CALDERWOOD & HARKNESS LLP Attorneys at Law
375 Park Avenue, 42nd Floor New York, New York 10152
Telephone: (212) 506-7000 Facsimile: (212) 506-7001 www.calderwoodharkness.com
August 1, 2023
Via Hand Delivery and Email
Martin J. Prescott, CPA Senior Partner, Private Client Group Strathmore Corporation & Greaves LLP 600 Third Avenue, 28th Floor New York, New York 10016
Re: Jonathan R. Caldwell — 2023 Federal Gift Tax Return (Form 709) Coordination C&H Matter No.: 1034-00004 C&H Billing Code: 78412-JRC Client SSN (last four): XXX-XX-4781
Dear Martin:
I. Introduction and Purpose
This letter transmits materials prepared by Calderwood & Harkness LLP ("C&H") in connection with the preparation and filing of the 2023 United States Gift (and Generation-Skipping Transfer) Tax Return (IRS Form 709) for our mutual client, Jonathan Robert Caldwell (date of birth: March 14, 1956; Social Security Number ending in 4781; residence: 418 East 72nd Street, Apt. 14A, New York, New York 10021) (hereinafter, "Mr. Caldwell" or the "Client").
As you are aware, Calderwood & Harkness has been engaged by Mr. Caldwell to design and implement a comprehensive generational estate plan intended to effectuate the efficient transfer of wealth to his descendants and charitable purposes while minimizing transfer tax exposure. Sylvia Hartwell, Specialist Partner in our Tax Practice Group, has led the tax structuring and analysis for this engagement, with oversight from Victoria Chambers, the Responsible Partner for the overall estate planning matter.
The 2023 Form 709 will report several significant gift and transfer transactions completed during the 2023 calendar year. These transactions include the creation and funding of three Grantor Retained Annuity Trusts ("GRATs"), a direct gift to a newly established dynasty trust, a substantial charitable contribution to a newly formed private foundation, and annual premium payments to an irrevocable life insurance trust. A detailed description of each reportable transfer is set forth in Section II below.
We respectfully request that Strathmore Corporation & Greaves LLP ("W&G"), as Mr. Caldwell's accountants and tax return preparers, review, finalize, and file the 2023 Form 709 on Mr. Caldwell's behalf. We have prepared a draft of the return in its entirety, together with all supporting schedules and documentation, as described in Section III of this letter. The draft return is intended to serve as the foundational working document for your preparation efforts, and we welcome your independent review and any corrections or modifications you deem appropriate.
This coordination is undertaken pursuant to the Engagement Scope Addendum dated February 15, 2023, covering tax advisory services, under which C&H and W&G agreed to collaborate on all aspects of Mr. Caldwell's transfer tax planning and compliance. The addendum delineates the respective responsibilities of our firms: C&H is responsible for the design, structuring, and legal documentation of the estate plan, while W&G is responsible for the preparation, finalization, and filing of all related tax returns, including the Form 709 and any state gift tax returns that may be required.
II. Summary of 2023 Reportable Transfers
The following is a comprehensive summary of all transfers made by Mr. Caldwell during the 2023 calendar year that are reportable on the 2023 Form 709. We have organized these transfers by category for ease of reference.
A. Zeroed-Out Grantor Retained Annuity Trusts (GRATs)
During the spring of 2023, Mr. Caldwell created and funded three separate Grantor Retained Annuity Trusts, each designed as a "zeroed-out" GRAT under Section 2702 of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"). Under the zeroed-out structure, the actuarial value of the annuity interest retained by Mr. Caldwell equals the full value of the property transferred to the trust, producing a taxable gift of $0 for each GRAT. Although the taxable gift is zero, each GRAT funding is nonetheless reportable on the Form 709 to properly disclose the transfer and commence the running of the statute of limitations under IRC § 6501(c)(9).
All three GRATs are grantor trusts for federal income tax purposes. Mr. Caldwell retains the annuity interest in each GRAT and serves as trustee of each GRAT during the annuity term. Upon termination of each GRAT annuity term, the remainder interest in each GRAT will pass to the Caldwell Family Dynasty Trust (described in Section II.B below). The specifics of each GRAT are as follows:
1. GRAT A — Caldwell 2023 Securities GRAT.
Date Funded: April 15, 2023
Corpus: A diversified portfolio of publicly traded equity and fixed-income securities with an aggregate fair market value on the funding date of $60,000,000. A complete list of the funded securities is set forth in Schedule A to the GRAT A Trust Agreement (enclosed as part of Enclosure 7).
