require an independent appraisal or valuation of the substitute property or the reacquired property, at the expense of the Trust Estate, before consenting to any substitution.
The exercise of the substitution power shall not be treated as a taxable exchange for federal income tax purposes, shall not constitute a gift by the Grantor to the Trust or by the Trust to the Grantor, and shall not be treated as a change in the character, form, or amount of the annuity payments payable to the Grantor under Article III. Upon any exercise of the substitution power, the substitute property delivered to the Trust shall become part of the Trust Estate and shall be held, administered, and distributed by the Trustee in accordance with all terms and conditions of this Agreement.
Section 7.3 — Power to Borrow
The Trustee shall have the power to borrow funds from the Trust Estate, with or without adequate interest and with or without adequate security, provided that (a) such borrowing is consistent with the grantor trust provisions of Section 675(3) of the Code, (b) the exercise of such borrowing power does not jeopardize the Trustee's ability to make the annuity payments required under Article III, and (c) any amounts so borrowed are repaid to the Trust Estate on commercially reasonable terms. Nothing in this Section 7.3 shall be construed to permit any borrowing that would impair the Trust's qualification as a grantor retained annuity trust under Section 2702 of the Code or that would result in a distribution to any person other than the Grantor during the Annuity Term.
Section 7.4 — Limitation on Trustee's Powers
Notwithstanding any other provision of this Agreement or any provision of applicable law, the Trustee shall not have or exercise any power, and no power shall be conferred upon the Trustee by this Agreement or by applicable law, that would cause the Trust to fail to qualify as a grantor retained annuity trust under Section 2702 of the Code and Treasury Regulation Section 25.2702-3, or that would cause the Grantor's retained interest to fail to qualify as a "qualified annuity interest" within the meaning of Treasury Regulation Section 25.2702-3(b).
Without limiting the generality of the foregoing, the Trustee shall not make any distribution from the Trust during the Annuity Term other than the annuity payments to the Grantor as described in Article III of this Agreement. The Trustee shall not issue a note, other debt instrument, option, or similar financial arrangement in satisfaction of the annuity obligation, in compliance with Treasury Regulation Section 25.2702-3(d)(6). The Trustee shall not commute, prepay, or accelerate the annuity interest, in compliance with Treasury Regulation Section 25.2702-3(d)(4).
Section 7.5 — No Power in Any Person to Add Beneficiaries
No person, including the Grantor, the Trustee, the Remainder Beneficiary, or any beneficiary of the Dynasty Trust, shall have the power to add beneficiaries to the Trust, to change the designation of the Remainder Beneficiary, or to alter the disposition of the Trust Estate as set forth in this Agreement. The sole Remainder Beneficiary of the Trust is the Caldwell Family Dynasty Trust, and such designation may not be changed, amended, or modified under any circumstances.
ARTICLE VIII — TRUSTEE PROVISIONS
Section 8.1 — Initial Trustee
Jonathan Robert Caldwell shall serve as Trustee of the Trust during the Annuity Term. The Grantor shall serve as Trustee in his individual capacity and hereby acknowledges the fiduciary obligations, responsibilities, and duties attendant to such position under this Agreement and applicable law, including, without limitation, the duties of loyalty, prudence, and impartiality imposed by the laws of the State of New York. The Grantor further acknowledges that, while serving as both Grantor and Trustee, the Grantor is bound by the terms of this Agreement and may not exercise any power or take any action that is inconsistent with the fiduciary obligations of the Trustee position or that would jeopardize the Trust's qualification as a grantor retained annuity trust under Section 2702 of the Code.
Section 8.2 — Successor Trustee
If the Grantor is unable or unwilling to serve as Trustee at any time during the Annuity Term, or upon the Grantor's death, incapacity, resignation, or removal as Trustee during the Annuity Term, the following persons and entities shall serve as successor Trustee, in the order listed:
(a) First Successor Trustee. Eleanor V. Caldwell, residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021, shall serve as successor Trustee. For purposes of this Agreement, "incapacity" of the Grantor shall be determined by two licensed physicians who certify in writing that the Grantor is unable to manage his financial affairs by reason of physical or mental disability.
