CALDWELL FAMILY INSURANCE TRUST
IRREVOCABLE TRUST AGREEMENT
Dated as of March 15, 2023
GRANTOR: Jonathan Robert Caldwell 418 East 72nd Street, Apt. 14A New York, New York 10021
TRUSTEE: Northgate Trust Company of Delaware 1201 North Market Street, Suite 1600 Wilmington, Delaware 19801
Trust Situs: State of Delaware Governing Law: Laws of the State of Delaware
Prepared by: Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, New York 10152 C&H Matter No. 1034-00004
CALDWELL FAMILY INSURANCE TRUST
IRREVOCABLE TRUST AGREEMENT
March 15, 2023
RECITALS
WHEREAS, Jonathan Robert Caldwell (hereinafter the "Grantor"), born March 14, 1956, Social Security Number ending in 4781, residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021, desires to establish an irrevocable trust for the primary purpose of acquiring and holding life insurance on the joint lives of the Grantor and his spouse, Eleanor Victoria Caldwell, born September 22, 1958, Social Security Number ending in 6203, also residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021 (the "Grantor's Spouse");
WHEREAS, this trust is established as part of a comprehensive generational estate plan designed and implemented by Calderwood & Harkness LLP, 375 Park Avenue, 42nd Floor, New York, New York 10152 (C&H Matter No. 1034-00004), in coordination with the Grantor's other advisors, for the purpose of facilitating the orderly transfer of wealth to the Grantor's descendants while minimizing the aggregate federal and state transfer tax burden on the Grantor's estate;
WHEREAS, the primary purpose of this trust is to hold a second-to-die universal life insurance policy issued by Beacon Life Assurance Company, a Connecticut domiciled insurance company with offices at 100 Constitution Plaza, Hartford, Connecticut 06103, bearing Policy No. BLA-2023-77419, with a death benefit of Fifteen Million Dollars ($15,000,000), insuring the joint lives of the Grantor and the Grantor's Spouse, and to keep the insurance proceeds outside of both the Grantor's and the Grantor's Spouse's taxable estates for federal estate tax purposes;
WHEREAS, the Grantor intends that this trust shall be irrevocable from its inception and that no part of the trust corpus or income shall be includible in the Grantor's gross estate under Sections 2035, 2036, 2037, 2038, or 2042 of the Internal Revenue Code of 1986, as amended, and the Grantor has structured this trust agreement so as to retain no incidents of ownership in any insurance policy held hereunder and no reversionary interest, retained life estate, or power to alter, amend, revoke, or terminate the trust;
WHEREAS, the Grantor acknowledges and understands that premiums contributed to the trust will be treated as gifts to the beneficiaries of this trust, and the Grantor intends that such gifts shall qualify, to the greatest extent possible, for the annual exclusion from federal gift tax under Section 2503(b) of the Internal Revenue Code, with such qualification facilitated through the grant of Crummey withdrawal powers to the beneficiaries as set forth herein;
WHEREAS, the Grantor further acknowledges that to the extent premium contributions exceed the aggregate annual exclusion amounts available through the Crummey withdrawal powers, such excess contributions shall constitute taxable gifts that will utilize the Grantor's remaining applicable exclusion amount under Section 2505 of the Internal Revenue Code; and
WHEREAS, Northgate Trust Company of Delaware, a trust company organized and existing under the laws of the State of Delaware, with principal offices at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801, has agreed to serve as Trustee of this trust upon the terms and conditions set forth herein;
NOW, THEREFORE, the Grantor and the Trustee, intending to be legally bound, agree as follows:
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ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Trust Agreement, the following terms shall have the meanings ascribed to them below:
(a) "Annual Exclusion Amount" shall mean the amount excludable from taxable gifts under Section 2503(b) of the Code, as adjusted for inflation under Section 2503(b)(2) of the Code. For the calendar year 2023, the Annual Exclusion Amount is Seventeen Thousand Dollars ($17,000) per donee.
(b) "Beneficiaries" shall mean, collectively, the following three adult children of the Grantor:
(i) Thomas Robert Caldwell, born June 7, 1985, residing at 55 Perry Street, Unit 3, New York, New York 10014;
(ii) Katherine Claire Hartfield (née Caldwell), born November 19, 1987, residing at 210 Briarcliff Lane, Greenwich, Connecticut 06830; and
(iii) Olivia Grace Caldwell, born April 2, 1993, residing at 1240 North Dearborn Street, Apt. 807, Chicago, Illinois 60610.
The term "Beneficiary" shall refer to any one of the foregoing individuals, as the context requires.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor statute thereto. References to specific sections of the Code shall be deemed to include successor provisions and the Treasury Regulations promulgated thereunder.
(d) "Crummey Beneficiaries" shall mean those persons who are granted withdrawal rights under Article V of this Trust Agreement. As of the date hereof, the Crummey Beneficiaries are Thomas Robert Caldwell, Katherine Claire Hartfield, and Olivia Grace Caldwell, being the same individuals identified as "Beneficiaries" in paragraph (b) above.
(e) "Grantor" shall mean Jonathan Robert Caldwell, born March 14, 1956, residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021.