GRAT Term: Two (2) years, commencing April 15, 2023 and terminating April 15, 2025.
Applicable Section 7520 Rate: 5.0% (the rate in effect for March 2023, which was the month elected for valuation purposes pursuant to Treas. Reg. § 25.7520-2(a)).
Annual Annuity Payment: $32,195,122, payable in annual installments to Mr. Caldwell during the annuity term. The annuity amount was computed using the applicable IRS actuarial tables to produce a zeroed-out GRAT — that is, the present value of the retained annuity interest equals the full fair market value of the trust corpus on the date of funding.
Taxable Gift: $0. The zeroed-out computation is detailed in the GRAT Annuity Computation Worksheet enclosed as Enclosure 2.
Grantor and Trustee During Annuity Term: Jonathan R. Caldwell.
Remainder Beneficiary: Caldwell Family Dynasty Trust (described in Section II.B below).
Valuation Support: Because GRAT A was funded exclusively with publicly traded securities, no independent appraisal was required. The fair market value of each security was determined by reference to closing prices on the NASDAQ and New York Stock Exchange on the funding date, April 15, 2023.
2. GRAT B — Caldwell 2023 Realty GRAT.
Date Funded: May 1, 2023
Corpus: Membership interests in Stonecrest Realty Holdings LLC ("Stonecrest"), a Delaware limited liability company engaged in the ownership, management, and operation of commercial real estate assets. Mr. Caldwell transferred membership interests representing an approximate 59.7% interest in Stonecrest to GRAT B on the funding date.
Pre-discount Fair Market Value: $80,000,000. The total entity value of Stonecrest as of the funding date was determined by Ashford Valuation Group LLC to be $134,000,000. Mr. Caldwell's 59.7% pro rata share of the entity value is approximately $80,000,000 ($134,000,000 × 59.7% ≈ $80,000,000).
Valuation discounts Applied: A combined discount of 25% for lack of marketability and lack of control was applied to the pro rata fair market value of the transferred membership interests. The discount reflects the restrictions on transfer set forth in the Stonecrest operating agreement, the absence of a ready market for the interests, and the fact that the transferred interest, while constituting a majority interest, is subject to certain supermajority voting requirements and drag-along provisions that limit the effective control exercisable by the holder. The discount level is supported by the Ashford Valuation Group LLC appraisal report enclosed as Enclosure 3.
Post-discount Fair Market Value for Gift Tax Purposes: $60,000,000 ($80,000,000 × (1 – 25%) = $60,000,000).
GRAT Term: Three (3) years, commencing May 1, 2023 and terminating May 1, 2026.
Applicable Section 7520 Rate: 5.0% (the rate in effect for April 2023).
Annual Annuity Payment: $29,375,859, payable in annual installments to Mr. Caldwell during the annuity term. The annuity was calculated on the basis of the pre-discount corpus value of $80,000,000, producing a zeroed-out GRAT. It is important to note that while the gift tax value of the transferred property is determined after application of valuation discounts, the annuity amount is computed with reference to the pre-discount value to ensure full utilization of the GRAT structure.
Taxable Gift: $0. The zeroed-out computation is detailed in the GRAT Annuity Computation Worksheet enclosed as Enclosure 2.
Grantor and Trustee During Annuity Term: Jonathan R. Caldwell.
Remainder Beneficiary: Caldwell Family Dynasty Trust.
Appraisal Support: Ashford Valuation Group LLC independent appraisal report, prepared by Dr. Leonard K. Whitfield, ASA, Managing Partner, with a valuation date of May 1, 2023. A copy of the complete appraisal report is enclosed as Enclosure 3. C&H has reviewed this appraisal and concluded that the discount levels are reasonable and well within the range accepted by the IRS and the Tax Court (see C&H Review Memorandum, enclosed as Enclosure 4).
3. GRAT C — Caldwell 2023 Carried Interest GRAT.
Date Funded: June 1, 2023
Corpus: Limited partnership interests and carried-interest positions in three investment funds managed by Caldwell Ridgeline Capital LLC ("CRC"), specifically:
• Fund IV LP Interest: Fair market value of $12,000,000 (pre-discount). A combined discount of 35% for lack of marketability and lack of control was applied, resulting in a post-discount value of $7,800,000.
• Fund V LP Interest: Fair market value of $14,000,000 (pre-discount). A combined discount of 35% for lack of marketability and lack of control was applied, resulting in a post-discount value of $9,100,000.