(b) Second Successor Trustee. If Eleanor V. Caldwell is unable or unwilling to serve as successor Trustee, Thomas R. Caldwell, residing at 55 Perry Street, Unit 3, New York, New York 10014, shall serve as successor Trustee.
(c) Third Successor Trustee. If Thomas R. Caldwell is unable or unwilling to serve as successor Trustee, Northgate Trust Company of Delaware, a Delaware trust company having its principal office at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801, shall serve as successor Trustee.
Any successor Trustee appointed under this Section 8.2 shall have all of the rights, powers, duties, and obligations conferred upon the Trustee by this Agreement, subject to the limitations set forth herein. A successor Trustee shall accept appointment by executing a written instrument of acceptance delivered to the Grantor (or the Grantor's estate) and to the Remainder Beneficiary. No successor Trustee shall be liable for the acts or omissions of any predecessor Trustee.
Section 8.3 — Trustee Compensation
The Grantor, while serving as Trustee, shall receive no compensation for his services as Trustee. Any successor individual Trustee may, but shall not be required to, receive reasonable compensation for services rendered as Trustee, in an amount not exceeding the compensation customarily charged by professional fiduciaries in the relevant jurisdiction. Any successor corporate Trustee, including Northgate Trust Company of Delaware, shall be entitled to receive reasonable compensation for its services as Trustee in accordance with its published fee schedule in effect from time to time, together with reimbursement of all reasonable out-of-pocket expenses incurred in connection with the administration of the Trust.
Section 8.4 — Trustee Liability and Indemnification
No Trustee shall be liable for any loss, depreciation, or diminution in value of the Trust Estate, or for any act or omission in connection with the administration of the Trust, except for losses directly and proximately caused by the Trustee's willful misconduct, gross negligence, or bad faith. Without limiting the foregoing, no Trustee shall be liable for any decline in the market value of any investment held in the Trust Estate, for any loss resulting from the act, default, or negligence of any agent, custodian, broker, or advisor employed by the Trustee in good faith, or for any loss resulting from the exercise or non-exercise of any discretionary power conferred upon the Trustee by this Agreement.
The Trust Estate shall indemnify and hold harmless the Trustee (and any former Trustee) against any and all claims, liabilities, costs, and expenses (including reasonable attorneys' fees and expenses) arising from or related to the Trustee's good-faith administration of the Trust, to the extent such claims, liabilities, costs, and expenses are not attributable to the Trustee's willful misconduct, gross negligence, or bad faith. This indemnification shall survive the termination of the Trust and the resignation or removal of the Trustee.
Section 8.5 — Bond
No Trustee serving under this Agreement, whether the initial Trustee or any successor Trustee, shall be required to furnish any bond, surety, or other security in any jurisdiction for the faithful performance of the Trustee's duties, and any requirement of bond imposed by applicable law is hereby waived to the fullest extent permitted by law.
ARTICLE IX — ADMINISTRATIVE PROVISIONS
Section 9.1 — Accounting
The Trustee shall maintain accurate, complete, and current records of all receipts, disbursements, investments, distributions, and other transactions of the Trust, in accordance with generally accepted accounting principles applied on a consistent basis. The Trustee shall provide an annual accounting to the Grantor (or, if the Grantor is deceased, to the duly appointed executor or administrator of the Grantor's estate) within ninety (90) days after the end of each taxable year of the Trust. Such annual accounting shall include, at a minimum, a summary of all Trust income received, gains and losses realized, expenses paid, annuity payments made, and the Fair Market Value of the Trust Estate as of the end of the relevant period.
In addition, the Trustee shall provide a final accounting upon the termination of the Trust, setting forth all assets held in the Trust Estate as of the date of termination, all distributions made in connection with the termination (including the final annuity payment and the distribution of the Remainder to the Dynasty Trust), and all expenses incurred in connection with the termination.
Section 9.2 — Expenses
All reasonable expenses of administering the Trust, including, without limitation, legal fees, accounting fees, tax preparation fees, custodial fees, brokerage commissions, investment advisory fees (including fees payable to Havensbrook Wealth Advisors LLC or its successors), transfer agent fees, and any other costs and charges properly attributable to the administration of the Trust, shall be paid from the Trust Estate. The payment of such expenses shall not reduce or otherwise affect the Annuity Amount payable to the Grantor under Article III, and the Trustee shall ensure that sufficient assets are retained in the Trust Estate to satisfy both the expenses of administration and the annuity obligations.
