CALDWELL 2023 CARRIED INTEREST GRANTOR RETAINED ANNUITY TRUST AGREEMENT
An Irrevocable Trust Agreement Under Section 2702 of the Internal Revenue Code of 1986, as Amended
Dated as of June 1, 2023
Right-click to update Table of Contents
RECITALS
This Caldwell 2023 Carried Interest Grantor Retained Annuity Trust Agreement (this "Agreement") is made and entered into as of June 1, 2023 (the "Funding Date"), 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; date of birth: March 14, 1956) (hereinafter referred to as the "Grantor"),
and
JONATHAN ROBERT CALDWELL, acting in his capacity as Trustee during the Annuity Term (as defined herein) (hereinafter referred to as the "Trustee").
WHEREAS, the Grantor desires to create an irrevocable trust constituting a "qualified interest" within the meaning of Section 2702(b) of the Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations promulgated thereunder, and more specifically a grantor retained annuity trust ("GRAT") in accordance with Treasury Regulation Section 25.2702-3(b);
WHEREAS, the Grantor intends that this Trust shall be a zeroed-out GRAT, such that the value of the Grantor's retained annuity interest, determined under Section 7520 of the Code using the applicable federal rate for May 2023 (the month of funding), shall equal the full fair market value of the property transferred to the Trust, resulting in a taxable gift to the remainder beneficiary of zero for federal gift tax purposes;
WHEREAS, the Section 7520 rate applicable to this Trust is 5.0%, which is the rate published by the Internal Revenue Service for the month of May 2023 and elected by the Grantor as the applicable valuation rate;
WHEREAS, the Grantor desires to transfer to the Trust certain limited partnership interests and a carried-interest position in private equity funds managed by Caldwell Ridgeline Capital LLC, as more fully described on Schedule A attached hereto, having an aggregate pre-discount fair market value of Thirty-Eight Million Dollars ($38,000,000) as of the Funding Date;
WHEREAS, the Grantor intends that, upon the expiration of the Annuity Term and provided the Grantor survives such term, the remaining Trust Estate shall pass to the Caldwell Family Dynasty Trust, a Delaware irrevocable trust established as of April 1, 2023, as the designated remainder beneficiary (the "Remainder Beneficiary");
WHEREAS, the Caldwell Family Dynasty Trust is administered by co-trustees Thomas R. Caldwell and Northgate Trust Company of Delaware, a Delaware-chartered trust company with its principal office at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801; and
WHEREAS, this Trust shall be governed by and construed in accordance with the laws of the State of New York.
NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor hereby declares and establishes this irrevocable trust upon the following terms and conditions:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
(a) "Annuity Amount" shall mean the sum of Thirteen Million Nine Hundred Fifty-Three Thousand Seven Hundred Fifty-Nine Dollars ($13,953,759) per year, payable to the Grantor for each year of the Annuity Term in accordance with the provisions of Article III of this Agreement.
(b) "Annuity Term" shall mean the period beginning on June 1, 2023 (the Funding Date) and ending on the earlier of (i) May 31, 2026 (being the date that is three (3) years from the Funding Date) or (ii) the date of the death of the Grantor, Jonathan Robert Caldwell, during such period.
(c) "Code" or "IRC" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor provisions thereto. References to specific sections of the Code shall be deemed to include references to any successor sections or provisions.
(d) "Dynasty Trust" shall mean the Caldwell Family Dynasty Trust, a Delaware irrevocable trust established as of April 1, 2023, with co-trustees Thomas R. Caldwell, an individual residing at 55 Perry Street, Unit 3, New York, New York 10014, and Northgate Trust Company of Delaware, a Delaware-chartered trust company with its principal office at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801 (Philip A. Rossiter, Senior Vice President, Trust Administration).
(e) "Funding Date" shall mean June 1, 2023, the date on which the Initial Trust Property is transferred to the Trust.
(f) "Grantor" shall mean Jonathan Robert Caldwell, an individual residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021.
(g) "Initial Trust Property" shall mean the assets described on Schedule A attached hereto and incorporated herein by reference, consisting of limited partnership interests and a carried-interest position in Caldwell Ridgeline Capital LLC funds, having an aggregate pre-discount fair market value of Thirty-Eight Million Dollars ($38,000,000) and an aggregate post-discount fair market value for federal gift tax purposes of Twenty-Five Million Three Hundred Thousand Dollars ($25,300,000) as of the Funding Date.
(h) "Qualified Interest" shall mean the Grantor's retained annuity interest as defined under IRC § 2702(b)(1) and Treasury Regulation Section 25.2702-3(b), consisting of the right to receive the fixed Annuity Amount for the duration of the Annuity Term.
(i) "Remainder Beneficiary" shall mean the Caldwell Family Dynasty Trust, as defined in Section 1.1(d) above, or, if the Dynasty Trust is not then in existence or is unable to receive distributions, such contingent remainder beneficiaries as are designated in Section 5.2 of this Agreement.
(j) "Section 7520 Rate" shall mean 5.0%, being the applicable federal rate under IRC § 7520 for the month of May 2023, as published by the Internal Revenue Service in Revenue Ruling 2023-09 (or such other applicable published guidance), which is the rate elected by the Grantor for purposes of valuing the retained annuity interest under this Agreement.
(k) "Trust" or "Trust Estate" shall mean all property held from time to time under this Agreement, including the Initial Trust Property and any additions thereto, all income earned thereon, all capital gains and appreciation realized with respect thereto, and any accumulations and undistributed income, less distributions and expenses paid from the Trust Estate.
(l) "Trustee" shall mean Jonathan Robert Caldwell during the Annuity Term, and any successor trustee appointed in accordance with the provisions of Article IX of this Agreement.
(m) "Valuation Date" shall mean June 1, 2023, the date of funding and the date as of which the fair market value of the Initial Trust Property has been determined for purposes of computing the Annuity Amount and the taxable gift, if any, resulting from the creation of this Trust.