• Fund VI Carried Interest: Fair market value of $12,000,000 (pre-discount). A discount of 30% was applied, reflecting the illiquidity and contingent nature of the carried interest, resulting in a post-discount value of $8,400,000.
Total Pre-discount Fair Market Value: $38,000,000 ($12,000,000 + $14,000,000 + $12,000,000).
Blended Post-discount Fair Market Value: $25,300,000. This figure represents the sum of the post-discount values of the three individual interests: ($12,000,000 + $14,000,000) × 0.65 = $16,900,000 for Fund IV and Fund V combined, plus $12,000,000 × 0.70 = $8,400,000 for Fund VI carried interest, totaling $25,300,000.
GRAT Term: Three (3) years, commencing June 1, 2023 and terminating June 1, 2026.
Applicable Section 7520 Rate: 5.0% (the rate in effect for May 2023).
Annual Annuity Payment: $13,953,759, payable in annual installments to Mr. Caldwell during the annuity term. As with GRAT B, the annuity was calculated on the basis of the pre-discount corpus value of $38,000,000 to achieve zeroed-out status.
Taxable Gift: $0. The zeroed-out computation is detailed in the GRAT Annuity Computation Worksheet enclosed as Enclosure 2.
Grantor and Trustee During Annuity Term: Jonathan R. Caldwell.
Remainder Beneficiary: Caldwell Family Dynasty Trust.
Appraisal Support: Ashford Valuation Group LLC independent appraisal reports for each of the three fund interests, each prepared by Dr. Leonard K. Whitfield, ASA, with a common valuation date of June 1, 2023. Copies of all three appraisal reports are enclosed as Enclosure 3. C&H has reviewed each appraisal and concluded that the discount levels applied are supportable and consistent with prevailing market practice and Tax Court precedent (see C&H Review Memorandum, enclosed as Enclosure 4).
Summary of GRAT Program. In aggregate, the three GRATs were funded with assets having a total pre-discount fair market value of $178,000,000 ($60,000,000 + $80,000,000 + $38,000,000). Each GRAT was designed as a zeroed-out GRAT under IRC § 2702, producing a total taxable gift of $0 across all three GRATs. Mr. Caldwell retains the annuity interest in each GRAT and serves as trustee of each GRAT during the annuity term. Upon successful completion of the annuity terms, any appreciation in the trust assets above the Section 7520 assumed rate of return will pass to the Caldwell Family Dynasty Trust free of gift and estate tax.
B. Direct Gift to Caldwell Family Dynasty Trust
Date of Gift: April 1, 2023
Amount: $5,000,000 in cash
Trust: The Caldwell Family Dynasty Trust (the "Dynasty Trust"), a trust established on April 1, 2023 under the laws of the State of Delaware. The Dynasty Trust is structured to take advantage of Delaware's perpetual trust statute, permitting the trust to continue in existence for an unlimited duration. Northgate Trust Company of Delaware serves as institutional co-trustee, and Thomas R. Caldwell (Mr. Caldwell's son) serves as family co-trustee.
Nature of Transfer: This was a completed, irrevocable gift of cash to the Dynasty Trust. The gift is taxable for gift tax purposes and uses a portion of Mr. Caldwell's remaining lifetime gift tax exemption (the "applicable exclusion amount" under IRC § 2010(c)).
Lifetime Gift Tax Exemption Analysis:
• 2023 lifetime gift tax exemption (applicable exclusion amount): $12,920,000
• Prior taxable gifts (cumulative, as reported on prior Forms 709): $6,750,000
• Remaining exemption before this gift: $6,170,000 ($12,920,000 – $6,750,000)
• Gift to Dynasty Trust: ($5,000,000)
• Remaining exemption after this gift: $1,170,000 ($6,170,000 – $5,000,000)
Because the $5,000,000 gift is fully sheltered by Mr. Caldwell's remaining lifetime gift tax exemption, no gift tax is due on this transfer. The gift does, however, reduce Mr. Caldwell's remaining applicable exclusion amount, which will affect the computation of estate tax at the time of Mr. Caldwell's death.
C. Contribution to The Caldwell Family Foundation
Date of Contribution: April 1, 2023
Amount: $10,000,000 in cash, contributed jointly by Jonathan R. Caldwell and Eleanor V. Caldwell. The contribution is attributable equally to each spouse, with $5,000,000 attributable to Jonathan and $5,000,000 attributable to Eleanor.