Section 9.3 — Situs and Governing Law
The situs of the Trust shall be the State of New York, and the administration of the Trust shall be subject to the jurisdiction of the courts of the State of New York. This Agreement and the Trust created hereby shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict-of-laws principles thereof, except to the extent that federal law applies with respect to the federal tax treatment of the Trust. The Trustee may, with the consent of the Remainder Beneficiary, change the situs of the Trust to another jurisdiction if the Trustee determines, in the Trustee's sole discretion, that such change is in the best interests of the Trust and its beneficiaries, provided that any such change shall not adversely affect the Trust's qualification as a grantor retained annuity trust under Section 2702 of the Code.
Section 9.4 — Severability
If any provision of this Agreement is held to be invalid, illegal, or unenforceable by a court of competent jurisdiction or by any administrative agency having jurisdiction, such invalidity, illegality, or unenforceability shall not affect the validity, legality, or enforceability of any other provision of this Agreement, and the remaining provisions shall continue in full force and effect. In the event that any provision of this Agreement would cause the Trust to fail to qualify as a grantor retained annuity trust under Section 2702 of the Code or would cause the Grantor's retained interest to fail to qualify as a qualified annuity interest under Treasury Regulation Section 25.2702-3(b), such provision shall be automatically reformed, modified, or construed to the minimum extent necessary to achieve compliance with such provisions of the Code and Treasury Regulations, and the reformed provision shall be given effect as if it had been originally included in this Agreement.
Section 9.5 — Construction
This Agreement shall be construed and interpreted in all respects to comply with Section 2702 of the Code and Treasury Regulation Section 25.2702-3, and to ensure that the Grantor's retained interest qualifies as a "qualified annuity interest" as defined in Treasury Regulation Section 25.2702-3(b). In the event of any ambiguity, uncertainty, or conflict between or among the provisions of this Agreement, this Agreement shall be interpreted in a manner consistent with the intent to create a qualified annuity interest within the meaning of Treasury Regulation Section 25.2702-3(b) and to ensure that no taxable gift results from the creation and funding of the Trust (subject to the zeroed-out computation set forth in Section 2.3 and Exhibit A).
The captions, headings, and table of contents in this Agreement are for convenience of reference only and shall not be considered in construing the provisions of this Agreement. Words used in the singular shall include the plural, and vice versa, where the context so requires. References to "hereof," "herein," "hereunder," and similar terms shall refer to this Agreement as a whole and not to any particular provision hereof.
Section 9.6 — Irrevocability
This Trust is irrevocable and may not be amended, revoked, modified, or terminated by the Grantor or any other person, except as expressly provided herein or as may be required by applicable law to maintain the Trust's qualification as a grantor retained annuity trust under Section 2702 of the Code. The Grantor hereby expressly and irrevocably waives any and all rights to amend, revoke, or terminate the Trust, except to the extent that a judicial or administrative reformation is required to maintain GRAT qualification, as contemplated by Section 9.4 of this Agreement.
Section 9.7 — Coordination with Gift Tax Return
The Grantor intends to report the creation and funding of this Trust on a timely filed Federal Gift Tax Return (IRS Form 709) for the 2023 calendar year, reporting a taxable gift of zero dollars ($0.00) with respect to the remainder interest in the Trust. The preparation and filing of such return shall be coordinated with Strathmore Corporation & Greaves LLP (Martin J. Prescott, CPA, Senior Partner) and Calderwood & Harkness LLP (Sylvia Hartwell, Specialist Partner, Tax), the Grantor's tax return preparers and tax counsel, respectively. The Grantor shall provide to the Trustee and to such advisors all information and documentation reasonably necessary for the preparation and filing of such return, including the detailed schedule of Initial Trust Property set forth on Schedule A, the annuity calculation worksheet set forth on Exhibit A, and such other information as may be required.
