CALDWELL 2023 REALTY GRAT TRUST AGREEMENT
Grantor Retained Annuity Trust Agreement — Caldwell 2023 Realty GRAT
Dated as of May 1, 2023
CALDWELL 2023 REALTY GRAT TRUST AGREEMENT
THIS GRANTOR RETAINED ANNUITY TRUST AGREEMENT (this "Agreement") is made and entered into as of the 1st day of May, 2023, by and between:
JONATHAN ROBERT CALDWELL, an individual residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021 (Social Security Number ending in 4781) (hereinafter referred to as the "Grantor"); and
JONATHAN ROBERT CALDWELL, serving in his capacity as Trustee during the Annuity Term (as defined herein), residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021 (hereinafter referred to as the "Trustee").
The Grantor hereby establishes an irrevocable grantor retained annuity trust within the meaning of Section 2702 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder, upon the terms and conditions set forth in this Agreement.
Right-click to update Table of Contents
RECITALS
WHEREAS, the Grantor desires to establish an irrevocable trust to be known as the "Caldwell 2023 Realty GRAT" (also referred to herein as the "Trust") for the purposes set forth in this Agreement;
WHEREAS, the Grantor intends to retain a qualified annuity interest within the meaning of Treasury Regulation § 25.2702-3(b) for the Annuity Term, as defined herein, in order to avail himself of the valuation provisions of Section 2702 of the Internal Revenue Code of 1986, as amended;
WHEREAS, the Grantor intends the Trust to be structured as a "zeroed-out" grantor retained annuity trust such that the value of the remainder interest for federal gift tax purposes is as close to zero as possible, thereby minimizing or eliminating any taxable gift resulting from the creation of and funding of the Trust;
WHEREAS, the applicable rate under Section 7520 of the Internal Revenue Code for the month of funding (April 2023, being the month immediately preceding the date of execution and funding of this Trust) is 5.0%, and such rate has been used in computing the annuity amount necessary to zero out the taxable gift;
WHEREAS, the Trust is being funded with membership interests in Stonecrest Realty Holdings LLC, a New York limited liability company, as more particularly described in Schedule A attached hereto and made a part hereof;
WHEREAS, the Grantor intends the Trust to be treated as a grantor trust for federal income tax purposes under Sections 671 through 679 of the Internal Revenue Code during the Annuity Term, so that all items of income, deduction, and credit attributable to the Trust shall be reported on the Grantor's individual federal income tax return;
WHEREAS, the Caldwell Family Dynasty Trust, an irrevocable trust established by Jonathan R. Caldwell dated as of April 1, 2023, and sited in the State of Delaware, has been designated as the remainder beneficiary of this Trust, and shall receive the remaining balance of the Trust property upon the expiration of the Annuity Term, if the Grantor survives the Annuity Term; and
WHEREAS, the Grantor and the Trustee desire to set forth the terms and conditions governing the Trust as hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor and the Trustee agree as follows:
ARTICLE I — DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set forth below, unless the context otherwise requires:
Section 1.1 "Annuity Amount" shall mean Twenty-Nine Million Three Hundred Seventy-Five Thousand Eight Hundred Fifty-Nine Dollars ($29,375,859) per year, being the fixed annual annuity payment due to the Grantor during each year of the Annuity Term. The Annuity Amount has been calculated to zero out the taxable gift under Section 2702 of the Code using the Section 7520 Rate of 5.0% applicable for April 2023, applied to a three (3)-year Annuity Term and a corpus with a pre-discount fair market value of Eighty Million Dollars ($80,000,000). The computation of the Annuity Amount has been verified by Sylvia Hartwell, Specialist Partner (Tax), Calderwood & Harkness LLP, and is set forth in greater detail in Exhibit A attached hereto.
Section 1.2 "Annuity Term" shall mean the period commencing on the date of funding of this Trust (May 1, 2023) and ending on the earlier of (a) the third (3rd) anniversary of the date of funding (May 1, 2026) or (b) the death of the Grantor prior to such third anniversary date.
Section 1.3 "Caldwell Family Dynasty Trust" or "Dynasty Trust" shall mean the irrevocable trust established by Jonathan R. Caldwell on April 1, 2023, sited in the State of Delaware, with Northgate Trust Company of Delaware, a Delaware trust company with offices at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801, and Thomas R. Caldwell, an individual residing at 55 Perry Street, Unit 3, New York, New York 10014, serving as co-trustees thereof, pursuant to a trust agreement dated as of April 1, 2023, as such trust agreement may be amended from time to time in accordance with its terms.
Section 1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and references to any section of the Code shall include any successor provisions thereto and any applicable Treasury Regulations promulgated thereunder.
Section 1.5 "Fair Market Value" shall mean the fair market value of Trust property as determined for federal gift and estate tax purposes in accordance with the applicable provisions of the Code and Treasury Regulations, being the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts, as that standard is applied under Treasury Regulation § 20.2031-1(b) and Treasury Regulation § 25.2512-1.
Section 1.6 "Funded Property" shall mean the membership interests in Stonecrest Realty Holdings LLC contributed to the Trust by the Grantor on the date of funding, as more particularly described in Schedule A attached hereto. The Funded Property represents approximately 59.7% of the total outstanding membership interests in Stonecrest Realty Holdings LLC, which has a total entity fair market value of One Hundred Thirty-Four Million Dollars ($134,000,000). The pre-discount fair market value of the Funded Property is Eighty Million Dollars ($80,000,000). The Grantor holds one hundred percent (100%) of the membership interests in Stonecrest Realty Holdings LLC and is contributing approximately 59.7% of such interests to this Trust, retaining the remaining approximately 40.3% of such membership interests outside of this Trust.