(f) "Grantor's Spouse" shall mean Eleanor Victoria Caldwell, born September 22, 1958, residing at 418 East 72nd Street, Apt. 14A, New York, New York 10021, who is the lawful spouse of the Grantor as of the date of this Trust Agreement. The term "Grantor's Spouse" shall refer to Eleanor Victoria Caldwell regardless of whether she remains married to the Grantor at any time after the date hereof.
(g) "Insured Lives" shall mean Jonathan Robert Caldwell and Eleanor Victoria Caldwell, jointly, being the two individuals whose lives are insured under the Policy.
(h) "Policy" shall mean the second-to-die universal life insurance policy issued by Beacon Life Assurance Company, bearing Policy No. BLA-2023-77419, with a face amount (death benefit) of Fifteen Million Dollars ($15,000,000), insuring the joint lives of the Insured Lives, and any replacement, conversion, or successor policy issued in connection therewith. The term "Policy" shall also include any additional policies of insurance acquired by the Trustee on the lives of the Insured Lives or either of them pursuant to the powers granted herein.
(i) "Trust" or "Trust Fund" shall mean the Caldwell Family Insurance Trust established pursuant to this Trust Agreement, including all property held by the Trustee hereunder, whether initially transferred, subsequently contributed, or received as proceeds of any insurance policy, together with the income and appreciation thereon.
(j) "Trustee" shall mean Northgate Trust Company of Delaware, and any successor trustee appointed in accordance with Article IX of this Trust Agreement. The term "Trustee" shall also include any co-trustee, if any, serving at any time hereunder.
(k) "Withdrawal Period" shall mean the period of thirty (30) calendar days following the date of receipt by a Crummey Beneficiary of a Withdrawal Notice delivered pursuant to Section 5.3 hereof.
(l) "Withdrawal Right Amount" shall mean Five Thousand Dollars ($5,000) per Crummey Beneficiary per calendar year, or such lesser amount as may be contributed to the Trust in respect of such Crummey Beneficiary during such calendar year.
Section 1.2 — Construction
The following rules of construction shall apply to this Trust Agreement:
(a) The headings and captions used in this Trust Agreement are inserted for convenience of reference only and shall not be construed to define, limit, or describe the scope or intent of any provision hereof.
(b) As used herein, 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, as the context requires.
(c) References to sections, articles, schedules, and exhibits are to sections and articles of, and schedules and exhibits to, this Trust Agreement unless otherwise specified.
(d) References to any section of the Code shall include any successor provision and the Treasury Regulations promulgated thereunder, and references to any other statute, rule, or regulation shall include any successor provision.
(e) The words "including," "includes," and "include" shall be deemed to be followed by the phrase "without limitation" and shall not be construed to limit any general statement to the specific or similar items or matters immediately following such words.
(f) References to "persons" shall include natural persons, trusts, estates, corporations, partnerships, limited liability companies, and all other entities recognized under applicable law.
(g) The terms "hereof," "herein," "hereunder," and similar words refer to this Trust Agreement as a whole and not to any particular provision.
ARTICLE II — CREATION OF TRUST; IRREVOCABILITY
Section 2.1 — Establishment
The Grantor hereby establishes the Caldwell Family Insurance Trust, effective as of March 15, 2023. The Grantor hereby transfers, assigns, conveys, and delivers to the Trustee the initial trust property described in Schedule A attached hereto and incorporated herein by reference, to be held, administered, and distributed by the Trustee in accordance with the terms and conditions of this Trust Agreement. The Trustee acknowledges receipt of the initial trust property described in Schedule A and agrees to hold such property in trust upon the terms set forth herein.
The Trust established hereunder shall be known as the "Caldwell Family Insurance Trust" and may be referred to by that name or such other designation as the Trustee may adopt from time to time for administrative purposes. The Trust shall continue in existence until terminated in accordance with the provisions of this Trust Agreement or as otherwise required by applicable law.
Section 2.2 — Irrevocability
This Trust is irrevocable. The Grantor hereby relinquishes all right, title, and interest in and to the trust property, including but not limited to all cash, insurance policies, investment assets, and other property of any kind at any time held by the Trustee under this Trust Agreement. The Grantor hereby relinquishes all right, power, and authority to alter, amend, modify, revoke, or terminate this Trust Agreement or any of its terms and provisions, in whole or in part.
The Grantor retains no power or interest that would cause the inclusion of any trust property, including the Policy and any proceeds thereof, in the Grantor's gross estate for federal estate tax purposes under Sections 2035, 2036, 2037, 2038, or 2042 of the Code, or any corresponding provisions of state law. Without limiting the generality of the foregoing:
(a) The Grantor retains no reversionary interest in the trust property within the meaning of Section 2037 of the Code;
(b) The Grantor retains no right to the possession or enjoyment of, or the right to the income from, the trust property within the meaning of Section 2036 of the Code;
(c) The Grantor retains no power to alter, amend, revoke, or terminate the trust or any interest therein within the meaning of Section 2038 of the Code;
(d) The Grantor retains no incidents of ownership in any policy of insurance on the Grantor's life held in trust, within the meaning of Section 2042(2) of the Code; and
(e) The Grantor shall not make any transfer to the trust within three years of death that would cause inclusion under Section 2035 of the Code except as may result from the initial transfer of the Policy and premium contributions, as to which the Grantor acknowledges the three-year lookback risk described in Section 4.2 hereof.