Recipient Organization: The Caldwell Family Foundation (the "Foundation"), a New York not-for-profit corporation incorporated on March 20, 2023 (New York Department of State Filing No. 230320-001847; Employer Identification Number 88-3021547).
Tax-Exempt Status: The IRS issued a determination letter dated July 14, 2023 confirming that the Foundation qualifies as a tax-exempt organization under IRC § 501(c)(3). The Foundation has been classified as a private foundation under IRC § 509(a). A copy of the IRS determination letter is enclosed as Enclosure 6.
Gift Tax Treatment: Jonathan's $5,000,000 share of the contribution constitutes a completed charitable gift. Because the gift is made to a qualifying charitable organization described in IRC § 2522, the full amount of Jonathan's $5,000,000 contribution qualifies for the charitable deduction under IRC § 2522 and is not subject to gift tax. The contribution is nonetheless reportable on the Form 709 as a completed gift to a charitable organization.
Income Tax Charitable Deduction Coordination: The charitable deduction on Mr. Caldwell's income tax return for 2023 is subject to the 30% adjusted gross income ("AGI") limitation applicable to cash contributions to private foundations under IRC § 170(b)(1)(B). Based on current estimates:
• Mr. Caldwell's estimated 2022 AGI (used as a reasonable proxy pending finalization of the 2023 income tax return): $22,500,000
• Maximum year-one charitable deduction (30% of estimated AGI): $6,750,000
• Jonathan's attributable share of the contribution: $5,000,000
• Because Jonathan's $5,000,000 share falls within the $6,750,000 limitation, the entire $5,000,000 should be deductible in 2023, subject to finalization of his actual 2023 AGI.
Spousal Coordination: The combined $10,000,000 contribution by both spouses will require coordination with Eleanor V. Caldwell's separate return. Eleanor's $5,000,000 share of the Foundation contribution should be reported on her own Form 709 if applicable. We note that Jonathan and Eleanor may also elect gift-splitting under IRC § 2513 for the 2023 tax year, which would affect the reporting of this and other gifts made during the year. Eleanor's independent counsel, Rachel F. Dunlap of Pemberton, Locke & Strauss LLP, should be consulted in this regard.
Carryforward: To the extent the total charitable deduction claimed on the joint income tax return (if the Caldwells file jointly) exceeds 30% of AGI, the excess may be carried forward for up to five years under IRC § 170(d)(1). Based on the combined $10,000,000 contribution and a 30% AGI ceiling of $6,750,000, the potential carryforward amount would be $3,250,000 ($10,000,000 – $6,750,000), though this calculation will need to be refined once the Caldwells' actual 2023 AGI and filing status are confirmed.
D. ILIT Premium Gifts — Caldwell Family Insurance Trust
Trust: The Caldwell Family Insurance Trust (the "ILIT"), an irrevocable trust established on March 15, 2023 under the laws of the State of Delaware. Northgate Trust Company of Delaware serves as trustee.
Insurance Policy: Beacon Life Assurance Company second-to-die universal life insurance policy, Policy No. BLA-2023-77419. The policy provides a death benefit of $15,000,000 upon the second death of the insured lives, Jonathan R. Caldwell and Eleanor V. Caldwell.
2023 Annual Premium Paid: $187,500, paid by Mr. Caldwell to the ILIT on behalf of the policy.
Crummey Withdrawal Beneficiaries: The following three beneficiaries hold Crummey withdrawal rights under the ILIT:
1. Thomas R. Caldwell (son)
2. Katherine C. Hartfield (daughter)
3. Olivia G. Caldwell (daughter)
Crummey Withdrawal Right: Each beneficiary is entitled to withdraw up to $5,000 per calendar year upon notice of a contribution to the ILIT. Crummey withdrawal notices were timely sent to all three beneficiaries in connection with the 2023 premium payment. Copies of the template Crummey withdrawal notices are available upon request and are enclosed as part of Enclosure 9.
Annual Exclusion Coverage: Under IRC § 2503(b), the annual exclusion for gifts made during 2023 is $17,000 per donee. Because the Crummey withdrawal rights create present interests in the premium contributions, the annual exclusion applies to the extent of each beneficiary's withdrawal right, up to the $17,000 annual exclusion per donee:
• Number of Crummey beneficiaries: 3
• Annual exclusion per beneficiary: $17,000
• Total annual exclusion coverage: 3 × $17,000 = $51,000
Premium Funded by Annual Exclusion: $51,000
Balance of Premium Using Lifetime Exemption: The remaining $136,500 of the premium ($187,500 – $51,000 = $136,500) exceeds the available annual exclusions and constitutes a taxable gift that must be applied against Mr. Caldwell's remaining lifetime gift tax exemption.