Section 1.7 "Gift Tax Value" shall mean the fair market value of the Funded Property after application of the Valuation discount, equaling Sixty Million Dollars ($60,000,000), computed as follows: $80,000,000 multiplied by (1 minus 0.25), equaling $60,000,000. The Gift Tax Value is the value that would be reported on IRS Form 709 in connection with the funding of this Trust for the 2023 tax year.
Section 1.8 "Grantor" shall mean Jonathan Robert Caldwell, an individual residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021.
Section 1.9 "Payment Date" shall mean May 1 of each year during the Annuity Term, with the first Payment Date being May 1, 2024, the second Payment Date being May 1, 2025, and the third Payment Date being May 1, 2026. In the event of the Grantor's death during the Annuity Term, the Payment Date for the year of death shall be the date of death, and the Annuity Amount payable with respect to such year shall be prorated as provided in Section 3.2 of this Agreement.
Section 1.10 "Qualified Appraiser" shall mean Ashford Valuation Group LLC, with offices at 1120 Avenue of the Americas, Suite 3500, New York, New York 10036, Dr. Leonard K. Whitfield, ASA, Managing Partner, which firm has been retained to prepare an independent appraisal of the Funded Property as of the date of funding. Ashford Valuation Group LLC is qualified to appraise the type of property being contributed to this Trust and is not a disqualified person within the meaning of Treasury Regulation § 1.170A-13(c)(5).
Section 1.11 "Remainder" shall mean the entire remaining balance of the Trust property after the payment of the final annuity payment under Article III of this Agreement, to be distributed to the Remainder Beneficiary upon termination of the Annuity Term, as provided in Article IV of this Agreement.
Section 1.12 "Remainder Beneficiary" shall mean the Caldwell Family Dynasty Trust, as defined in Section 1.3 of this Agreement.
Section 1.13 "Section 7520 Rate" shall mean 5.0%, being the applicable rate under Section 7520 of the Code for April 2023, the month selected for purposes of computing the present value of the Grantor's retained annuity interest. The Grantor has elected to use the rate applicable for the month immediately preceding the month in which the transfer occurs, as permitted under Section 7520(a) of the Code.
Section 1.14 "Stonecrest" or "Stonecrest Realty Holdings LLC" shall mean Stonecrest Realty Holdings LLC, a limited liability company organized and existing under the laws of the State of New York, with its principal office at 330 Madison Avenue, Suite 2401, New York, New York 10017, through which the Grantor holds interests in commercial and residential real estate properties located in the States of New York, New Jersey, and Connecticut. Robert M. Sinclair serves as the Chief Operating Officer of Stonecrest Realty Holdings LLC.
Section 1.15 "Trustee" shall mean Jonathan Robert Caldwell, serving as Trustee during the Annuity Term. Upon the termination of the Annuity Term and the distribution of the Remainder to the Caldwell Family Dynasty Trust, the co-trustees of the Caldwell Family Dynasty Trust (Thomas R. Caldwell and Northgate Trust Company of Delaware) shall serve with respect to the Remainder in accordance with the terms of the Dynasty Trust.
Section 1.16 "Valuation discount" shall mean the twenty-five percent (25%) combined lack-of-marketability and lack-of-control discount applied to the pre-discount fair market value of the Funded Property for gift tax reporting purposes. The Valuation discount is supported by the independent appraisal prepared by Ashford Valuation Group LLC and reflects the fact that the Funded Property consists of a non-publicly traded membership interest in a limited liability company that is not freely transferable on an established securities market and that is subject to restrictions on transfer under the operating agreement of Stonecrest Realty Holdings LLC. The application of the Valuation discount results in the Gift Tax Value of Sixty Million Dollars ($60,000,000).
ARTICLE II — ESTABLISHMENT OF TRUST AND TRANSFER OF PROPERTY
Section 2.1 — Creation of Trust
The Grantor hereby establishes the Caldwell 2023 Realty GRAT as an irrevocable trust and transfers, assigns, conveys, and delivers to the Trustee the property described in Schedule A attached hereto (the "Funded Property"), to be held, administered, and distributed by the Trustee in accordance with the terms and conditions of this Agreement.
This Trust is irrevocable and may not be amended, modified, revoked, or terminated by the Grantor or any other person, except as expressly provided herein with respect to (a) the Grantor's substitution power under Section 5.4, (b) administrative modifications under Article VII that do not affect the Grantor's qualified annuity interest or the beneficial enjoyment of Trust property, and (c) reformation provisions under Section 7.4 necessary to preserve compliance with Section 2702 of the Code.
The effective date of this Trust is May 1, 2023. The Trust shall continue in existence until the Trust property has been fully distributed in accordance with the provisions of this Agreement.
Section 2.2 — Trust Property
The Funded Property consists of membership interests in Stonecrest Realty Holdings LLC representing approximately 59.7% of the total outstanding membership interests in Stonecrest. The pre-discount fair market value of the Funded Property is Eighty Million Dollars ($80,000,000), as determined by the Qualified Appraiser as of the date of funding.
For federal gift tax purposes, a twenty-five percent (25%) combined lack-of-marketability and lack-of-control discount is applied to the pre-discount fair market value of the Funded Property, resulting in a Gift Tax Value of Sixty Million Dollars ($60,000,000). The Grantor represents that such discount is supported by the independent appraisal of Ashford Valuation Group LLC, conducted in accordance with generally accepted appraisal standards and consistent with applicable Treasury Regulations and Tax Court precedent.
The Grantor represents that the appraisal of the Funded Property was performed by Ashford Valuation Group LLC, an independent qualified appraiser, as of the date of funding, and that the appraisal report was received by the Grantor on June 15, 2023.