The Grantor further acknowledges and agrees that the irrevocability of this Trust is an essential element of the estate planning purposes for which the Trust is established, and that the Grantor has been fully advised by legal counsel as to the consequences of making this Trust irrevocable.
Section 2.3 — Trust Situs
The situs of the Trust shall be the State of Delaware. The Trust shall be administered in the State of Delaware under the supervision of the Trustee at its principal Delaware offices located at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801. The Grantor has selected Delaware as the trust situs to take advantage of the favorable trust laws of the State of Delaware, including, without limitation, the Delaware Trust Act (12 Del. C. §§ 3501 et seq.), Delaware's perpetual trust provisions, and Delaware's qualified disposition in trust provisions. All books and records of the Trust shall be maintained at the Trustee's principal Delaware offices, and all trust administration activities shall be conducted from such location unless the Trustee determines, in its sole discretion, that a particular administrative function may be more effectively performed at another location.
ARTICLE III — TRUST PROPERTY; INSURANCE POLICY
Section 3.1 — Initial Trust Property
The Grantor has transferred, assigned, conveyed, and delivered to the Trustee, as of the date of this Trust Agreement, the property described in Schedule A attached hereto and incorporated herein by reference, consisting of the absolute assignment of the Beacon Life Assurance Company second-to-die universal life insurance Policy No. BLA-2023-77419, with a death benefit of Fifteen Million Dollars ($15,000,000), insuring the joint lives of Jonathan Robert Caldwell and Eleanor Victoria Caldwell. The Policy provides for a death benefit payable upon the death of the survivor of the two Insured Lives. The Trustee acknowledges receipt of the absolute assignment of the Policy and confirms that the Trustee is now the sole owner and beneficiary of the Policy.
Section 3.2 — Policy Details
The details of the Policy held by the Trust as of the date of this Trust Agreement are as follows:
The Trustee is and shall at all times be the sole owner and designated beneficiary of the Policy. The Trustee shall maintain ownership of the Policy and shall not transfer, assign, surrender, cancel, or otherwise dispose of the Policy except in accordance with the provisions of this Trust Agreement and Article VIII hereof. In the event of any conflict between the terms of the Policy and the terms of this Trust Agreement, the provisions of this Trust Agreement shall govern with respect to the rights and obligations of the Grantor, the Trustee, and the Beneficiaries as between themselves.
Section 3.3 — Additional Contributions
The Grantor, or any other person, may from time to time make additional contributions of cash or other property to the Trust. All such additional contributions shall become part of the Trust Fund and shall be held, administered, and distributed by the Trustee in accordance with the terms of this Trust Agreement. All contributions, whether by the Grantor or by any other person, shall be subject to the Crummey withdrawal provisions of Article V hereof.
The Trustee shall have no obligation to accept any contribution of property other than cash without the Trustee's prior written consent. The Trustee may, in its sole discretion, decline to accept any non-cash contribution if the Trustee determines that such property would be difficult to administer, would subject the Trust to undue risk, or would be inconsistent with the purposes of the Trust. No contributor, including the Grantor, shall have any right to direct the use, investment, or application of contributed funds or property, except as expressly provided in this Trust Agreement.
Section 3.4 — Payment of Premiums
The Trustee shall apply cash contributions received by the Trust to the payment of premiums on the Policy as they become due and payable. The current annual premium on the Policy is One Hundred Eighty-Seven Thousand Five Hundred Dollars ($187,500), payable to Beacon Life Assurance Company. The Trustee shall cause premium payments to be made in a timely manner so as to prevent any lapse of the Policy, provided that sufficient funds are available in the Trust for that purpose.
If, at any time, the Trust does not contain sufficient funds to pay a premium when due, the Trustee shall promptly notify the Grantor (during the Grantor's lifetime) and each Crummey Beneficiary in writing at least thirty (30) days before the premium due date, advising them of the shortfall and of the consequences of a failure to pay the premium. The Trustee shall have no obligation to pay premiums from its own funds or to advance funds to the Trust for the payment of premiums. The Trustee shall not be liable for any lapse of the Policy resulting from the insufficiency of trust funds available to pay premiums, provided that the Trustee has given the required notice.
Premium funding is anticipated through annual cash contributions by the Grantor. For the calendar year 2023, the Grantor anticipates making a total contribution of One Hundred Eighty-Seven Thousand Five Hundred Dollars ($187,500). Of this amount, Fifty-One Thousand Dollars ($51,000) is expected to be covered by annual exclusion gifts (representing three Crummey Beneficiaries multiplied by the 2023 Annual Exclusion Amount of Seventeen Thousand Dollars ($17,000) per beneficiary). The balance of One Hundred Thirty-Six Thousand Five Hundred Dollars ($136,500) will utilize the Grantor's remaining lifetime gift tax exemption under Section 2505 of the Code.
Section 3.5 — Policy Management
The Trustee shall exercise all ownership rights under the Policy, including without limitation the right to elect settlement options, designate and change the beneficiary of the Policy, borrow against the cash value of the Policy, exercise conversion rights, modify or adjust policy features, and take all other actions available to a policy owner under the terms of the Policy and applicable law. The Trustee shall exercise such ownership rights in a manner consistent with the purposes of this Trust and in the best interests of the Beneficiaries.