Impact on Remaining Lifetime Exemption: This $136,500 further reduces Mr. Caldwell's remaining lifetime gift tax exemption from $1,170,000 (the amount remaining after the Dynasty Trust gift) to $1,033,500. No gift tax is due because the gift is fully sheltered by the remaining exemption.
III. Enclosed Materials and Transmittal Schedule
The following materials are enclosed with this letter for your review and use in preparing and finalizing the 2023 Form 709 for Mr. Caldwell. Please confirm receipt of all items listed below.
Enclosure 1: Draft Form 709 — 2023
Draft United States Gift (and Generation-Skipping Transfer) Tax Return (IRS Form 709) for Jonathan R. Caldwell, calendar year 2023. This draft was prepared by C&H under the direction of Sylvia Hartwell and is provided in draft form for W&G's review, finalization, and filing. The draft return includes all applicable schedules, specifically:
• Schedule A — Computation of Taxable Gifts: Reporting all gifts and transfers described in Section II above, including the three GRAT fundings, the Dynasty Trust gift, the Foundation contribution, and the ILIT premium gifts.
• Schedule B — Gifts from Prior Periods: Reflecting Mr. Caldwell's cumulative prior taxable gifts of $6,750,000, as reported on previously filed Forms 709. We request that W&G verify this figure against your records and prior returns.
• Schedule C — Computation of Generation-Skipping Transfer Tax: Reporting the GST tax computation, if any, for transfers subject to the GST tax during 2023.
• Schedule D — Computation of GST Exemption: Reflecting the allocation of GST exemption as described in Enclosure 5 below.
Enclosure 2: GRAT Annuity Computation Worksheets
Detailed actuarial computation worksheets for each of the three GRATs, verifying the zeroed-out status of each GRAT under IRC § 2702:
• GRAT A Worksheet: Corpus of $60,000,000; Section 7520 rate of 5.0% (March 2023); two-year annuity term; computed annual annuity of $32,195,122; zeroed-out calculation confirmed.
• GRAT B Worksheet: Pre-discount corpus of $80,000,000; Section 7520 rate of 5.0% (April 2023); three-year annuity term; computed annual annuity of $29,375,859; zeroed-out calculation confirmed.
• GRAT C Worksheet: Pre-discount corpus of $38,000,000; Section 7520 rate of 5.0% (May 2023); three-year annuity term; computed annual annuity of $13,953,759; zeroed-out calculation confirmed.
Each worksheet has been independently verified by Sylvia Hartwell to confirm that the present value of the retained annuity interest equals the fair market value of the property transferred to the trust, resulting in a taxable gift of $0 for each GRAT in accordance with the requirements of IRC § 2702 and the applicable Treasury Regulations.
Enclosure 3: Ashford Valuation Group LLC Appraisal Reports
Independent appraisal reports prepared by Dr. Leonard K. Whitfield, ASA, Managing Partner of Ashford Valuation Group LLC, for each of the following assets:
• Stonecrest Realty Holdings LLC Membership Interests: Valuation date of May 1, 2023; 25% combined discount for lack of marketability and lack of control applied to the pro rata fair market value of the 59.7% membership interest transferred to GRAT B.
• Caldwell Ridgeline Capital Fund IV LP Interest: Valuation date of June 1, 2023; 35% combined discount for lack of marketability and lack of control.
• Caldwell Ridgeline Capital Fund V LP Interest: Valuation date of June 1, 2023; 35% combined discount for lack of marketability and lack of control.
• Caldwell Ridgeline Capital Fund VI Carried Interest: Valuation date of June 1, 2023; 30% discount reflecting illiquidity and the contingent nature of the carried interest.
All appraisals were received on June 15, 2023 and have been reviewed internally by C&H. Our review memorandum, dated June 20, 2023, is enclosed as Enclosure 4. Based on our review, C&H concluded that the discount levels applied by Ashford are supportable and fall within the range of accepted practice as reflected in relevant Tax Court decisions, including Estate of Litchfield v. Commissioner, Lappo v. Commissioner, and similar authorities addressing discounts for lack of marketability and lack of control in the context of closely held entities and partnership interests.