Section 1.2 — Construction
The following rules of construction shall apply to this Agreement:
(a) References to "Articles" and "Sections" are to Articles and Sections of this Agreement, unless otherwise specified.
(b) Terms defined in the Code or the Treasury Regulations promulgated thereunder shall have the same meaning when used in this Agreement, unless a different meaning is expressly set forth herein or unless the context clearly requires otherwise.
(c) The singular shall include the plural and the plural shall include the singular, and the masculine, feminine, and neuter genders shall each include the others, in all cases where such meanings would be appropriate.
(d) The words "herein," "hereof," "hereunder," and similar terms shall refer to this Agreement as a whole and not to any particular Article, Section, or provision.
(e) The words "include," "including," and similar terms shall be construed as if followed by the phrase "without limitation."
(f) All references to dollar amounts shall refer to lawful currency of the United States of America.
ARTICLE II — CREATION AND FUNDING OF TRUST
Section 2.1 — Establishment of Trust
The Grantor hereby creates an irrevocable trust known as the "Caldwell 2023 Carried Interest GRAT" (also referred to herein as "GRAT C"). This Trust is irrevocable and may not be amended, revoked, or terminated by the Grantor or any other person, except as expressly provided in this Agreement. The Grantor expressly and irrevocably relinquishes all right, title, and interest in the Trust Estate, except for the Grantor's retained right to receive the Annuity Amount during the Annuity Term and the substitution power set forth in Section 7.2 of this Agreement.
The Grantor hereby transfers, assigns, conveys, and delivers to the Trustee the property described in Schedule A attached hereto (the "Initial Trust Property"), and the Trustee hereby accepts such transfer and agrees to hold, administer, and distribute the Trust Estate in accordance with the terms and conditions 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, with the Grantor retaining a Qualified Interest in the form of the annuity described in Article III.
Section 2.2 — Initial Trust Property (Schedule A)
The Trust is funded with limited partnership interests and a carried-interest position in private equity funds managed by Caldwell Ridgeline Capital LLC, a Delaware limited liability company with its principal office at 280 Park Avenue, 35th Floor, New York, New York 10017 (Gregory S. Fenton, Chief Financial Officer). The specific assets constituting the Initial Trust Property are as follows:
(a) Limited Partnership Interest in Caldwell Ridgeline Fund IV LP. A limited partnership interest in Caldwell Ridgeline Fund IV LP, a Delaware limited partnership (Fund vintage year: 2015). The pre-discount fair market value of this interest as of the Valuation Date is Twelve Million Dollars ($12,000,000). A combined valuation discount of thirty-five percent (35%) has been applied, reflecting a lack-of-marketability discount and a minority interest discount, yielding a post-discount fair market value for federal gift tax purposes of Seven Million Eight Hundred Thousand Dollars ($7,800,000).
(b) Limited Partnership Interest in Caldwell Ridgeline Fund V LP. A limited partnership interest in Caldwell Ridgeline Fund V LP, a Delaware limited partnership (Fund vintage year: 2018). The pre-discount fair market value of this interest as of the Valuation Date is Fourteen Million Dollars ($14,000,000). A combined valuation discount of thirty-five percent (35%) has been applied, reflecting a lack-of-marketability discount and a minority interest discount, yielding a post-discount fair market value for federal gift tax purposes of Nine Million One Hundred Thousand Dollars ($9,100,000).
(c) Carried Interest Position in Caldwell Ridgeline Fund VI LP. A carried interest position in Caldwell Ridgeline Fund VI LP, a Delaware limited partnership (Fund vintage year: 2021). The pre-discount fair market value of this interest as of the Valuation Date is Twelve Million Dollars ($12,000,000). A valuation discount of thirty percent (30%) has been applied, reflecting a lack-of-marketability discount applicable to carried interest positions in illiquid private equity fund structures, yielding a post-discount fair market value for federal gift tax purposes of Eight Million Four Hundred Thousand Dollars ($8,400,000).
The aggregate pre-discount fair market value of the Initial Trust Property is Thirty-Eight Million Dollars ($38,000,000). The aggregate post-discount fair market value of the Initial Trust Property for federal gift tax purposes, applying a blended discount methodology, is Twenty-Five Million Three Hundred Thousand Dollars ($25,300,000), computed as follows: ($12,000,000 + $14,000,000) × (1 − 0.35) + $12,000,000 × (1 − 0.30) = $16,900,000 + $8,400,000 = $25,300,000.
The valuations of the Initial Trust Property have been determined by independent qualified appraisals performed by Ashford Valuation Group LLC (Dr. Leonard K. Whitfield, ASA, Managing Partner; 1120 Avenue of the Americas, Suite 3500, New York, New York 10036). The appraisal reports are dated on or about June 15, 2023, and will be attached to the Grantor's federal gift tax return (Form 709) for the 2023 tax year.
The Grantor represents and warrants that he has good and marketable title to the Initial Trust Property, free and clear of all liens, encumbrances, pledges, security interests, and claims of any kind, subject to applicable transfer restrictions contained in the governing partnership agreements of Caldwell Ridgeline Fund IV LP, Caldwell Ridgeline Fund V LP, and Caldwell Ridgeline Fund VI LP. The Grantor further represents and warrants that all necessary consents to the transfer of the Initial Trust Property to this Trust have been obtained or are not required under the applicable partnership agreements.
Section 2.3 — Acceptance by Trustee
The Trustee hereby accepts the Trust created by this Agreement and acknowledges and accepts the fiduciary duties and responsibilities imposed upon the Trustee by this Agreement and by applicable law, including the laws of the State of New York governing the administration of trusts. The Trustee acknowledges receipt of the Initial Trust Property described on Schedule A and agrees to hold, administer, invest, and distribute the Trust Estate in accordance with the terms and conditions set forth herein.