The Trustee shall not borrow against the cash value of the Policy without carefully considering the impact of such borrowing on the death benefit, the long-term viability of the Policy, and the estate planning purposes for which this Trust was established. Any borrowing against the cash value of the Policy shall be undertaken only if the Trustee determines, in its reasonable discretion, that such borrowing is necessary or advisable for the proper administration of the Trust or for the benefit of the Beneficiaries.
The Trustee may acquire additional policies of insurance on the lives of the Insured Lives, or on the life of either Insured Life individually, if the Trustee determines that such acquisition is in the best interests of the Beneficiaries and is consistent with the purposes of this Trust. Any additional policy so acquired shall be held by the Trustee as part of the Trust Fund and shall be subject to all of the terms and conditions of this Trust Agreement.
ARTICLE IV — PREMIUM CONTRIBUTIONS AND GIFT TAX TREATMENT
Section 4.1 — Gift Treatment
Contributions by the Grantor to the Trust are intended to be treated as completed gifts for federal gift tax purposes. To the extent possible, such gifts are intended to qualify for the annual exclusion from federal gift tax under Section 2503(b) of the Code. The availability of the annual exclusion is dependent upon the grant and proper administration of the Crummey withdrawal powers set forth in Article V hereof, which are designed to create present interests in the contributed property for each Crummey Beneficiary.
For the calendar year 2023, each Crummey Beneficiary's Annual Exclusion Amount is Seventeen Thousand Dollars ($17,000) per donee. With three (3) Crummey Beneficiaries, the total annual exclusion coverage for contributions to this Trust is Fifty-One Thousand Dollars ($51,000) (calculated as three beneficiaries multiplied by $17,000 per beneficiary).
Premium amounts contributed to the Trust in excess of the aggregate annual exclusion coverage shall constitute taxable gifts that will utilize the Grantor's remaining applicable exclusion amount under Section 2505 of the Code (the lifetime gift tax exemption). For the calendar year 2023, the applicable exclusion amount is Twelve Million Nine Hundred Twenty Thousand Dollars ($12,920,000). The Grantor has previously made the following taxable gifts that have utilized a portion of the Grantor's applicable exclusion amount:
(a) Prior taxable gifts totaling Six Million Seven Hundred Fifty Thousand Dollars ($6,750,000) made in calendar years 2010 through 2022; and
(b) A gift of Five Million Dollars ($5,000,000) to the Caldwell Family Dynasty Trust made in January 2023.
Accordingly, the Grantor's remaining applicable exclusion amount, prior to the contribution made pursuant to this Trust Agreement, is One Million One Hundred Seventy Thousand Dollars ($1,170,000) (calculated as $12,920,000 minus $6,750,000 minus $5,000,000). For the 2023 premium contribution of $187,500, the taxable gift portion of $136,500 (i.e., $187,500 minus $51,000 in annual exclusions) will further reduce the Grantor's remaining applicable exclusion amount to One Million Thirty-Three Thousand Five Hundred Dollars ($1,033,500).
The Grantor shall be responsible for filing any required federal and state gift tax returns (IRS Form 709 and applicable state equivalents) reporting contributions to this Trust, and for paying any gift tax that may become due if the Grantor's applicable exclusion amount is fully utilized. The Trustee shall cooperate with the Grantor and the Grantor's tax advisors in providing information necessary for the preparation of such returns.
Section 4.2 — Three-Year Lookback
The Grantor acknowledges and understands that if the Grantor dies within three (3) years of the date on which the Policy was transferred to the Trust, the death benefit payable under the Policy may be includible in the Grantor's gross estate for federal estate tax purposes under Section 2035 of the Code. The Policy was assigned to the Trust on March 15, 2023; accordingly, the three-year lookback period under Section 2035 of the Code will expire on March 15, 2026.
The parties intend that, from and after the date of this Trust Agreement, the Trustee, and not the Grantor, shall be the owner of the Policy for all purposes, including for purposes of Sections 2035 and 2042 of the Code. The Grantor shall take no action that would suggest or imply retained ownership of or control over the Policy after the date of this Trust Agreement. Nothing in this Trust Agreement shall be construed to grant or reserve to the Grantor any incident of ownership in the Policy, and the Grantor hereby disclaims any such incident of ownership.
The Grantor further acknowledges that premium payments made by the Grantor within three (3) years of the Grantor's death could also be subject to the three-year lookback rule under Section 2035 of the Code, potentially resulting in the inclusion of a proportionate share of the death benefit in the Grantor's gross estate. The Grantor's estate planning advisors at Calderwood & Harkness LLP and Strathmore Corporation & Greaves LLP have discussed this risk with the Grantor, and the Grantor accepts such risk as part of the overall estate planning strategy.
ARTICLE V — CRUMMEY WITHDRAWAL POWERS
Section 5.1 — Grant of Withdrawal Right
Each Crummey Beneficiary shall have the right, upon any contribution of cash or property to the Trust during any calendar year, to withdraw from the Trust an amount equal to the lesser of:
(a) Five Thousand Dollars ($5,000); or
(b) such Crummey Beneficiary's proportionate share of the total amount contributed to the Trust during the applicable calendar year (determined by dividing the total contribution equally among the number of Crummey Beneficiaries then entitled to a withdrawal right).