Stonecrest Realty Holdings LLC holds interests in eleven (11) commercial and residential properties, as follows:
The Grantor retains approximately 40.3% of the membership interests in Stonecrest outside of this Trust. Such retained membership interests are not subject to this Agreement and remain the sole property of the Grantor.
Mortgages and other secured indebtedness encumbering the properties held by Stonecrest Realty Holdings LLC are held at the entity level and are non-recourse to the Grantor personally. The existence of such entity-level obligations does not affect the Grantor's ownership of, or ability to transfer, the membership interests contributed to this Trust.
Section 2.3 — No Additional Contributions
No additional property may be contributed to the Trust after the initial funding on May 1, 2023. The Grantor shall not, and no other person shall, transfer, assign, convey, or deliver any additional assets to the Trust at any time after the date of funding. Any purported additional contribution shall be void and of no effect.
Section 2.4 — Acceptance by Trustee
The Trustee hereby accepts the Funded Property and agrees to hold, administer, invest, reinvest, and distribute the Trust property in accordance with the terms and conditions of this Agreement. The Trustee acknowledges receipt of the Funded Property described in Schedule A and confirms that such property has been duly transferred to and is held in the name of the Trust. The Trustee further acknowledges that the Trustee has reviewed the terms of this Agreement and understands the obligations imposed upon the Trustee hereunder, including but not limited to the obligation to make the annuity payments required by Article III of this Agreement.
ARTICLE III — ANNUITY PAYMENTS TO GRANTOR
Section 3.1 — Annuity Amount
During the Annuity Term, the Trustee shall pay to the Grantor a fixed annuity in the amount of Twenty-Nine Million Three Hundred Seventy-Five Thousand Eight Hundred Fifty-Nine Dollars ($29,375,859) per year (the "Annuity Amount"). The Annuity Amount shall remain fixed at this level and shall not increase or decrease during the Annuity Term. The Annuity Amount shall be payable from income and, to the extent income is insufficient, from principal of the Trust, as more fully provided in Section 3.4 below.
The Annuity Amount was calculated to produce a remainder interest value of zero (or as close to zero as practicable), thereby constituting a "zeroed-out" grantor retained annuity trust, using the following assumptions and parameters:
(a) The Section 7520 Rate of 5.0%, being the applicable rate for April 2023;
(b) The Grantor's age at the time of funding: sixty-seven (67) years (date of birth: March 14, 1956);
(c) An Annuity Term of three (3) years;
(d) The pre-discount fair market value of the Funded Property: Eighty Million Dollars ($80,000,000); and
(e) The applicable IRS actuarial tables under Treasury Regulation § 25.2702-3 and Section 7520 of the Code.
The computation of the Annuity Amount has been verified by Sylvia Hartwell, Specialist Partner (Tax), Calderwood & Harkness LLP, and the detailed calculation is set forth in Exhibit A attached hereto.
Section 3.2 — Timing of Annuity Payments
The annuity payments shall be made on or before each Payment Date during the Annuity Term, as follows:
(a) First Payment: The Annuity Amount of $29,375,859 shall be paid on or before May 1, 2024;
(b) Second Payment: The Annuity Amount of $29,375,859 shall be paid on or before May 1, 2025; and
(c) Third Payment: The Annuity Amount of $29,375,859 shall be paid on or before May 1, 2026.
Each annuity payment covers the twelve (12)-month period ending on the applicable Payment Date. The first annuity payment covers the period from May 1, 2023 through April 30, 2024; the second annuity payment covers the period from May 1, 2024 through April 30, 2025; and the third annuity payment covers the period from May 1, 2025 through April 30, 2026.
If the Annuity Term ends before the third Payment Date by reason of the Grantor's death, the annuity for the year of death shall be prorated on a daily basis from the first day of such annuity year (i.e., the May 1 immediately preceding the date of death, or the date of funding if the Grantor dies before May 1, 2024) to and including the date of death. Such prorated annuity shall be payable to the Grantor's estate within a reasonable time following the Grantor's death, but in no event later than the date that is the last day of the taxable year in which the Grantor dies.
Section 3.3 — Form of Payment
The Trustee may satisfy the Annuity Amount in cash or in kind (by distribution of Trust property other than cash), or partly in cash and partly in kind, as the Trustee in the Trustee's sole discretion shall determine.
If any annuity payment is made in whole or in part through the distribution of property in kind, the fair market value of the property so distributed shall be determined as of the date of distribution, and such property shall be treated as satisfying the annuity obligation to the extent of its fair market value on such date.
Any in-kind distribution of Trust property in satisfaction of the annuity obligation shall be valued using the same methodology as was used for the initial funding of the Trust. If the property distributed in kind consists of membership interests in Stonecrest Realty Holdings LLC or any successor entity, such interests shall be valued by a qualified appraiser (which may, but need not, be the Qualified Appraiser) in accordance with the standards set forth in Treasury Regulation § 25.2512-1, and the Trustee shall obtain a written valuation report supporting the fair market value assigned to such distributed interests.
The Trustee shall not issue a note, other debt instrument, option, or other similar financial arrangement in satisfaction of the annuity obligation. No promissory note or other obligation of the Trust or the Trustee shall constitute payment of the Annuity Amount or any portion thereof. This restriction is imposed in compliance with Treasury Regulation § 25.2702-3(b)(1)(i), which provides that a promissory note or similar financial arrangement may not be used to satisfy the annuity obligation.