We also note that Ashford appraised certain art and collectibles owned by Mr. Caldwell (with an aggregate appraised value of approximately $9,000,000); however, those assets were not contributed to any of the GRATs or other vehicles described in this letter. The art and collectibles appraisal is included within the Ashford reports for completeness and reference, as those assets remain relevant to the overall estate plan.
Enclosure 4: C&H Review Memorandum — Ashford Appraisal Reports
Internal C&H memorandum dated June 20, 2023, prepared by Sylvia Hartwell and Elliot Nguyen, evaluating the reasonableness of Ashford Valuation Group LLC's valuation conclusions and discount levels for each of the appraised assets. This memorandum is provided for W&G's reference in preparing the return and in evaluating whether the valuation positions taken on the Form 709 are supportable. The memorandum includes a discussion of the applicable legal standards for valuation discounts, a comparison of Ashford's discount levels to published empirical studies and Tax Court precedent, and our overall conclusions regarding the defensibility of the positions taken.
Enclosure 5: GST Exemption Allocation Schedules
Schedules detailing the proposed allocation of Mr. Caldwell's generation-skipping transfer ("GST") tax exemption for the 2023 tax year, including:
• Allocation to Dynasty Trust: We propose allocating $5,000,000 of Mr. Caldwell's GST exemption to the initial $5,000,000 cash funding of the Caldwell Family Dynasty Trust. This allocation will result in an inclusion ratio of zero for the Dynasty Trust with respect to this initial funding, ensuring that distributions from the Dynasty Trust to skip persons (i.e., grandchildren and more remote descendants) are not subject to the GST tax.
• ETIP Rules — GRAT Remainder Interests: Under IRC § 2642(f), the Estate Tax Inclusion Period ("ETIP") rules prohibit the allocation of GST exemption to property transferred to a trust during any period in which, if the transferor were to die, the property would be includible in the transferor's gross estate (other than by reason of IRC § 2035). Because Mr. Caldwell retains an annuity interest in each of the three GRATs, the GRAT remainder interests are subject to ETIP during the annuity term. Accordingly, no allocation of GST exemption to the GRAT remainder interests should be made at this time. GST exemption will need to be allocated upon the termination of each GRAT annuity term, at which point the remainder interests pour into the Dynasty Trust.
• 2023 GST Exemption Amount and Prior Allocations: Mr. Caldwell's 2023 GST exemption amount is $12,920,000. Any prior GST exemption allocations should be verified against W&G's records and reflected on the return.
• Reverse QTIP Election: We note for future reference that reverse QTIP election considerations may arise in connection with the credit shelter trust and marital QTIP trust established under Mr. Caldwell's Revocable Trust Agreement. These elections will be addressed upon Mr. Caldwell's death and are not relevant to the 2023 Form 709 filing. We flag this issue now so that W&G's files reflect the anticipated planning.
Enclosure 6: Foundation Contribution Documentation
The following documents relating to the contribution to The Caldwell Family Foundation:
• Copy of the Initial Contribution Agreement dated April 1, 2023, documenting the $10,000,000 cash contribution by Jonathan R. Caldwell and Eleanor V. Caldwell to The Caldwell Family Foundation, including the allocation of $5,000,000 to each spouse.
• Copy of the IRS determination letter dated July 14, 2023, confirming the Foundation's tax-exempt status under IRC § 501(c)(3) and its classification as a private foundation under IRC § 509(a) (EIN 88-3021547).
• Copy of the Certificate of Incorporation of The Caldwell Family Foundation, filed with the New York Department of State on March 20, 2023 (Filing No. 230320-001847).
Enclosure 7: Copies of GRAT Trust Agreements and Schedules A
The executed trust agreements for each of the three GRATs, together with the property schedules and annuity payment schedules:
• GRAT A Trust Agreement (executed April 15, 2023), together with Schedule A listing the publicly traded securities constituting the $60,000,000 corpus, and the Annuity Payment Schedule setting forth the $32,195,122 annual annuity payments over the two-year term.
• GRAT B Trust Agreement (executed May 1, 2023), together with Schedule A identifying the Stonecrest Realty Holdings LLC membership interest (approximately 59.7%, pre-discount value $80,000,000), and the Annuity Payment Schedule setting forth the $29,375,859 annual annuity payments over the three-year term.