Section 2.4 — No Additional Contributions
No additional property shall be contributed, transferred, assigned, or delivered to this Trust by the Grantor or by any other person after the Funding Date. This restriction on additional contributions is imposed in accordance with the requirements of Treasury Regulation Section 25.2702-3(b), which provides that a GRAT may not receive additional contributions after the initial funding. Any attempted additional contribution to this Trust shall be void and of no effect, and the Trustee shall promptly return any such property to the transferor.
ARTICLE III — ANNUITY PAYMENTS
Section 3.1 — Annuity Amount
During the Annuity Term, the Trustee shall pay to the Grantor a fixed annuity in the amount of Thirteen Million Nine Hundred Fifty-Three Thousand Seven Hundred Fifty-Nine Dollars ($13,953,759) per year (the "Annuity Amount"). The Annuity Amount is a fixed dollar amount and shall be payable for each year of the Annuity Term in accordance with the schedule set forth in Schedule B attached hereto.
The Annuity Amount has been calculated to produce a zeroed-out gift under IRC § 2702, such that the present value of the Grantor's retained annuity interest, determined using the Section 7520 Rate of 5.0% (the applicable federal rate for May 2023) and a three-year Annuity Term, equals the fair market value of the property transferred to the Trust as of the Funding Date. The calculation is based on the pre-discount aggregate fair market value of the Initial Trust Property of Thirty-Eight Million Dollars ($38,000,000). The resulting taxable gift value upon the creation of this Trust is intended to be zero.
The Grantor acknowledges that the determination of whether the Trust has been properly zeroed out depends upon the final determination of the fair market value of the Initial Trust Property for federal gift tax purposes, and that the adjustment provisions of Section 3.6 of this Agreement are intended to preserve the zeroed-out status of the Trust in the event that the fair market value of the Initial Trust Property is adjusted or redetermined.
Section 3.2 — Timing of Annuity Payments
The Annuity Amount shall be paid to the Grantor on or before the anniversary of the Funding Date in each year of the Annuity Term, as follows:
(a) First Annuity Payment. The first annuity payment of Thirteen Million Nine Hundred Fifty-Three Thousand Seven Hundred Fifty-Nine Dollars ($13,953,759) shall be due and payable on June 1, 2024, being the first anniversary of the Funding Date.
(b) Second Annuity Payment. The second annuity payment of Thirteen Million Nine Hundred Fifty-Three Thousand Seven Hundred Fifty-Nine Dollars ($13,953,759) shall be due and payable on June 1, 2025, being the second anniversary of the Funding Date.
(c) Third and Final Annuity Payment. The third and final annuity payment of Thirteen Million Nine Hundred Fifty-Three Thousand Seven Hundred Fifty-Nine Dollars ($13,953,759) shall be due and payable on June 1, 2026, being the third anniversary of the Funding Date and the last day of the Annuity Term.
Each annuity payment shall be made on or before the applicable anniversary date. If any anniversary date falls on a Saturday, Sunday, or legal holiday in the State of New York, the annuity payment shall be made on the next succeeding business day.
In the event that the Annuity Term ends on a date other than an anniversary of the Funding Date (for example, due to the death of the Grantor during the Annuity Term), the Annuity Amount for the short period ending on the date of the Grantor's death shall be prorated on a daily basis, determined by multiplying the annual Annuity Amount by a fraction, the numerator of which is the number of days from the last anniversary date (or, if the Grantor dies before the first anniversary, from the Funding Date) to and including the date of the Grantor's death, and the denominator of which is 365 (or 366, in the case of a leap year), in accordance with Treasury Regulation Section 25.2702-3(b)(3). Such prorated annuity amount shall be paid to the Grantor's estate.
Section 3.3 — Form of Annuity Payments
The Annuity Amount may be satisfied by payment in cash, by distribution of property in kind, or by a combination of cash and property in kind, at the Trustee's discretion. If the Annuity Amount is paid in whole or in part by distribution of property in kind, the fair market value of the property so distributed shall be determined as of the date of distribution, and the amount credited against the Annuity Amount shall equal such fair market value.
If any in-kind distribution consists of non-publicly-traded assets, including limited partnership interests, carried-interest positions, or other illiquid assets held by the Trust, the fair market value of such assets shall be determined by a qualified appraisal performed by Ashford Valuation Group LLC or another independent qualified appraiser, and the cost of such appraisal shall be borne by the Trust Estate or, at the Grantor's election, by the Grantor directly.
The Annuity Amount shall be payable solely from the Trust Estate. No person other than the Trustee, acting in its capacity as trustee of this Trust, shall have any obligation or liability to make annuity payments to the Grantor. The Grantor shall have no recourse against any person, entity, or property other than the Trust Estate for the payment of the Annuity Amount.
Section 3.4 — Annuity Amount Not Subject to Adjustment
The Annuity Amount is a fixed dollar amount and shall not be increased, decreased, or otherwise adjusted based on the income, appreciation, depreciation, performance, or value of the Trust Estate in any year of the Annuity Term, except as provided in Section 3.6 of this Agreement (relating to adjustments resulting from a final redetermination of the fair market value of the Initial Trust Property for federal gift tax purposes).
To the extent the net income of the Trust Estate (including capital gains) in any year of the Annuity Term is less than the Annuity Amount, the difference shall be paid from the principal of the Trust Estate. To the extent the net income of the Trust Estate in any year of the Annuity Term exceeds the Annuity Amount, the excess shall be accumulated and added to the principal of the Trust Estate. The Trustee shall have no obligation to distribute income in excess of the Annuity Amount to the Grantor or to any other person.
Section 3.5 — Payment Exclusively to Grantor
The Annuity Amount shall be payable solely and exclusively to the Grantor, Jonathan Robert Caldwell, and to no other person during the Annuity Term. No distribution of income or principal of the Trust Estate shall be made to any person other than the Grantor during the Annuity Term, whether by the Trustee or by any other person. This restriction is imposed in accordance with IRC § 2702(b)(1) and Treasury Regulation Section 25.2702-3(d)(2), which prohibit distributions from a GRAT to any person other than the holder of the retained annuity interest during the annuity term.