Section 3.4 — Excess Income and Corpus Invasion
If the income of the Trust for any year during the Annuity Term exceeds the Annuity Amount for such year, the excess income shall be added to and become part of the principal of the Trust. The Trustee shall have no obligation to distribute income in excess of the Annuity Amount to any person during the Annuity Term.
If the income of the Trust for any year during the Annuity Term is insufficient to satisfy the Annuity Amount for such year, the Trustee shall distribute principal of the Trust to the extent necessary to make the required annuity payment in full. The Trustee shall not reduce or defer any annuity payment by reason of insufficient income.
The obligation to pay the Annuity Amount in each year of the Annuity Term constitutes a first and paramount charge against the Trust property. No distributions of any kind, whether of income or principal, other than the annuity payments required by this Article III, may be made from the Trust to any person during the Annuity Term, except as expressly provided in Section 4.2 of this Agreement in the event of the Grantor's death.
Section 3.5 — No Prepayment
The Trustee shall not prepay any Annuity Amount before the Payment Date on which such amount is due. Each annuity payment shall be made on or before the applicable Payment Date, but not prior to the commencement of the annuity year to which it relates. No Annuity Amount may be paid before the beginning of the twelve (12)-month period to which it relates.
The annuity payments may not be commuted. Neither the Grantor nor any other person shall have the right to accelerate, defer, or otherwise alter the timing or amount of the annuity payments required by this Article III, except to the extent provided in Section 3.2 in the event of the Grantor's death during the Annuity Term.
Section 3.6 — Compliance with Section 2702
The annuity interest retained by the Grantor under this Article III is intended to be a "qualified annuity interest" as defined in Treasury Regulation § 25.2702-3(b). The annuity is a fixed amount payable at least annually for a specified term of years (three years), and the Trust instrument meets all of the requirements of Treasury Regulation § 25.2702-3(d) regarding prohibited transactions and distributions.
All provisions of this Article III shall be construed and interpreted to comply with Section 2702 of the Code and the applicable Treasury Regulations promulgated thereunder, including without limitation Treasury Regulation §§ 25.2702-3(b), 25.2702-3(d), and 25.2702-3(e). In the event of any ambiguity in the provisions of this Article III, such provisions shall be interpreted in a manner that preserves the qualification of the Grantor's annuity interest as a "qualified annuity interest" under Treasury Regulation § 25.2702-3(b).
No distribution, payment, loan, advance, or allocation of any kind may be made from the Trust during the Annuity Term to any person other than the Grantor, except upon the Grantor's death as provided in Article IV of this Agreement. Without limiting the foregoing, during the Annuity Term, no amount may be paid to or for the benefit of any person other than the Grantor, and no amount may be accumulated for the benefit of any remainder beneficiary, except to the extent that income and principal not required for the annuity payment are retained in the Trust as part of the Trust corpus.
ARTICLE IV — DISPOSITION OF TRUST PROPERTY UPON TERMINATION
Section 4.1 — Termination of Annuity Term — Grantor Surviving
Upon the expiration of the Annuity Term on May 1, 2026, if the Grantor survives the entire Annuity Term, the Trustee shall, promptly after making the final annuity payment required by Section 3.2(c) of this Agreement, distribute the entire remaining balance of the Trust property (the "Remainder") to the Caldwell Family Dynasty Trust.
The distribution of the Remainder to the Caldwell Family Dynasty Trust shall be made as soon as reasonably practicable following the expiration of the Annuity Term and the payment of the final annuity installment, but in no event later than ninety (90) days after the final Payment Date, unless a longer period is required by reason of the nature of the Trust property or other administrative exigencies.
The Remainder shall be held, administered, invested, reinvested, and distributed by the co-trustees of the Caldwell Family Dynasty Trust (Thomas R. Caldwell and Northgate Trust Company of Delaware) in accordance with the terms and conditions of the Caldwell Family Dynasty Trust Agreement dated April 1, 2023, as such agreement may be amended from time to time in accordance with its terms.
No estate tax, gift tax, or generation-skipping transfer tax shall be due on the transfer of the Remainder to the Dynasty Trust upon the expiration of the Annuity Term, as the Remainder represents the excess appreciation above the Section 7520 hurdle rate that was not captured in the zeroed-out taxable gift. The Grantor's qualified annuity interest under this Trust was valued to equal the full value of the Funded Property for gift tax purposes, and accordingly, no taxable gift was made in connection with the creation and funding of this Trust. The appreciation in the Trust property during the Annuity Term (in excess of the amounts returned to the Grantor through annuity payments) passes to the Dynasty Trust free of transfer taxes.
Section 4.2 — Death of Grantor During Annuity Term
If the Grantor dies during the Annuity Term (i.e., before May 1, 2026), the following shall occur:
(a) Prorated Annuity Payment. The prorated annuity for the year of death shall be paid to the Grantor's estate. The prorated amount shall be calculated by multiplying the Annuity Amount ($29,375,859) by a fraction, the numerator of which is the number of days from the first day of the annuity year in which the Grantor's death occurs to and including the date of death, and the denominator of which is 365 (or 366 in a leap year).
(b) Estate Tax Inclusion. The entire Trust corpus remaining after payment of the prorated annuity described in subsection (a) above shall be includible in the Grantor's gross estate for federal estate tax purposes under Section 2036 of the Code (as a retained interest in property transferred during life) or Section 2039 of the Code (as an annuity or similar arrangement), or both, as applicable. The inclusion of the Trust corpus in the Grantor's gross estate is a consequence of the Grantor's death prior to the expiration of the Annuity Term and is consistent with the regulatory framework governing grantor retained annuity trusts.