The right of withdrawal granted hereunder is intended to constitute a present interest in the contributed property within the meaning of Section 2503(b) of the Code, thereby qualifying the Grantor's contribution, to the extent of the aggregate withdrawal rights, for the annual exclusion from federal gift tax. It is the intent of the Grantor and the Trustee that the Crummey withdrawal rights be respected as bona fide present interests and that the administration of such withdrawal rights shall comply in all respects with the requirements established by the Tax Court's decision in Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968), and the Treasury Regulations and Internal Revenue Service guidance interpreting the annual exclusion.
Section 5.2 — Crummey Beneficiaries
The Crummey Beneficiaries as of the date of this Trust Agreement are the following individuals:
(a) Thomas Robert Caldwell, 55 Perry Street, Unit 3, New York, New York 10014;
(b) Katherine Claire Hartfield, 210 Briarcliff Lane, Greenwich, Connecticut 06830; and
(c) Olivia Grace Caldwell, 1240 North Dearborn Street, Apt. 807, Chicago, Illinois 60610.
Each of the foregoing individuals is an adult of legal age and is competent to exercise the withdrawal right granted hereunder. The Crummey Beneficiaries are the same individuals designated as "Beneficiaries" in Section 1.1(b) hereof.
Section 5.3 — Withdrawal Notice
Upon the receipt by the Trustee of any contribution to the Trust, whether by the Grantor or by any other person, the Trustee shall promptly give written notice (the "Withdrawal Notice") to each Crummey Beneficiary at such Crummey Beneficiary's last known address as reflected in the records of the Trustee. The Withdrawal Notice shall be sent by first-class mail, postage prepaid, or by such other means as the Trustee determines will ensure actual receipt by the Crummey Beneficiary, and shall contain all of the following information:
(i) The date of the contribution to the Trust and the total amount or fair market value of the contribution;
(ii) A statement of the Crummey Beneficiary's right to withdraw from the Trust an amount equal to the lesser of Five Thousand Dollars ($5,000) or the Crummey Beneficiary's proportionate share of the contribution;
(iii) A statement that the Withdrawal Period during which the withdrawal right may be exercised is thirty (30) calendar days from the date of receipt of the Withdrawal Notice by the Crummey Beneficiary;
(iv) A statement that the withdrawal right will lapse automatically at the expiration of the Withdrawal Period if not exercised within such period; and
(v) Instructions for exercising the withdrawal right, including the address to which a written demand for withdrawal must be delivered.
The Trustee shall send the Withdrawal Notice as soon as practicable after the Trustee's receipt of a contribution, and in no event later than five (5) business days after receipt of such contribution. The Trustee shall maintain records of all Withdrawal Notices sent, including the date of mailing and the method of delivery, and shall retain copies of all such notices in the Trustee's files.
A form of the Crummey Withdrawal Notice to be used by the Trustee is attached hereto as Exhibit A and incorporated herein by reference.
Section 5.4 — Exercise of Withdrawal Right
A Crummey Beneficiary may exercise the withdrawal right by delivering a written notice to the Trustee at the Trustee's principal office at Northgate Trust Company of Delaware, 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801, Attention: Philip A. Rossiter, Senior Vice President, Trust Administration, at any time within the thirty (30) calendar day Withdrawal Period. The written notice shall specify the amount that the Crummey Beneficiary wishes to withdraw, which amount shall not exceed the Withdrawal Right Amount for such Crummey Beneficiary for the applicable calendar year.
The Trustee shall satisfy any properly and timely exercised withdrawal demand by paying the requested amount in cash from available trust funds to the Crummey Beneficiary as soon as practicable, and in no event later than ten (10) business days after receipt of the written demand. If the Trust does not contain sufficient liquid assets to satisfy a properly exercised withdrawal demand, the Trustee shall use its best efforts to liquidate trust assets or otherwise obtain funds sufficient to satisfy the demand. The Trustee shall not be required to surrender or otherwise dispose of the Policy to satisfy a withdrawal demand.
Section 5.5 — Lapse of Withdrawal Right
Any withdrawal right not exercised by the Crummey Beneficiary within the thirty (30) calendar day Withdrawal Period shall lapse automatically, without any further action by the Crummey Beneficiary, the Trustee, or any other person. Upon the lapse of a withdrawal right, the property subject to such withdrawal right shall remain in the Trust and shall continue to be held, administered, and distributed by the Trustee in accordance with the terms of this Trust Agreement.
The lapse of a Crummey Beneficiary's withdrawal right shall not be treated as a release of a general power of appointment for purposes of Sections 2514 and 2041 of the Code, to the extent that the lapsed amount does not exceed the greater of:
(a) Five Thousand Dollars ($5,000); or
(b) Five percent (5%) of the aggregate value of the assets of the Trust from which the exercise of the lapsed power could have been satisfied, determined as of the date of lapse.
This limitation is set forth in Sections 2514(e) and 2041(b)(2) of the Code. It is the express intent of the Grantor that each Crummey Beneficiary's withdrawal right is limited to Five Thousand Dollars ($5,000) per calendar year, which amount falls within the safe harbor provided by Sections 2514(e) and 2041(b)(2) of the Code. The Trustee shall administer the Crummey withdrawal provisions so as to ensure that no lapse of a withdrawal right results in a taxable transfer by a Crummey Beneficiary.