For the avoidance of doubt, during the Annuity Term, no person other than the Grantor shall have any right, interest, or expectancy in or to the income or principal of the Trust Estate, and no person shall have the power to direct, authorize, or approve any distribution from the Trust Estate to any person other than the Grantor.
Section 3.6 — Incorrect Valuations
If the fair market value of the Initial Trust Property as finally determined for federal gift tax purposes (whether by agreement between the Grantor and the Internal Revenue Service, by judicial determination, by settlement, or by any other final and binding determination) differs from the fair market value reported by the Grantor on his federal gift tax return (Form 709) for the 2023 tax year, the Annuity Amount shall be adjusted, both retroactively and prospectively, so that the present value of the Grantor's retained annuity interest, recomputed using the finally determined fair market value and the Section 7520 Rate of 5.0%, equals the finally determined fair market value of the Initial Trust Property. The purpose of this adjustment is to ensure that the taxable gift resulting from the creation of this Trust remains zero, regardless of any change in the valuation of the Initial Trust Property.
Any overpayments of the Annuity Amount resulting from an upward adjustment in the value of the Initial Trust Property (such that the original Annuity Amount was less than the adjusted Annuity Amount) shall be corrected by the payment of additional amounts to the Grantor within a reasonable period of time following the final determination of value. Any underpayments of the Annuity Amount resulting from a downward adjustment in the value of the Initial Trust Property (such that the original Annuity Amount exceeded the adjusted Annuity Amount) shall be corrected by the Grantor's return of the excess amounts to the Trust Estate within a reasonable period of time. All adjustments under this Section 3.6 shall be made in accordance with Treasury Regulation Section 25.2702-3(b)(2) and any other applicable guidance issued by the Internal Revenue Service.
ARTICLE IV — TERM OF TRUST
Section 4.1 — Annuity Term
The Annuity Term shall commence on June 1, 2023 (the Funding Date) and shall terminate on the earlier of:
(a) May 31, 2026 (being the third anniversary of the Funding Date, representing a three-year Annuity Term); or
(b) the death of the Grantor, Jonathan Robert Caldwell, during the Annuity Term.
Upon the termination of the Annuity Term, the Trust shall be administered and distributed in accordance with the provisions of Article V of this Agreement (Remainder Distribution) and Article IX (Successor Trustee; Trustee Upon Termination).
Section 4.2 — Effect of Grantor's Death During Annuity Term
If the Grantor dies during the Annuity Term, the Annuity Term shall terminate immediately upon the date of the Grantor's death, and the following provisions shall apply:
(a) Estate Tax Inclusion. The entire Trust Estate, as of the date of the Grantor's death, shall be includible in the Grantor's gross estate for federal estate tax purposes under IRC § 2036(a)(1), as the Grantor retained the right to receive annuity payments from the Trust Estate for a term that did not in fact expire before his death.
(b) Prorated Annuity Payment. The Trustee shall pay to the Grantor's estate the prorated Annuity Amount for the short period ending on the date of the Grantor's death, calculated in accordance with Section 3.2 of this Agreement and Treasury Regulation Section 25.2702-3(b)(3).
(c) Distribution of Remaining Trust Estate. After payment of the prorated Annuity Amount to the Grantor's estate, the balance of the Trust Estate shall be distributed in accordance with Article V of this Agreement (Remainder Distribution) to the Caldwell Family Dynasty Trust as the designated Remainder Beneficiary; provided, however, that if the entire Trust Estate is included in the Grantor's gross estate under IRC § 2036 and the executor of the Grantor's estate determines that any portion of the Trust Estate is required for the payment of estate taxes, debts, or other obligations of the Grantor's estate, then such portion may be distributed to the Grantor's estate in accordance with the terms of the Grantor's will or revocable trust (the Caldwell Revocable Trust, as amended and restated effective April 1, 2023), to the extent required by applicable law or the terms of this Agreement.
(d) Mortality Risk. The Grantor acknowledges that he is age sixty-seven (67) at the time of funding and will be age seventy (70) at the conclusion of the three-year Annuity Term. The Grantor understands and accepts the risk that, if he does not survive the Annuity Term, the entire Trust Estate will be included in his gross estate, and the estate planning benefits of this GRAT will be forfeited.
Section 4.3 — Prohibition on Commutation or Prepayment
The Grantor's annuity interest may not be commuted, prepaid, or otherwise accelerated during the Annuity Term, whether in whole or in part. The Trustee shall not have the power to prepay, commute, or accelerate the Annuity Amount or any portion thereof. No person shall have the power to convert the Grantor's annuity interest into a lump-sum payment, a series of accelerated payments, or any other form of payment that differs from the fixed Annuity Amount payable on the dates specified in Section 3.2 of this Agreement and Schedule B attached hereto.
This prohibition on commutation and prepayment is imposed in accordance with Treasury Regulation Section 25.2702-3(d)(5), which provides that a qualified annuity interest requires that the governing instrument prohibit the commutation (prepayment) of the interest of the term holder.
ARTICLE V — REMAINDER DISTRIBUTION
Section 5.1 — Distribution of Remainder
Upon the expiration of the Annuity Term, and provided that the Grantor has survived the entire Annuity Term, the Trustee shall, as soon as administratively practicable following the payment of the final annuity installment on June 1, 2026, distribute the entire remaining Trust Estate (after satisfaction of the final annuity payment and payment of all outstanding expenses of Trust administration) to the Caldwell Family Dynasty Trust, as the designated Remainder Beneficiary.
The Caldwell Family Dynasty Trust is a Delaware irrevocable trust established as of April 1, 2023, with the following co-trustees:
(a) Thomas R. Caldwell, an individual residing at 55 Perry Street, Unit 3, New York, New York 10014; and
(b) Northgate Trust Company of Delaware, a Delaware-chartered trust company, with its principal office at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801 (Philip A. Rossiter, Senior Vice President, Trust Administration).