(c) Distribution of Remaining Trust Property. The Trustee shall distribute the remaining Trust property (after payment of the prorated annuity to the Grantor's estate) to the Grantor's estate, or as otherwise directed under the Grantor's Last Will and Testament dated April 1, 2023 (the "Will"). The Grantor's Will is a pour-over will directing assets to the Caldwell Revocable Trust, which was originally dated October 3, 2010, as amended and restated effective April 1, 2023. The Trustee shall cooperate with the personal representative or executor of the Grantor's estate in effecting the distribution of the remaining Trust property.
(d) Termination of Trust. In the event of the Grantor's death during the Annuity Term, this Trust shall terminate upon the completion of the distributions described in subsections (a) and (c) above, and the Remainder shall not pass to the Caldwell Family Dynasty Trust. The Trust shall be wound up and terminated as promptly as practicable following the Grantor's death, subject to the completion of all required administrative actions, including the filing of final tax returns for the Trust.
Section 4.3 — No Commutation
The Trust may not be commuted, collapsed, or otherwise terminated prior to the expiration of the Annuity Term, except by reason of the Grantor's death as provided in Section 4.2 of this Agreement. Neither the Grantor, the Trustee, nor any beneficiary shall have the right to commute or prepay the remaining annuity payments and terminate the Trust before the end of the Annuity Term. This provision is imposed in compliance with Treasury Regulation § 25.2702-3(d)(4), which prohibits the commutation of a qualified annuity interest.
ARTICLE V — TRUSTEE PROVISIONS
Section 5.1 — Initial Trustee
Jonathan Robert Caldwell shall serve as Trustee of the Trust during the Annuity Term. The Grantor's service as Trustee is consistent with Treasury Regulation § 25.2702-3(b), which permits the grantor of a grantor retained annuity trust to serve as trustee thereof, provided that the trustee's powers and discretions do not impair the qualification of the grantor's retained interest as a "qualified annuity interest." The Grantor, in his capacity as Trustee, shall exercise all powers granted under this Agreement subject to the fiduciary duties imposed by applicable law and the specific restrictions and requirements set forth in this Agreement.
Section 5.2 — Successor Trustee
If the Grantor is unable or unwilling to serve as Trustee during the Annuity Term, whether by reason of incapacity, resignation, removal, or any other cause, Eleanor V. Caldwell, an individual residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021, shall serve as successor Trustee.
If Eleanor V. Caldwell is unable or unwilling to serve as successor Trustee, whether by reason of incapacity, resignation, removal, or any other cause, Thomas R. Caldwell, an individual residing at 55 Perry Street, Unit 3, New York, New York 10014, shall serve as successor Trustee.
Any successor Trustee shall have all of the rights, powers, duties, and obligations of the initial Trustee hereunder, and shall be bound by all of the terms and conditions of this Agreement as if originally named herein.
Upon the termination of the Annuity Term and the distribution of the Remainder to the Caldwell Family Dynasty Trust, the Trustee's responsibilities with respect to the Remainder and the administration of the Trust property shall pass to the co-trustees of the Caldwell Family Dynasty Trust, and such co-trustees shall administer the Remainder in accordance with the terms of the Dynasty Trust Agreement. The Trustee of this Trust shall have no further responsibilities with respect to the Remainder following such distribution.
Section 5.3 — Trustee Powers
The Trustee shall have all powers necessary or appropriate for the proper administration of the Trust, including but not limited to the following powers, which may be exercised without the need for court authorization or approval:
(a) Membership Interest Management. To hold, manage, and vote membership interests in Stonecrest Realty Holdings LLC and to exercise all rights and privileges appurtenant to such membership interests, including the right to vote on all matters presented to the members of Stonecrest, to approve or disapprove amendments to the Stonecrest operating agreement, and to participate in decisions regarding the governance and management of Stonecrest;
(b) Collection of Distributions. To collect and receive all distributions, dividends, allocations, and other payments from Stonecrest Realty Holdings LLC, including distributions of cash, property, or other assets, and to apply such distributions to the Trust in accordance with this Agreement;
(c) Operating Agreement Rights. To exercise all rights and powers of a member under the operating agreement of Stonecrest Realty Holdings LLC, including but not limited to the right to inspect books and records, receive financial statements and tax information, and consent to or approve actions requiring member approval;
(d) Property Management Decisions. To participate in decisions regarding the management, financing, refinancing, leasing, releasing, development, improvement, repair, maintenance, operation, and disposition of real estate properties held by Stonecrest Realty Holdings LLC, to the extent that such decisions are within the rights and authority of a member of Stonecrest;
(e) Retention Without Diversification. To retain the Funded Property without diversification for the duration of the Annuity Term or for such longer period as the Trustee in the Trustee's discretion deems appropriate. The Trustee shall have no duty to diversify the Trust's investments, and the concentration of the Trust's assets in membership interests in a single limited liability company shall not constitute a breach of the Trustee's fiduciary duty. The Grantor acknowledges that the Trust is funded entirely with membership interests in Stonecrest and that such concentration of assets is intentional and in accordance with the Grantor's wishes;
(f) Borrowing and Encumbrance. To borrow funds, encumber Trust property, or guarantee obligations solely for the purpose of making annuity payments required by Article III of this Agreement if Trust income and other liquid assets are insufficient to satisfy the Annuity Amount; provided, however, that the Trustee shall not borrow funds or encumber Trust property for any purpose unrelated to the satisfaction of the annuity obligation or the proper administration of the Trust;
(g) Retention of Professionals. To employ and retain agents, attorneys, accountants, investment advisors, appraisers, and other professionals as the Trustee deems necessary or appropriate for the administration of the Trust, and to pay reasonable compensation and expenses to such persons from the Trust estate;
(h) Tax Elections. To make any and all elections for federal, state, and local tax purposes as the Trustee deems advisable in connection with the Trust and the Trust property, including but not limited to elections under Sections 754, 1033, and 1038 of the Code, and to sign and file tax returns on behalf of the Trust;
(i) Claims. To settle, compromise, or abandon claims and demands in favor of or against the Trust, and to commence, prosecute, defend, or discontinue any litigation or other proceeding in connection with the Trust property or the administration of the Trust; and
(j) General Powers. To do and perform all other acts and things that the Trustee deems necessary or appropriate for the proper administration, management, and distribution of the Trust property, including the execution and delivery of any documents, instruments, or agreements as may be required or desirable in connection therewith.