Section 9.8 — No Assignment
The Grantor's right to receive annuity payments under this Agreement shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment, or charge, whether voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge such right shall be void and of no effect. No creditor of the Grantor shall have any right to reach, attach, or levy upon the Grantor's annuity interest in the Trust. This provision is intended to comply with the requirements of Treasury Regulation Section 25.2702-3(d)(2), which provides that the annuity interest must be non-assignable.
ARTICLE X — SPENDTHRIFT AND CREDITOR PROTECTION (REMAINDER INTEREST)
Section 10.1 — Spendthrift Provision
The remainder interest of the Caldwell Family Dynasty Trust in this Trust shall not be subject to the claims of creditors of the Remainder Beneficiary, the beneficiaries of the Dynasty Trust, or any other person, and shall not be subject to attachment, garnishment, execution, levy, or other legal or equitable process. No beneficiary of the Dynasty Trust shall have the power, whether voluntarily or involuntarily, to transfer, assign, encumber, pledge, hypothecate, or otherwise alienate the remainder interest, or any part thereof, and any attempt to do so shall be void and of no effect.
This spendthrift provision is intended to provide the maximum protection permitted by the laws of the State of New York and the State of Delaware (the situs of the Dynasty Trust) for the remainder interest and for the interests of the beneficiaries of the Dynasty Trust in the property that will be distributed to the Dynasty Trust upon the expiration of the Annuity Term.
ARTICLE XI — MISCELLANEOUS
Section 11.1 — Notices
All notices, requests, demands, consents, and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed duly given when (a) delivered personally, (b) sent by registered or certified mail, return receipt requested, postage prepaid, (c) sent by nationally recognized overnight courier service, or (d) sent by facsimile or electronic mail (with confirmation of receipt), addressed to the following persons at the following addresses:
Grantor / Trustee: Jonathan R. Caldwell 418 East 72nd Street, Apt. 14A New York, New York 10021
Remainder Beneficiary (Dynasty Trust): c/o Northgate Trust Company of Delaware 1201 North Market Street, Suite 1600 Wilmington, Delaware 19801
Attn: Philip A. Rossiter, SVP, Trust Administration
and
Thomas R. Caldwell 55 Perry Street, Unit 3 New York, New York 10014
With a copy to Grantor's counsel: Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, New York 10152
Attn: Victoria Chambers, Partner
and Monica Reyes, Associate
Any party may change its address for notices by giving written notice of such change to all other parties in the manner set forth above. Notices shall be effective upon receipt or, in the case of mailed notices, upon the earlier of receipt or five (5) business days after deposit in the United States mail.
Section 11.2 — Counterparts
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Execution and delivery of this Agreement by facsimile or by transmission of a portable document format (PDF) image of an executed signature page shall be deemed to be an original execution and delivery for all purposes.
Section 11.3 — Entire Agreement
This Agreement, together with Schedule A (Initial Trust Property) and Exhibit A (Annuity Calculation Worksheet) attached hereto and incorporated herein by reference, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, representations, warranties, and understandings of the parties, whether written or oral, with respect to such subject matter.
Section 11.4 — Headings
The article and section headings contained in this Agreement are for convenience of reference only and shall not affect the meaning, interpretation, or construction of any provision of this Agreement.
[SIGNATURE PAGE FOLLOWS]
SIGNATURE PAGE TO CALDWELL 2023 SECURITIES GRAT — TRUST AGREEMENT Dated as of April 15, 2023
IN WITNESS WHEREOF, the undersigned has executed this Grantor Retained Annuity Trust Agreement as of the date first written above, in his individual capacity as Grantor and in his capacity as Trustee of the Caldwell 2023 Securities GRAT.
GRANTOR AND TRUSTEE:
________________________________________
Jonathan Robert Caldwell Individually, as Grantor and in his capacity as Trustee of the Caldwell 2023 Securities GRAT
Date: April 15, 2023
Address:
418 East 72nd Street, Apt. 14A New York, New York 10021
WITNESS ATTESTATION
The undersigned, being duly sworn, do hereby attest that they witnessed the execution of this Agreement by Jonathan Robert Caldwell, as Grantor and Trustee, on the date set forth above, and that the Grantor appeared to be of sound mind and under no duress or undue influence at the time of execution.
Witness 1:
________________________________________
Monica Reyes Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, New York 10152