The remainder interest transferred to the Dynasty Trust upon the termination of this Trust represents the excess appreciation of the Trust Estate above the 5.0% Section 7520 hurdle rate that was used to value the Grantor's retained annuity interest. To the extent that the Trust Estate has appreciated in value at a rate exceeding 5.0% per annum during the Annuity Term, such excess appreciation will pass to the Dynasty Trust free of federal gift tax and free of federal estate tax, thereby achieving the intended estate planning objective of this GRAT.
Section 5.2 — Contingent Remainder Beneficiaries
In the event that the Caldwell Family Dynasty Trust is not then in existence, has been terminated, dissolved, or is otherwise unable to receive distributions for any reason at the time of the remainder distribution, the Trustee shall distribute the remaining Trust Estate in equal shares to the Grantor's then-living children, as follows:
(a) Thomas R. Caldwell, residing at 55 Perry Street, Unit 3, New York, New York 10014;
(b) Katherine C. Hartfield, residing at 210 Briarcliff Lane, Greenwich, Connecticut 06830; and
(c) Olivia G. Caldwell, residing at 1240 North Dearborn Street, Apt. 807, Chicago, Illinois 60610.
If any child of the Grantor is not then living at the time of the remainder distribution, such deceased child's share shall be distributed to such child's then-living issue, per stirpes. If no issue of a deceased child is then living, such child's share shall be divided equally among the Grantor's other then-living children (or their issue, per stirpes).
If no issue of the Grantor is then living at the time of the remainder distribution, the entire remaining Trust Estate shall be distributed to The Caldwell Family Foundation, a New York not-for-profit corporation (Employer Identification Number: 88-3021547), with its principal office at 330 Madison Avenue, Suite 2401, New York, New York 10017.
Section 5.3 — Manner of Distribution
Distributions of the remainder interest under this Article V may be made in cash, in kind (by distribution of Trust assets in their then-existing form), or partly in cash and partly in kind, at the Trustee's discretion. If any distribution is made in kind, the assets so distributed shall be valued at their fair market value as of the date of distribution, determined by qualified appraisal if the assets consist of non-publicly-traded interests or illiquid assets. The Trustee shall allocate the assets distributed in kind on a pro rata basis or in such other equitable manner as the Trustee deems appropriate, taking into account the nature and character of the assets and the interests of the Remainder Beneficiary.
ARTICLE VI — GRANTOR TRUST STATUS
Section 6.1 — Grantor Trust
This Trust is intended to be treated as a grantor trust with respect to the Grantor under IRC §§ 671 through 679 during the entire Annuity Term and for so long as the Trust remains in existence, to the extent provided by law. The Grantor shall be treated as the owner of the entire Trust Estate for federal (and, to the extent applicable, state and local) income tax purposes. Accordingly, all items of income, gain, loss, deduction, and credit of the Trust shall be reported on the Grantor's personal income tax returns, and the Trust shall not file a separate income tax return as a taxable entity during the period in which it is treated as a grantor trust.
The Grantor's payment of income taxes attributable to Trust income shall not be treated as an additional gift to the Trust or to the Remainder Beneficiary. The Grantor's payment of such taxes is an economic benefit to the Trust, as it permits the Trust Estate to grow without reduction for income tax liabilities, and such benefit is a consequence of the grantor trust rules and not an independent transfer subject to federal gift tax.
Section 6.2 — Grantor Trust Powers
To ensure that the Trust is treated as a grantor trust with respect to the Grantor under the provisions of IRC §§ 671 through 679 during the Annuity Term and thereafter, the Grantor retains the following power, which shall be exercisable in a non-fiduciary capacity and without the approval or consent of any other person:
(a) Substitution Power. The power to reacquire any asset of the Trust Estate by substituting other property of equivalent fair market value, pursuant to IRC § 675(4)(C). This power is more fully described in Section 7.2 of this Agreement. The Trustee shall have a fiduciary duty to confirm the equivalence of value of any substituted property before completing any substitution transaction.
No other power retained by the Grantor under this Agreement or under applicable law is intended to cause any portion of the Trust Estate to be included in the Grantor's gross estate for federal estate tax purposes, except as provided by IRC § 2036(a)(1) during the Annuity Term (by reason of the Grantor's retained right to receive the Annuity Amount).
Section 6.3 — Tax Identification
During such time as the Trust is treated as a grantor trust with respect to the Grantor under IRC §§ 671 through 679, the Trust shall use the Grantor's Social Security number (XXX-XX-4781) as its taxpayer identification number for all federal, state, and local tax reporting purposes. Upon the termination of grantor trust status (if applicable), the Trustee shall obtain a separate employer identification number for the Trust from the Internal Revenue Service.