Section 5.4 — Substitution Power
The Grantor hereby retains the power, exercisable in a non-fiduciary capacity without the approval or consent of any person in a fiduciary capacity, to reacquire any property held in the Trust by substituting other property of equivalent value, determined as of the date of substitution.
This power of substitution is specifically intended to ensure the continued treatment of the Trust as a grantor trust for federal income tax purposes under Section 675(4)(C) of the Code during the Annuity Term. The retention of this power by the Grantor causes the Grantor to be treated as the owner of the Trust for income tax purposes, thereby requiring all items of income, deduction, and credit of the Trust to be reported on the Grantor's individual income tax return.
Any substitution of Trust property pursuant to this Section 5.4 must satisfy the following requirements:
(a) The property substituted by the Grantor must have a fair market value that is equivalent to the fair market value of the Trust property being reacquired, both as determined at the time of the substitution;
(b) The substitution must not shift economic value to or from the Trust. The Trust must be in the same economic position immediately after the substitution as it was immediately before the substitution;
(c) The Grantor shall provide written notice to the Trustee (if someone other than the Grantor is then serving as Trustee) of the Grantor's intention to exercise the substitution power at least ten (10) days prior to the proposed substitution; and
(d) If someone other than the Grantor is serving as Trustee at the time of the proposed substitution, such Trustee has a fiduciary obligation to verify that the property being substituted by the Grantor is of equivalent fair market value to the Trust property being reacquired, and may require an independent appraisal to confirm such equivalency of value. The Trustee's failure to verify the equivalency of value shall constitute a breach of the Trustee's fiduciary duty.
Section 5.5 — Trustee Compensation
The Grantor, while serving as Trustee of this Trust, shall receive no compensation for Trustee services. The Grantor expressly waives any right to compensation for services rendered as Trustee during the Annuity Term.
Any successor Trustee serving during the Annuity Term may receive reasonable compensation for Trustee services, commensurate with the services rendered and consistent with the compensation customarily charged by corporate and individual fiduciaries in the New York metropolitan area for trusts of comparable size and complexity. Such compensation shall be charged against and paid from the Trust estate.
Section 5.6 — Trustee Liability and Indemnification
No Trustee serving hereunder shall be personally liable for any loss or depreciation in the value of the Trust property or for any action taken or omission made in good faith in the administration of the Trust, except for losses resulting from the Trustee's willful misconduct, gross negligence, or bad faith. The Trustee shall not be liable for the acts or omissions of any predecessor Trustee, agent, or professional employed by the Trust.
The Trust shall indemnify and hold harmless the Trustee and any successor Trustee from and against all claims, liabilities, damages, costs, and expenses (including reasonable attorneys' fees and expenses) arising out of or in connection with the administration of the Trust or the Trustee's performance of duties under this Agreement, except to the extent that such claims, liabilities, damages, costs, or expenses result from the Trustee's willful misconduct, gross negligence, or bad faith.
Section 5.7 — Accounting
The Trustee shall maintain accurate and complete books and records of all Trust transactions, including all receipts, disbursements, distributions, investments, and other financial activities of the Trust.
The Trustee shall provide an annual accounting to the Grantor (or to the Grantor's estate, if the Grantor is deceased) within ninety (90) days after the close of each Trust year. The Trust year shall be the twelve (12)-month period commencing on May 1 of each year and ending on April 30 of the following year, unless otherwise required by applicable law.
Each annual accounting shall include a statement of all Trust assets and their values at the beginning and end of the accounting period, a record of all receipts and disbursements during the accounting period, and a summary of all distributions made during the accounting period.
The Grantor (or the Grantor's legal representative) may waive the requirement of an annual accounting by written instrument delivered to the Trustee. Any such waiver may be revoked at any time by written notice to the Trustee.
ARTICLE VI — TAX PROVISIONS
Section 6.1 — Grantor Trust Status
The Trust is intended to be treated as a "grantor trust" with respect to the Grantor under Sections 671 through 679 of the Code during the Annuity Term. By reason of the Grantor's retained annuity interest under Article III and the substitution power retained under Section 5.4 of this Agreement, the Grantor shall be treated as the owner of all Trust property for federal income tax purposes (and for the purposes of any applicable state or local income tax) during the Annuity Term.
As a consequence of such grantor trust treatment, all items of income, deduction, and credit of the Trust shall be reported on the Grantor's individual federal income tax return (and applicable state and local income tax returns) during each taxable year (or portion thereof) in which the Trust is treated as a grantor trust. The Grantor acknowledges that he will be personally responsible for the payment of all income taxes attributable to Trust income during the period of grantor trust treatment, and that the payment of such taxes by the Grantor shall not constitute an additional gift to the Trust or to any beneficiary of the Trust.
The Grantor's Social Security Number (ending in 4781) shall be used as the taxpayer identification number of the Trust during the period of grantor trust treatment. The Trust shall not be required to obtain a separate employer identification number from the Internal Revenue Service during the period of grantor trust treatment, except as may be required by applicable Treasury Regulations or IRS guidance.