Section 5.6 — Hanging Power Provision
Notwithstanding the foregoing provisions of this Article V, to the extent that any Crummey Beneficiary's withdrawal right in any calendar year exceeds the greater of Five Thousand Dollars ($5,000) or five percent (5%) of the aggregate value of the trust corpus (the "Excess Lapse Amount"), such Excess Lapse Amount shall not lapse at the end of the Withdrawal Period but shall instead carry over and be cumulated with the Crummey Beneficiary's withdrawal rights in subsequent calendar years. The Excess Lapse Amount shall be deemed to lapse in each subsequent calendar year only to the extent that it can be absorbed within the safe harbor provided by Sections 2514(e) and 2041(b)(2) of the Code for such subsequent year, until the entire Excess Lapse Amount has been fully absorbed through annual lapses.
Given the Five Thousand Dollar ($5,000) per beneficiary per year withdrawal limit currently in effect under this Trust Agreement, and the anticipated level of annual contributions, the hanging power provision set forth in this Section 5.6 is not expected to be operative under the current funding structure. This provision is included as a protective measure to guard against future changes in contribution levels, the number of Crummey Beneficiaries, or applicable law that might otherwise cause a lapse to exceed the safe harbor amount.
ARTICLE VI — DISPOSITION OF TRUST PROPERTY DURING INSURED LIVES
Section 6.1 — During Joint Lives
During the joint lifetimes of both Insured Lives (i.e., during the period that both Jonathan Robert Caldwell and Eleanor Victoria Caldwell are living), the Trustee shall hold the trust property, which shall consist primarily of the Policy, and shall apply available income and principal of the Trust solely for the following purposes:
(a) Payment of insurance premiums on the Policy as they become due and payable;
(b) Payment of trust administration expenses, including the Trustee's fees and the fees and expenses of legal counsel, accountants, and other advisors retained by the Trustee;
(c) Payment of any taxes attributable to the Trust, including federal and state income taxes on investment income earned by the Trust; and
(d) Satisfaction of any withdrawal right properly exercised by a Crummey Beneficiary under Article V hereof.
No distributions of income or principal shall be made to any Beneficiary during the joint lifetimes of the Insured Lives, except through the exercise of a Crummey withdrawal right under Article V. The Trustee shall accumulate all trust income not applied to the purposes described above and shall add such accumulated income to the trust principal. The Trustee shall invest any trust funds not immediately needed for premium payments or trust expenses in short-term, investment-grade money market instruments, United States Treasury obligations, or other conservative investments selected by the Trustee in its discretion.
Section 6.2 — After Death of First Insured
Upon the death of the first of the two Insured Lives to die (whether the Grantor or the Grantor's Spouse), the Trustee shall continue to hold the Policy, which, as a second-to-die policy, does not pay the death benefit upon the death of the first Insured Life. The Trustee shall continue to maintain the Policy in force and shall continue to pay premiums from available trust funds as they become due and payable. All other provisions of this Trust Agreement, including the Crummey withdrawal provisions of Article V, shall remain operative and in full force and effect following the death of the first Insured Life.
No distributions shall be made to the Beneficiaries upon the death of the first Insured Life, other than through the exercise of Crummey withdrawal rights that remain operative under Article V. The Trustee shall promptly notify Beacon Life Assurance Company of the death of the first Insured Life, shall provide such documentation as the insurance company may require, and shall take all actions necessary to ensure the continued validity and enforceability of the Policy following the death of the first Insured Life.
If the annual premium on the Policy increases as a result of the death of the first Insured Life, or if the Trustee determines that the Policy requires additional funding to maintain the intended death benefit, the Trustee shall promptly notify all Beneficiaries and, if the Grantor or the Grantor's Spouse is then living, such surviving individual, of the increased funding requirements. The Trustee shall have no obligation to advance funds or to pay premiums from its own resources.
ARTICLE VII — DISPOSITION UPON DEATH OF SURVIVING INSURED
Section 7.1 — Collection of Insurance Proceeds
Upon the death of the survivor of the two Insured Lives (the "Second Death"), the Trustee shall promptly take all actions necessary to collect the death benefit of Fifteen Million Dollars ($15,000,000) payable under Policy No. BLA-2023-77419 from Beacon Life Assurance Company. The Trustee shall file all required claim forms, provide all required documentation (including certified death certificates for both Insured Lives), and take all other steps reasonably necessary to effect the prompt collection of the insurance proceeds. The Trustee shall use reasonable efforts to collect the proceeds as expeditiously as possible and may retain legal counsel, insurance consultants, or other advisors as the Trustee deems necessary or appropriate to facilitate the collection process.
In the event that Beacon Life Assurance Company contests, delays, or refuses payment of the death benefit under the Policy, the Trustee is authorized to take such legal action as the Trustee deems appropriate to enforce the Trust's rights under the Policy, including the institution of litigation or arbitration proceedings against the insurance company. The costs of any such legal action, including attorneys' fees and expenses, shall be charged against and paid from the trust assets.