ARTICLE VII — POWERS AND DUTIES OF TRUSTEE
Section 7.1 — General Powers
The Trustee shall have all powers granted to trustees under applicable New York law, including the New York Estates, Powers and Trusts Law, and in addition thereto, the Trustee shall have the following specific powers, to be exercised in the Trustee's discretion and in a fiduciary capacity, subject to the limitations set forth in Section 7.4 of this Agreement:
(a) To hold, manage, invest, and reinvest the Trust Estate in such manner and in such property (real, personal, or mixed; tangible or intangible) as the Trustee deems appropriate, without regard to any limitation imposed by law on the investment of trust funds;
(b) To collect income, distributions, and other payments from limited partnership interests, carried-interest positions, and other assets held by the Trust, including capital distributions, operating distributions, proceeds of disposition, and carried interest allocations received from Caldwell Ridgeline Fund IV LP, Caldwell Ridgeline Fund V LP, and Caldwell Ridgeline Fund VI LP;
(c) To vote and exercise all rights, privileges, and options pertaining to limited partnership interests and carried-interest positions held by the Trust, including consent rights, election rights, and approval rights under the partnership agreements governing Caldwell Ridgeline Fund IV LP, Fund V LP, and Fund VI LP;
(d) To execute and deliver all instruments, documents, agreements, consents, waivers, amendments, and other writings necessary or appropriate to exercise the rights of the Trust under the governing agreements of Caldwell Ridgeline Fund IV LP, Fund V LP, and Fund VI LP, or otherwise to administer the Trust Estate;
(e) To pay all reasonable and necessary expenses of Trust administration, including appraisal fees, legal fees, accounting fees, trustee compensation (if applicable to a successor trustee), and any management fees, carried interest charges, or other fees payable to Caldwell Ridgeline Capital LLC or its affiliates in connection with the limited partnership interests and carried-interest positions held by the Trust;
(f) To employ, retain, and compensate agents, accountants, attorneys, investment advisors, appraisers, and other professionals as the Trustee deems appropriate, including Strathmore Corporation & Greaves LLP (Martin J. Prescott, CPA, Senior Partner, Private Client Group; 600 Third Avenue, 28th Floor, New York, New York 10016) and Calderwood & Harkness LLP (375 Park Avenue, 42nd Floor, New York, New York 10152), and to delegate ministerial, administrative, and investment functions to such persons to the extent permitted by law;
(g) To make all tax elections available to the Trust or the Trustee under federal, state, or local law, including elections relating to the treatment of partnership items, the allocation of income and deductions among the Trust's beneficiaries, and the valuation of assets;
(h) To compromise, settle, or abandon claims for or against the Trust Estate, and to submit any controversy to arbitration or mediation;
(i) To borrow money for Trust purposes, to mortgage or pledge Trust assets as security (subject to the limitations of Section 7.4), and to execute notes, bonds, and other evidence of indebtedness;
(j) To open and maintain bank accounts, brokerage accounts, and custody accounts in the name of the Trust; and
(k) To do all other acts and things that the Trustee deems necessary, appropriate, or advisable for the proper administration of the Trust Estate, including acts that a prudent person dealing with the property of another would perform.
Section 7.2 — Substitution Power
The Grantor retains the power, exercisable in a non-fiduciary capacity and without the approval or consent of any other person, to reacquire any asset of the Trust Estate by substituting other property of equivalent fair market value, determined as of the date of substitution. This power is retained pursuant to IRC § 675(4)(C) to ensure the continued treatment of the Trust as a grantor trust with respect to the Grantor.
The Trustee shall have a fiduciary duty to verify that the fair market value of the property proposed to be substituted by the Grantor is substantially equivalent to the fair market value of the Trust asset to be reacquired. In connection with any proposed substitution involving non-publicly-traded assets, the Trustee may engage Ashford Valuation Group LLC or another independent qualified appraiser to determine the fair market value of the assets involved, and the cost of such appraisal shall be borne by the Grantor. The Trustee shall not complete any substitution transaction unless and until the Trustee is satisfied that the values are substantially equivalent.
The substitution power shall not be exercised in a manner that shifts beneficial enjoyment of Trust assets, alters the character of the Annuity Amount or the Annuity Term, or otherwise violates the requirements of IRC § 2702 or the Treasury Regulations thereunder. The substitution power is intended to be a bona fide economic power that does not constitute a testamentary disposition and does not cause the Trust Estate to be included in the Grantor's gross estate (except as otherwise required by IRC § 2036 during the Annuity Term).
Section 7.3 — Investment Standard
The Trustee shall invest and manage the Trust Estate as a prudent investor would, in accordance with the Prudent Investor Act of the State of New York (N.Y. EPTL § 11-2.3), taking into consideration the following factors: the limited duration of the Trust (a three-year Annuity Term); the nature of the Trust assets (illiquid limited partnership interests and carried-interest positions in private equity funds); the annuity payment obligations of the Trust; and the need to preserve sufficient Trust assets to satisfy the remaining annuity payments while maximizing the potential for appreciation in excess of the Section 7520 Rate hurdle.
Notwithstanding the foregoing, the Trustee is expressly authorized to retain the Initial Trust Property in its current form and is not required to diversify the Trust Estate. The Trustee acknowledges that the GRAT structure is specifically designed to hold concentrated, illiquid positions with significant appreciation potential, and that the retention of such positions is consistent with the investment objectives of the Trust.
Section 7.4 — Limitations on Trustee Powers
Notwithstanding any other provision of this Agreement, the Trustee shall not:
(a) Make any distribution of income or principal of the Trust Estate to any person other than the Grantor during the Annuity Term, except for the distribution of the remainder interest to the Remainder Beneficiary upon the termination of the Annuity Term in accordance with Article V;
(b) Commute, prepay, or accelerate the Annuity Amount or any portion thereof, in accordance with Treasury Regulation Section 25.2702-3(d)(5);
(c) Issue any note, other debt instrument, option, or similar financial arrangement in satisfaction of the Trustee's obligation to pay the Annuity Amount, in accordance with Treasury Regulation Section 25.2702-3(d)(6), which requires that the Annuity Amount be satisfied exclusively from Trust assets and not from debt obligations;
(d) Borrow from the Trust Estate for the personal benefit of the Trustee (in his individual capacity) or lend Trust assets to the Grantor, any beneficiary, or any party related or subordinate to the Grantor within the meaning of IRC § 672(c), except in connection with the exercise of the substitution power under Section 7.2 and IRC § 675(4)(C);
(e) Add any beneficiary to the Trust or alter the interests of any beneficiary, except as expressly provided in this Agreement; or
(f) Take any action that would cause the Trust to fail to qualify as a GRAT under IRC § 2702(b) and the Treasury Regulations promulgated thereunder.
Section 7.5 — Trustee Compensation
The Trustee, Jonathan Robert Caldwell, shall serve without compensation during the Annuity Term. Any successor trustee appointed under Article IX of this Agreement shall be entitled to receive reasonable compensation for services rendered in the administration of the Trust, which compensation shall be payable from the Trust Estate. If the successor trustee is a corporate trustee, such trustee shall be entitled to compensation in accordance with its published fee schedule in effect at the time such services are rendered.