Upon the termination of the Annuity Term (or upon the Grantor's death, if earlier), the Trust's status as a grantor trust shall terminate, and the Trust (or the Remainder, if distributed to the Dynasty Trust) shall thereafter be treated as a separate taxable entity for federal income tax purposes, unless the terms of the Dynasty Trust or other applicable law provide otherwise.
Section 6.2 — Gift Tax Treatment
The transfer of the Funded Property to this Trust on the date of funding is intended to result in a taxable gift of zero (or as close to zero as possible) by reason of the Grantor's retained qualified annuity interest under Section 2702 of the Code. The value of the Grantor's retained annuity interest, computed in accordance with the actuarial tables and methodology prescribed under Section 7520 of the Code and Treasury Regulation § 25.2702-3, is equal to the full value of the Funded Property for gift tax purposes.
The Annuity Amount of $29,375,859 per year was computed using the following parameters:
(a) Pre-discount fair market value of the Funded Property: $80,000,000;
(b) Section 7520 Rate: 5.0% (April 2023);
(c) Annuity Term: three (3) years;
(d) Grantor's age at funding: sixty-seven (67) years (date of birth: March 14, 1956); and
(e) The applicable IRS actuarial tables and mortality factors under Treasury Regulation § 25.2702-3 and Section 7520 of the Code.
The Gift Tax Value of the Funded Property (after application of the 25% combined lack-of-marketability and lack-of-control Valuation discount) is $60,000,000. The annuity computations, however, are based on the pre-discount fair market value of the Funded Property ($80,000,000) as required under Section 2702 of the Code, which disregards entity-level discounts in computing the value of the retained interest.
The Grantor acknowledges that the zeroed-out structure of this Trust is predicated on the Section 7520 Rate in effect at the time of funding. If the actual investment return of the Trust property exceeds the Section 7520 Rate over the Annuity Term, the excess appreciation will pass to the Remainder Beneficiary free of gift and estate taxes. If the actual investment return is less than the Section 7520 Rate, the Trust corpus may be depleted by the annuity payments, and little or no Remainder may pass to the Dynasty Trust.
Section 6.3 — Estate Tax Inclusion
If the Grantor dies during the Annuity Term, the entire Trust property shall be includible in the Grantor's gross estate for federal estate tax purposes under Section 2036 of the Code (as property transferred by the Grantor with a retained interest) or Section 2039 of the Code (as an annuity payable to the Grantor), or under both provisions, as applicable. The Trustee and the personal representative of the Grantor's estate shall cooperate fully in connection with the valuation and reporting of the Trust property on the Grantor's federal estate tax return (IRS Form 706).
If the Grantor survives the entire Annuity Term, no portion of the Trust property remaining after the final annuity payment (i.e., the Remainder) shall be includible in the Grantor's gross estate for federal estate tax purposes by reason of the Grantor's retained annuity interest under this Trust. The Grantor acknowledges, however, that if the Grantor retains other powers or interests with respect to the Trust property or the Remainder (other than the qualified annuity interest under this Trust and the substitution power under Section 5.4, which shall have terminated upon the expiration of the Annuity Term), such retained powers or interests could cause inclusion of all or a portion of the Remainder in the Grantor's gross estate under other provisions of the Code.
Section 6.4 — Generation-Skipping Transfer Tax
The Grantor acknowledges that allocation of the Grantor's exemption from the generation-skipping transfer tax ("GST exemption") under Section 2631 of the Code to the Trust during the Annuity Term is subject to the Estate Tax Inclusion Period ("ETIP") rules under Section 2642(f) of the Code.
Under the ETIP rules, GST exemption cannot be effectively allocated to the Trust until the close of the ETIP, which is the date on which the Grantor's retained annuity interest terminates — that is, the expiration of the Annuity Term (May 1, 2026) or the Grantor's prior death, whichever occurs first. Any allocation of GST exemption to the Trust during the ETIP shall not become effective until the close of the ETIP.
Upon the termination of the Annuity Term and the transfer of the Remainder to the Caldwell Family Dynasty Trust, the Grantor (or the Grantor's executor, in the event of the Grantor's death) intends to allocate GST exemption to the Trust as appropriate, in coordination with GST allocations made to the Dynasty Trust. The Grantor's tax advisors at Calderwood & Harkness LLP and Strathmore Corporation & Greaves LLP shall be consulted regarding the optimal allocation of GST exemption at the close of the ETIP.
Section 6.5 — Gift Tax Return Reporting
The Grantor shall report the transfer of the Funded Property to this Trust on IRS Form 709 (United States Gift and Generation-Skipping Transfer Tax Return) for the 2023 tax year. The gift tax return shall be filed on or before the applicable due date (April 15, 2024, or such later date as may be obtained through a valid extension of time to file).
The gift tax return shall be prepared in coordination with the following professional advisors:
(a) Accountants: Strathmore Corporation & Greaves LLP, Attn: Martin J. Prescott, CPA, 600 Third Avenue, 28th Floor, New York, New York 10016; and
(b) Counsel: Calderwood & Harkness LLP, Attn: Sylvia Hartwell, Specialist Partner — Tax, 375 Park Avenue, 42nd Floor, New York, New York 10152.
The appraisal report prepared by Ashford Valuation Group LLC (received June 15, 2023) shall be attached to the gift tax return as support for the valuation and the Valuation discount applied to the Funded Property. The gift tax return shall include adequate disclosure of the valuation of the Funded Property in accordance with Treasury Regulation § 301.6501(c)-1(f) in order to commence the running of the statute of limitations on assessment of gift tax with respect to the transfer.