• GRAT C Trust Agreement (executed June 1, 2023), together with Schedule A identifying the Caldwell Ridgeline Capital Fund IV, Fund V, and Fund VI interests (aggregate pre-discount value $38,000,000), and the Annuity Payment Schedule setting forth the $13,953,759 annual annuity payments over the three-year term.
Enclosure 8: Dynasty Trust Documentation
• Caldwell Family Dynasty Trust Agreement (executed April 1, 2023), including all exhibits and schedules.
• Schedule A to the Dynasty Trust Agreement, reflecting the initial $5,000,000 cash funding as of April 1, 2023.
Enclosure 9: ILIT Documentation
• Caldwell Family Insurance Trust Agreement (executed March 15, 2023), including all exhibits and schedules.
• Template Crummey withdrawal notices provided to the three withdrawal beneficiaries (Thomas R. Caldwell, Katherine C. Hartfield, and Olivia G. Caldwell).
• Beacon Life Assurance Company policy summary for Policy No. BLA-2023-77419, including confirmation of the $15,000,000 death benefit and $187,500 annual premium.
Enclosure 10: Lifetime Gift Tax Exemption Tracking Summary
A comprehensive summary schedule tracking Mr. Caldwell's cumulative use of the lifetime gift tax exemption (applicable exclusion amount) through the 2023 calendar year, as follows:
Note: The $5,000,000 Foundation contribution attributable to Jonathan is a completed charitable gift qualifying for the IRC § 2522 deduction and is therefore not a taxable gift for gift tax purposes. It does not reduce the lifetime gift tax exemption.
IV. Specific Requests for Strathmore Corporation & Greaves LLP
We respectfully request that W&G undertake the following actions and provide the indicated confirmations in connection with the preparation and filing of the 2023 Form 709.
A. Review and Verification
We request that W&G conduct a thorough review of the enclosed draft Form 709 for accuracy and completeness, including but not limited to the following:
1. Prior Taxable Gifts. Please verify the cumulative prior taxable gifts of $6,750,000 reflected on Schedule B of the draft return against W&G's records and previously filed returns. If W&G's records reflect a different cumulative total, please advise us immediately so that we may reconcile any discrepancy.
2. 2022 AGI Verification. Please confirm Mr. Caldwell's 2022 adjusted gross income of $22,500,000 (as used in estimating the 30% AGI charitable deduction limitation for cash contributions to private foundations). We understand that W&G prepared Mr. Caldwell's 2022 income tax return and can verify this figure. Additionally, please advise as to any updated estimate of Mr. Caldwell's 2023 AGI that may be relevant to the charitable deduction calculation.
3. Gift Amounts and Valuations. Please cross-check all gift amounts, valuation figures, and discount percentages reported on the draft Form 709 against the enclosed Ashford Valuation Group LLC appraisal reports. We request that W&G confirm that the figures on the return are consistent with the appraisal conclusions and that no transcription errors exist.
4. General Accuracy. Please review all other aspects of the draft return, including the computation of the tentative gift tax, the application of the unified credit, and the GST tax computation, for mathematical accuracy and compliance with current IRS forms and instructions.
B. Valuation and discount Review
We request that W&G independently evaluate the valuation conclusions set forth in the Ashford Valuation Group LLC appraisal reports and confirm that W&G is comfortable with these conclusions for purposes of the return filing. In particular, we ask that W&G consider:
1. The 25% combined discount for lack of marketability and lack of control applied to the Stonecrest Realty Holdings LLC membership interests transferred to GRAT B.
2. The 35% combined discount for lack of marketability and lack of control applied to the Caldwell Ridgeline Capital Fund IV and Fund V limited partnership interests transferred to GRAT C.
3. The 30% discount applied to the Caldwell Ridgeline Capital Fund VI carried interest transferred to GRAT C.
C&H has reviewed these discount levels and is comfortable that they are defensible and within the range of accepted practice. Our review memorandum (Enclosure 4) provides a detailed analysis. However, as the return preparers, W&G must independently satisfy itself regarding these positions. If W&G has any questions or concerns about any of the discount levels or the underlying valuation methodologies, please contact Sylvia Hartwell directly at (212) 506-7150 or shartwell@calderwoodharkness.com.
C. GST Exemption Allocation
We request that W&G review and confirm the following with respect to the GST exemption allocation:
1. Dynasty Trust Allocation. Please confirm that W&G agrees with the proposed allocation of $5,000,000 of Mr. Caldwell's GST exemption to the initial $5,000,000 cash funding of the Caldwell Family Dynasty Trust, producing an inclusion ratio of zero with respect to this initial funding.