Section 7.2 — Payment of Expenses
From the insurance proceeds collected pursuant to Section 7.1, and from any other trust assets then held by the Trustee, the Trustee shall first pay and discharge the following obligations, in the order of priority set forth below:
(a) All outstanding trust administration expenses, including but not limited to the fees and expenses of legal counsel, accountants, tax advisors, and other professionals retained by the Trustee in connection with the administration of the Trust;
(b) Any outstanding insurance premiums or other amounts due to Beacon Life Assurance Company under the Policy;
(c) The Trustee's fees and expenses for the final administration of the Trust, including the Trustee's fees for the collection and distribution of the insurance proceeds;
(d) Any taxes attributable to the Trust, including any income taxes, estate taxes, or other taxes for which the Trust may be liable; and
(e) Any other debts, obligations, or liabilities of the Trust properly incurred by the Trustee in the course of trust administration.
Section 7.3 — Establishment of Shares
After the payment of all expenses and obligations described in Section 7.2, the remaining trust fund (the "Net Trust Fund") shall be divided into three (3) equal shares, one for the benefit of each of the following Beneficiaries:
(a) The Thomas R. Caldwell Share. One-third (1/3) of the Net Trust Fund shall be set aside and held in a separate trust designated as the "Thomas R. Caldwell Share," for the benefit of Thomas Robert Caldwell and his issue, as hereinafter provided.
(b) The Katherine C. Hartfield Share. One-third (1/3) of the Net Trust Fund shall be set aside and held in a separate trust designated as the "Katherine C. Hartfield Share," for the benefit of Katherine Claire Hartfield and her issue, as hereinafter provided.
(c) The Olivia G. Caldwell Share. One-third (1/3) of the Net Trust Fund shall be set aside and held in a separate trust designated as the "Olivia G. Caldwell Share," for the benefit of Olivia Grace Caldwell and her issue, as hereinafter provided.
Each such share shall be held, administered, and distributed as a separate trust in accordance with the provisions of this Article VII, and the assets of each share shall not be commingled with the assets of any other share except for investment purposes, provided that the Trustee maintains separate accounting records for each share.
Section 7.4 — Distribution Standard for Each Share
Each Beneficiary's share established pursuant to Section 7.3 shall be held in a separate trust and shall be administered and distributed in accordance with the following provisions:
(a) Discretionary Distributions. The Trustee may, from time to time, distribute to or for the benefit of the Beneficiary for whom such share is held, or for the benefit of such Beneficiary's issue, such amounts of net income and principal as the Trustee, in its sole and absolute discretion, determines to be necessary or advisable for such Beneficiary's health, education, maintenance, and support (the "HEMS Standard"). In exercising this discretion, the Trustee shall take into account:
(i) The Beneficiary's other sources of income and financial resources, including earned income, investment income, and assets owned individually or through other trusts;
(ii) The Beneficiary's age, maturity, family circumstances, and station in life;
(iii) The Beneficiary's physical and mental health and any special needs;
(iv) The Beneficiary's educational pursuits and professional development;
(v) The tax consequences to the Beneficiary of any distribution; and
(vi) The desirability of preserving the trust corpus for the Beneficiary's future needs and for the benefit of the Beneficiary's issue.
(b) Outright Distributions of Principal. The Trustee may, in its discretion, distribute all or any portion of a Beneficiary's share to such Beneficiary outright and free of trust at such times and in such amounts as the Trustee determines appropriate, considering the factors set forth in paragraph (a) above. There shall be no mandatory distribution dates or amounts, and the Trustee's decision to make or withhold distributions shall be final and binding on all persons.
(c) Accumulation of Income. Any net income of a Beneficiary's share not distributed during any calendar year shall be accumulated and added to the principal of such share.
Section 7.5 — Estate Tax Liquidity Purpose
The Grantor's intent in establishing this Trust and acquiring the Policy is that the insurance proceeds provide liquidity to the Grantor's family and estate to meet estate tax obligations, estate administration expenses, and other liquidity needs arising upon the death of the survivor of the Insured Lives. The Grantor recognizes that, upon the Second Death, the Grantor's estate (or the estate of the Grantor's Spouse, as the case may be) may face significant federal and state estate tax liabilities, and the insurance proceeds held in this Trust are intended to provide the financial resources necessary to satisfy those obligations without the forced liquidation of illiquid estate assets such as closely held business interests, real estate, and other non-liquid investments.
To facilitate the provision of estate tax liquidity, the Trustee is authorized, but not directed or required, to do either or both of the following:
(a) Loans to Estate. The Trustee may loan funds from the Trust to the estate of the Grantor, the estate of the Grantor's Spouse, or the trustee of any revocable trust established by the Grantor or the Grantor's Spouse, for the purpose of paying estate taxes, estate administration expenses, or other obligations of such estate. Any such loan shall be made at fair market value and on arm's-length terms, including the payment of interest at a rate not less than the applicable federal rate under Section 7872 of the Code in effect at the time of the loan, and shall be evidenced by a promissory note with commercially reasonable repayment terms.
(b) Purchase of Estate Assets. The Trustee may purchase assets from the estate of the Grantor, the estate of the Grantor's Spouse, or the trustee of any revocable trust established by the Grantor or the Grantor's Spouse, at fair market value, as determined by independent appraisal, to provide the estate with the cash needed to pay estate taxes and administration expenses. Any such purchase shall be conducted on arm's-length terms and at fair market value to avoid the inclusion of trust assets in the Grantor's taxable estate or any adverse gift tax consequences.