ARTICLE VII — ADMINISTRATIVE PROVISIONS
Section 7.1 — Irrevocability
The Trust is irrevocable. The Grantor may not alter, amend, revoke, modify, or terminate the Trust in whole or in part, except as expressly provided in this Agreement with respect to (a) the Grantor's substitution power under Section 5.4, which permits the Grantor to reacquire Trust property by substituting property of equivalent value, and (b) administrative modifications under this Article VII that do not affect the Grantor's qualified annuity interest, the amount or timing of the annuity payments, the identity of the Remainder Beneficiary, or the beneficial enjoyment of the Trust property.
The irrevocability of this Trust is a fundamental term of this Agreement, and no provision of this Agreement shall be construed to permit the Grantor or any other person to alter the dispositive provisions of this Trust or to divert any portion of the Trust property to a purpose other than the payment of the annuity to the Grantor during the Annuity Term and the distribution of the Remainder to the Remainder Beneficiary upon the termination of the Annuity Term.
Section 7.2 — Spendthrift Provisions
During the Annuity Term, the Grantor's annuity interest is a fixed payment obligation of the Trust, and such annuity interest may not be assigned, transferred, pledged, hypothecated, or otherwise alienated by the Grantor, whether voluntarily or involuntarily, and shall not be subject to the claims of any creditor of the Grantor or to legal process, to the maximum extent permitted by applicable law.
After the expiration of the Annuity Term, no beneficiary's interest in the Trust property (including the Remainder transferred to the Dynasty Trust) shall be subject to the claims of any creditor of such beneficiary, or to attachment, garnishment, levy, execution, bankruptcy proceedings, or other legal or equitable process, or be voluntarily or involuntarily alienated, anticipated, assigned, transferred, pledged, hypothecated, or otherwise encumbered. Any attempted alienation, assignment, transfer, pledge, hypothecation, or encumbrance of a beneficiary's interest in the Trust, whether voluntary or involuntary, shall be void and of no effect.
Section 7.3 — Situs and Governing Law
This Trust shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of laws principles. The situs of the Trust is the State of New York, and all questions regarding the validity, construction, administration, and effect of this Agreement and the Trust created hereunder shall be determined in accordance with the laws of the State of New York.
The courts of the State of New York, and the United States courts sitting in the State of New York, shall have exclusive jurisdiction over any dispute arising out of or in connection with this Agreement or the Trust created hereunder.
Section 7.4 — Severability
If any provision of this Agreement is held to be invalid, illegal, or unenforceable by any court of competent jurisdiction, the remaining provisions of this Agreement shall continue in full force and effect, and the invalid, illegal, or unenforceable provision shall be severed from this Agreement to the minimum extent necessary.
If any provision of this Agreement would, if enforced as written, disqualify the Grantor's annuity interest as a "qualified annuity interest" under Section 2702 of the Code and Treasury Regulation § 25.2702-3(b), such provision shall be automatically reformed, modified, or excised to the minimum extent necessary to preserve the qualification of the Grantor's annuity interest as a qualified annuity interest. Such reformation, modification, or excision shall be effective retroactively to the date of execution of this Agreement.
Section 7.5 — Construction to Comply with Section 2702
Notwithstanding any other provision of this Agreement, all provisions of this Agreement shall be interpreted and construed to satisfy the requirements of Section 2702 of the Code and Treasury Regulation § 25.2702-3(b), and all other applicable provisions of the Code and Treasury Regulations relating to grantor retained annuity trusts.
In the event of a conflict between any provision of this Agreement and the requirements of Section 2702 of the Code or the applicable Treasury Regulations, the requirements of Section 2702 and the applicable Treasury Regulations shall govern, and the conflicting provision of this Agreement shall be modified, reformed, or disregarded to the extent necessary to achieve compliance with Section 2702.
This overriding construction clause is intended to ensure that the Grantor's retained interest in this Trust is and remains a "qualified annuity interest" within the meaning of Treasury Regulation § 25.2702-3(b), and that no action taken by the Trustee, the Grantor, or any other person in connection with the administration of this Trust shall impair such qualification.
Section 7.6 — No Assignment of Annuity
The Grantor may not assign, pledge, hypothecate, encumber, or otherwise transfer the Grantor's annuity interest under this Trust to any person at any time during the Annuity Term. Any attempted assignment, pledge, hypothecation, encumbrance, or transfer of the Grantor's annuity interest, whether voluntary or involuntary, shall be void and of no force or effect. This restriction is imposed in compliance with the requirements for a "qualified annuity interest" under Treasury Regulation § 25.2702-3(b) and is fundamental to the structure and purpose of this Trust.
Section 7.7 — Notices
All notices, requests, demands, consents, approvals, and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally, or when sent by certified or registered mail, return receipt requested, postage prepaid, or by recognized overnight delivery service, to the following addresses (or such other addresses as may be designated by notice in accordance with this Section):
(a) Grantor and Trustee:
Jonathan R. Caldwell 418 East 72nd Street, Apt. 14A New York, New York 10021
(b) Counsel for Grantor:
Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, New York 10152
Attn: Victoria Chambers / Monica Reyes
(c) Remainder Beneficiary (Caldwell Family Dynasty Trust):
Co-Trustee: Thomas R. Caldwell 55 Perry Street, Unit 3 New York, New York 10014
Co-Trustee: Northgate Trust Company of Delaware 1201 North Market Street, Suite 1600 Wilmington, Delaware 19801
Attn: Philip A. Rossiter
Section 7.8 — 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. A signed counterpart delivered by facsimile transmission or by electronic transmission in portable document format (PDF) shall be deemed an original for all purposes.