2. ETIP — No Allocation to GRAT Remainders. Please confirm that W&G will not allocate any GST exemption to the GRAT remainder interests at this time, in accordance with the ETIP rules under IRC § 2642(f). GST exemption allocation to the GRAT remainders will be required in future years upon termination of each GRAT annuity term, at which point the remainder interests pour into the Dynasty Trust.
3. Additional Considerations. Please flag any additional GST exemption allocation considerations that W&G believes should be addressed on the 2023 Form 709 or in connection with future filings.
D. Spousal Gift-Splitting / Eleanor's Return
We request W&G's guidance and coordination on the following issues relating to spousal gift-splitting and Eleanor V. Caldwell's return:
1. Gift-Splitting Election. Please advise whether Jonathan and Eleanor will elect to split gifts under IRC § 2513 for the 2023 tax year. If gift-splitting is elected, all gifts made by either spouse during the year will be treated as made one-half by each spouse, which will affect the reporting of the Dynasty Trust gift, the ILIT premium gifts, and potentially the GRAT fundings on both Jonathan's and Eleanor's Forms 709. We note that the election of gift-splitting requires both spouses to consent on their respective returns.
2. Eleanor's Foundation Contribution. Eleanor V. Caldwell's $5,000,000 share of the Foundation contribution should be reported on her own Form 709 (Eleanor's SSN last four: 6203). This matter should be coordinated with Rachel F. Dunlap at Pemberton, Locke & Strauss LLP, who serves as Eleanor's independent counsel for estate planning purposes.
3. Cross-Coordination. To the extent that gift-splitting or spousal coordination issues affect the reporting on Jonathan's Form 709, please advise C&H promptly so that we may adjust the draft return accordingly.
E. Filing Timeline
1. Due Date. The Form 709 for the 2023 calendar year is due on April 15, 2024, or as extended by the filing of a timely extension request.
2. Extension. Please confirm whether W&G intends to file an extension of time to file the 2023 Form 709. If an extension will be filed, please advise C&H of the extended due date.
3. Finalization Deadline. We respectfully request that W&G finalize the draft Form 709 no later than March 15, 2024. This will allow adequate time for C&H to conduct a final review of the completed return before filing, and will ensure that any remaining issues can be resolved well in advance of the April 15, 2024 due date (or extended due date).
4. Income Tax Return Coordination. We note that Mr. Caldwell's federal income tax return for the 2023 tax year (to be prepared by W&G) will need to coordinate the charitable deduction for the Foundation contribution, including the application of the 30% AGI limitation and any carryforward computation. Please ensure that the gift tax return and the income tax return are consistent in their reporting of the Foundation contribution.
V. Key Contact Information
For your reference, the following individuals are available to address questions that may arise during the preparation and finalization of the 2023 Form 709:
Tax Structuring and Analysis:
Sylvia Hartwell Specialist Partner, Tax Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, New York 10152 Telephone: (212) 506-7150
Email: shartwell@calderwoodharkness.com
Estate Plan Structures, Trust Documents, and Engagement Management:
Victoria Chambers Responsible Partner Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, New York 10152 Telephone: (212) 506-7200
Email: vchambers@calderwoodharkness.com
Day-to-Day Administrative Matters:
Monica Reyes, Lead Associate Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, New York 10152 Telephone: (212) 506-7312
Email: mreyes@calderwoodharkness.com
Elliot Nguyen, Working Associate Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, New York 10152 Telephone: (212) 506-7318
Email: enguyen@calderwoodharkness.com
Independent Valuation Matters:
Dr. Leonard K. Whitfield, ASA Managing Partner Ashford Valuation Group LLC 1120 Avenue of the Americas, Suite 3500 New York, New York 10036 Telephone: (212) 849-3200
Email: lwhitfield@ashfordvaluation.com
Financial Data — Caldwell Ridgeline Capital Fund Interests:
Gregory S. Fenton Chief Financial Officer Caldwell Ridgeline Capital LLC 280 Park Avenue, 35th Floor New York, New York 10017 Telephone: (212) 583-4100
Email: gfenton@caldwellridgeline.com
Financial Data — Stonecrest Realty Holdings:
Robert M. Sinclair Chief Operating Officer Stonecrest Realty Holdings LLC 330 Madison Avenue, Suite 2401 New York, New York 10017 Telephone: (212) 661-7800
Email: rsinclair@stonecresthldgs.com