The Trustee shall exercise its discretion under this Section 7.5 in a manner that does not cause the inclusion of any trust assets in the Grantor's gross estate or the gross estate of the Grantor's Spouse for federal estate tax purposes. The Trustee is not obligated to make any loan or purchase, and the Beneficiaries acknowledge that the Trustee's primary fiduciary duty is to the Beneficiaries of this Trust.
Section 7.6 — Per Stirpes Provision
If any Beneficiary predeceases the survivor of the Insured Lives, such deceased Beneficiary's share shall pass to such Beneficiary's then-living issue, per stirpes. If a deceased Beneficiary has two or more then-living children, such deceased Beneficiary's share shall be divided equally among such children. If any child of a deceased Beneficiary has himself or herself predeceased, leaving then-living issue, such child's share shall pass to such child's issue, per stirpes.
If a Beneficiary dies without surviving issue, whether before or after the Second Death, such Beneficiary's share (or the remaining balance thereof) shall be divided equally among the remaining Beneficiaries who are then living (or, if any remaining Beneficiary has predeceased leaving then-living issue, such deceased remaining Beneficiary's share shall pass to such Beneficiary's issue, per stirpes).
If all Beneficiaries and all issue of all Beneficiaries predecease the survivor of the Insured Lives, or if all shares have been exhausted, any remaining trust property shall be distributed to the then-living issue of the Grantor, per stirpes, or if there are no then-living issue of the Grantor, to the Grantor's heirs at law, determined under the laws of the State of New York as in effect at the time of the final termination of the Trust.
Section 7.7 — Provisions for Minor and Young Beneficiaries
Any share or portion of a share otherwise distributable to a Beneficiary or to issue of a Beneficiary who has not yet attained the age of twenty-five (25) years shall not be distributed outright to such Beneficiary but shall instead be held in a separate trust for such Beneficiary's benefit (a "Minor's Trust") until such Beneficiary attains the age of twenty-five (25). During the period that a Minor's Trust is in existence, the Trustee shall distribute income and principal therefrom for the health, education, maintenance, and support of the Beneficiary for whom such Minor's Trust is held, in the Trustee's sole and absolute discretion, applying the HEMS Standard set forth in Section 7.4(a) above. Upon such Beneficiary attaining the age of twenty-five (25), the entire remaining balance of the Minor's Trust shall be distributed outright to such Beneficiary, free of trust.
As of the date of this Trust Agreement, the following grandchildren of the Grantor may potentially benefit as issue of a Beneficiary under the per stirpes provisions of Section 7.6 and may be subject to the Minor's Trust provisions of this Section 7.7:
(a) James William Hartfield, age eight (8), son of Katherine Claire Hartfield;
(b) Charlotte Marie Hartfield, age five (5), daughter of Katherine Claire Hartfield;
(c) Lucas Thomas Caldwell, age three (3), son of Thomas Robert Caldwell; and
(d) Nora Elizabeth Caldwell, age one (1), daughter of Thomas Robert Caldwell.
If a Beneficiary of a Minor's Trust dies before attaining the age of twenty-five (25), the remaining balance of such Minor's Trust shall be distributed to such deceased Beneficiary's then-living issue, per stirpes, or if there are no then-living issue, to the other Beneficiaries of this Trust (or their issue, per stirpes) in equal shares.
ARTICLE VIII — POWERS AND DUTIES OF THE TRUSTEE
Section 8.1 — General Powers
The Trustee shall have all powers granted to trustees under the laws of the State of Delaware, including the powers conferred by 12 Del. C. §§ 3301 through 3340 and the Uniform Trust Code as adopted in Delaware, and such additional powers as may be necessary or appropriate for the proper administration of the Trust. Without limiting the generality of the foregoing, the Trustee shall have the power to:
(a) Hold, manage, invest, and reinvest trust property in such investments as the Trustee deems appropriate, without being limited to investments authorized for trustees under applicable law;
(b) Collect all income, dividends, interest, distributions, and proceeds of trust property;
(c) Pay premiums on the Policy and on any other policies of insurance held in the Trust;
(d) Execute and deliver all instruments, documents, and agreements necessary or appropriate for the administration of the Policy and any other trust property, including policy endorsements, claim forms, change of beneficiary forms, settlement option elections, and assignment instruments;
(e) Employ and compensate agents, attorneys, accountants, investment advisors, insurance consultants, and other professionals as the Trustee deems necessary or appropriate for the proper administration of the Trust, and to rely upon the advice and recommendations of such persons;
(f) Settle, compromise, or abandon any claims or demands of or against the Trust as the Trustee deems appropriate;
(g) Make all elections, designations, and allocations required or permitted under the Code or any applicable state tax law, including the allocation of the Grantor's generation-skipping transfer tax exemption;
(h) Open and maintain bank accounts, brokerage accounts, and other financial accounts in the name of the Trust or the Trustee, as Trustee;
(i) Execute, acknowledge, and deliver deeds, assignments, bills of sale, and other instruments of conveyance or transfer;
(j) Participate in any reorganization, merger, consolidation, exchange, or other transaction affecting any trust property, and to exercise or sell any rights arising from such transactions;
(k) Vote proxies and exercise all other rights pertaining to securities or other investments held in the Trust; and
(l) Take all other actions that the Trustee deems necessary, advisable, or appropriate for the protection, preservation, and management of the trust property and the fulfillment of the purposes of this Trust.
Section 8.2 — Insurance-Specific Powers