Section 7.6 — Exculpation
The Trustee shall not be personally liable for any loss or depreciation in value of the Trust Estate, or for any act or omission in the administration of the Trust, except in cases of willful misconduct, gross negligence, or bad faith. The Trustee shall not be liable for any action taken in good faith reliance upon the advice of legal counsel, tax advisors, accountants, appraisers, or other professionals retained by the Trustee in connection with the administration of the Trust. This exculpation provision shall apply to the initial Trustee and to any successor trustee appointed under Article IX, and shall survive the termination of the Trust.
ARTICLE VIII — ADMINISTRATIVE PROVISIONS
Section 8.1 — Accounting
The Trustee shall maintain complete and accurate books and records of all transactions relating to the Trust Estate, including all receipts, disbursements, investments, distributions, annuity payments, and changes in the composition or value of the Trust Estate. The Trustee shall render an annual accounting to the Grantor during the Annuity Term, setting forth in reasonable detail the assets of the Trust, the income earned, the expenses paid, the annuity payments made, and the fair market value of the Trust Estate as of the end of each accounting period.
Upon the termination of the Trust and the distribution of the remainder interest to the Remainder Beneficiary, the Trustee shall render a final accounting to the Remainder Beneficiary (or to the co-trustees of the Caldwell Family Dynasty Trust) reflecting all transactions from the inception of the Trust through the date of final distribution.
The Trustee shall coordinate with Strathmore Corporation & Greaves LLP (Martin J. Prescott, CPA, Senior Partner, Private Client Group; 600 Third Avenue, 28th Floor, New York, New York 10016) for the preparation of all accounting records, financial statements, and tax-related reporting materials. The Trustee may rely upon information and valuations provided by Caldwell Ridgeline Capital LLC, the general partner or manager of Caldwell Ridgeline Fund IV LP, Fund V LP, and Fund VI LP, for purposes of preparing the Trust accounting.
Section 8.2 — Tax Reporting
During the Annuity Term and for so long as the Trust is treated as a grantor trust under IRC §§ 671 through 679, the Grantor shall report all items of income, gain, loss, deduction, and credit attributable to the Trust Estate on the Grantor's personal federal and state income tax returns. The Trust shall not file a separate federal income tax return (Form 1041) during the grantor trust period, unless otherwise required by applicable regulations or Internal Revenue Service guidance.
The Trustee shall provide the Grantor with all information necessary for the Grantor's income tax reporting obligations, including copies of all Schedule K-1s received from Caldwell Ridgeline Fund IV LP, Caldwell Ridgeline Fund V LP, and Caldwell Ridgeline Fund VI LP, as well as all other partnership tax information, statements, and notices.
The funding of this Trust and the annuity calculations shall be reported on the Grantor's federal gift tax return (Form 709) for the 2023 calendar year. The preparation of the gift tax return shall be coordinated by Strathmore Corporation & Greaves LLP (Martin J. Prescott, CPA, Senior Partner) in consultation with Calderwood & Harkness LLP (Sylvia Hartwell, Specialist Partner, Tax), and shall include as attachments the independent qualified appraisal reports prepared by Ashford Valuation Group LLC, a summary of the annuity calculations, and a copy of this Agreement.
Section 8.3 — Expenses
All reasonable and necessary expenses of Trust administration, including but not limited to appraisal fees, legal fees, accounting fees, tax return preparation fees, filing fees, and any management fees, incentive allocation charges, or other fees payable to Caldwell Ridgeline Capital LLC or its affiliates in connection with the limited partnership interests and carried-interest positions held by the Trust, shall be paid from the Trust Estate.
At the Grantor's election, the Grantor may pay any or all expenses of Trust administration directly, without reimbursement from the Trust Estate. Any payment of Trust expenses by the Grantor shall not be treated as an additional contribution to the Trust in violation of Section 2.4 of this Agreement, and shall not be treated as a taxable gift by the Grantor to the Trust or to any beneficiary of the Trust.
Section 8.4 — Situs and Governing Law
The situs of this Trust is the State of New York. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, including the New York Estates, Powers and Trusts Law and the New York Surrogate's Court Procedure Act, without regard to the conflict-of-laws principles thereof. Any action or proceeding arising out of or relating to this Agreement shall be brought exclusively in the courts of the State of New York sitting in the County of New York, or in the United States District Court for the Southern District of New York.
Section 8.5 — Irrevocability
This Trust is irrevocable. The Grantor hereby expressly and irrevocably relinquishes all power to alter, amend, revoke, or terminate this Trust, in whole or in part, except as expressly provided in this Agreement. The Grantor's retained interests in the Trust are limited to (i) the right to receive the Annuity Amount during the Annuity Term as provided in Article III, (ii) the substitution power set forth in Section 7.2, and (iii) the right to pay Trust expenses as provided in Section 8.3. No other right, power, or interest is retained by the Grantor, and the Grantor shall have no right to direct or control the investment, management, or distribution of the Trust Estate, except in his capacity as Trustee during the Annuity Term, acting in a fiduciary capacity.
Section 8.6 — Severability
If any provision of this Agreement, or the application of any provision to any person or circumstance, 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 deemed modified to the minimum extent necessary to make it valid, legal, and enforceable.
If any provision of this Agreement is determined to be inconsistent with the requirements for a qualified interest under IRC § 2702 and Treasury Regulation Section 25.2702-3, or with any other applicable provision of the Code or the Treasury Regulations, this Agreement shall be reformed, either by the Trustee or by a court of competent jurisdiction, to the minimum extent necessary to comply with such requirements, and the intent of this Agreement to create a zeroed-out GRAT qualifying under IRC § 2702(b) shall be given effect to the fullest extent possible.
Section 8.7 — Spendthrift Provision
No interest of any beneficiary of this Trust (including the remainder interest of the Caldwell Family Dynasty Trust and any contingent remainder interest of the Grantor's children or their issue) in the income or principal of the Trust Estate shall be subject to voluntary or involuntary assignment, alienation, pledge, attachment, garnishment, execution, levy, or the claims of creditors of such beneficiary, or to any legal process, whether judicial or administrative, including proceedings in bankruptcy or insolvency.
This spendthrift provision shall not limit the Grantor's right to receive the Annuity Amount during the Annuity Term. The Grantor's retained annuity interest is a vested right, and the Grantor may assign, transfer, or encumber such interest only to the extent permitted by applicable law and only if such assignment, transfer, or encumbrance does not violate the requirements of IRC § 2702 or the Treasury Regulations promulgated thereunder.
ARTICLE IX — SUCCESSOR TRUSTEE
Section 9.1 — Vacancy
If the Grantor ceases to serve as Trustee during the Annuity Term for any reason, including death, disability (as determined by two licensed physicians), resignation (upon thirty (30) days' prior written notice), or removal (by a court of competent jurisdiction), the following persons or entities shall serve as successor Trustee in the order set forth below:
(a) First Successor Trustee: Eleanor V. Caldwell (spouse of the Grantor), residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021.
(b) Second Successor Trustee: Thomas R. Caldwell (son of the Grantor), residing at 55 Perry Street, Unit 3, New York, New York 10014.
(c) Third Successor Trustee: Northgate Trust Company of Delaware, a Delaware-chartered trust company, with its principal office at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801 (Philip A. Rossiter, Senior Vice President, Trust Administration).
Each successor Trustee designated above shall serve in the order listed, and a successor Trustee shall serve only if all preceding designated trustees are unable or unwilling to serve.
Section 9.2 — Acceptance of Successor Trustee
Any successor Trustee designated under Section 9.1 shall serve upon written acceptance of the trusteeship, delivered to the Grantor (if living) and to the Remainder Beneficiary (or its co-trustees). Upon acceptance, the successor Trustee shall have all the rights, powers, authorities, and duties of the original Trustee under this Agreement, and shall be bound by all terms and conditions of this Agreement. No successor Trustee shall be liable for any act or omission of any prior Trustee.
The outgoing Trustee (or the estate or representative of a deceased or disabled Trustee) shall promptly deliver to the successor Trustee all Trust assets, records, accounts, and documents in the outgoing Trustee's possession or control.
Section 9.3 — Trustee Upon Termination
Upon the expiration of the Annuity Term, if the Grantor has survived the Annuity Term and the Trust Estate is to be distributed to the Caldwell Family Dynasty Trust as the Remainder Beneficiary, the Trustee shall distribute the remaining Trust Estate to the co-trustees of the Dynasty Trust (Thomas R. Caldwell and Northgate Trust Company of Delaware) in accordance with Article V of this Agreement. Upon completion of the final distribution and the rendering of a final accounting, the Trustee shall be discharged from all further duties, obligations, and liabilities under this Agreement.
ARTICLE X — GST AND TRANSFER TAX PROVISIONS
Section 10.1 — Generation-Skipping Transfer Tax
The Grantor acknowledges that, during the Annuity Term, this Trust is subject to the estate tax inclusion period ("ETIP") rules under IRC § 2642(f). Under the ETIP rules, no allocation of the Grantor's generation-skipping transfer ("GST") tax exemption may be made to this Trust during the ETIP, because the Trust Estate would be included in the Grantor's gross estate under IRC § 2036(a)(1) if the Grantor were to die during the Annuity Term.
Upon the termination of the Annuity Term (assuming the Grantor survives), the ETIP will end, and the Grantor (or, if the Grantor has subsequently died, the Grantor's executor) shall allocate GST exemption to the remainder interest passing to the Caldwell Family Dynasty Trust, to the extent such allocation is deemed appropriate in consultation with the Grantor's tax advisors, including Sylvia Hartwell, Specialist Partner, Tax, Calderwood & Harkness LLP (375 Park Avenue, 42nd Floor, New York, New York 10152), and Martin J. Prescott, CPA, Senior Partner, Private Client Group, Strathmore Corporation & Greaves LLP (600 Third Avenue, 28th Floor, New York, New York 10016).
The Grantor understands that the allocation of GST exemption to the GRAT remainder is a critical component of the overall estate plan and that failure to properly allocate GST exemption could result in the imposition of generation-skipping transfer taxes on distributions from or terminations of the Dynasty Trust. The Grantor directs the Trustee and the Grantor's tax advisors to take all necessary steps to ensure that the appropriate GST exemption allocation is timely made.
Section 10.2 — Gift Tax
This Trust is designed as a zeroed-out GRAT. The Annuity Amount of Thirteen Million Nine Hundred Fifty-Three Thousand Seven Hundred Fifty-Nine Dollars ($13,953,759) per year has been calculated so that the present value of the Grantor's retained annuity interest, determined under IRC § 7520 using the applicable rate of 5.0% for May 2023, equals the fair market value of the Initial Trust Property as of the Funding Date. Accordingly, the taxable gift value upon the creation of this Trust is intended to be zero.
The Grantor shall report the creation of this Trust and the calculation of the Annuity Amount on the Grantor's federal gift tax return (Form 709) for the 2023 calendar year, in accordance with the applicable reporting requirements and instructions. The adjusted valuation clause set forth in Section 3.6 of this Agreement shall operate to preserve the zeroed-out status of the Trust in the event that the fair market value of the Initial Trust Property is adjusted or redetermined for federal gift tax purposes.
Section 10.3 — Estate Tax Inclusion
During the Annuity Term, the Trust Estate is includible in the Grantor's gross estate under IRC § 2036(a)(1) if the Grantor dies during the Annuity Term, because the Grantor has retained the right to receive the Annuity Amount from the Trust Estate for a period that has not expired before the Grantor's death. If the Grantor survives the entire Annuity Term, the remainder interest passing to the Caldwell Family Dynasty Trust upon the termination of the Trust shall not be included in the Grantor's gross estate for federal estate tax purposes, and such remainder shall pass to the Dynasty Trust free of both federal gift tax and federal estate tax, subject to the Grantor's timely allocation of GST exemption as described in Section 10.1.