AMENDED AND RESTATED DECLARATION OF TRUST
OF THE
CALDWELL REVOCABLE TRUST
Effective April 1, 2023
Prepared by:
Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, New York 10152
Sylvia Hartwell, Esq. Partner, Trusts & Estates Group
Right-click to update Table of Contents
PREAMBLE AND RECITALS
THIS AMENDED AND RESTATED DECLARATION OF TRUST OF THE CALDWELL REVOCABLE TRUST (the "Trust Agreement") is made and entered into as of the 1st day of April, 2023 (the "Effective Date"), by 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) (the "Settlor"), as both Settlor and Trustee.
WITNESSETH:
WHEREAS, the Settlor established the Caldwell Revocable Trust on October 3, 2010, pursuant to a Declaration of Trust of that same date, under which the Settlor served as both Settlor and initial Trustee (the "Original Trust Agreement"); and
WHEREAS, under the terms of the Original Trust Agreement, the Settlor expressly reserved the right to amend, modify, or revoke the trust, in whole or in part, at any time during his lifetime, by written instrument delivered to the Trustee; and
WHEREAS, the Settlor now desires to amend and restate the Original Trust Agreement in its entirety in order to coordinate the terms and administration of this trust with the comprehensive generational estate plan being implemented by the Settlor during the calendar year 2023 (the "2023 Estate Plan"), which plan includes, among other components, the establishment and funding of the following trusts, entities, and vehicles:
(a) the Caldwell 2023 Securities GRAT, a grantor retained annuity trust established under the laws of the State of New York;
(b) the Caldwell 2023 Realty GRAT, a grantor retained annuity trust established under the laws of the State of New York;
(c) the Caldwell 2023 Carried Interest GRAT, a grantor retained annuity trust established under the laws of the State of New York;
(d) the Caldwell Family Dynasty Trust, an irrevocable trust established under the laws of the State of Delaware, with its principal situs in Wilmington, Delaware;
(e) the Caldwell Family Insurance Trust (an irrevocable life insurance trust, or "ILIT"), established under the laws of the State of Delaware; and
(f) The Caldwell Family Foundation, a New York not-for-profit corporation organized under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended;
WHEREAS, this Amended and Restated Trust Agreement is intended to supersede and replace in its entirety the Original Trust Agreement dated October 3, 2010, together with any and all prior amendments thereto, and to serve as the sole governing instrument of the Caldwell Revocable Trust from and after the Effective Date; and
WHEREAS, ELEANOR VICTORIA CALDWELL (Date of Birth: September 22, 1958; Social Security Number ending in 6203), the Settlor's spouse (the "Spouse"), has been fully advised of the terms of this Amended and Restated Trust Agreement and of the overall structure and objectives of the 2023 Estate Plan, and has obtained independent legal counsel through the law firm of Pemberton, Locke & Strauss LLP, specifically Rachel F. Dunlap, Esq., of that firm, with respect to the terms of this Trust Agreement and the estate planning documents executed in connection herewith, including the Spouse's rights, interests, and obligations under this trust and the related instruments; and
WHEREAS, the Settlor intends that this trust shall be governed in all respects by the laws of the State of New York, including, without limitation, the New York Estates, Powers and Trusts Law ("EPTL") and the New York Surrogate's Court Procedure Act ("SCPA"), except as otherwise expressly provided herein;
NOW, THEREFORE, the Settlor hereby amends and restates the Caldwell Revocable Trust in its entirety, effective as of the Effective Date, as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Trust Agreement, the following terms shall have the meanings set forth below. Any term defined in the singular shall include the plural, and any term defined in the plural shall include the singular, as the context may require. Terms not defined in this Section 1.1 shall have the meanings ascribed to them elsewhere in this Trust Agreement or, where applicable, the meanings given to them under the Internal Revenue Code of 1986, as amended, or the New York Estates, Powers and Trusts Law.
(a) "Settlor" or "Grantor" shall mean Jonathan Robert Caldwell.
(b) "Trustee" shall mean the individual or entity serving as trustee of this trust from time to time, as designated in Article X of this Trust Agreement. During the Settlor's lifetime, the Settlor shall serve as sole Trustee. Upon the Settlor's death or incapacity, the successor trustees designated in Section 10.2 shall serve in the order specified therein.
(c) "Trust Estate" or "Trust Property" shall mean all property described on Schedule A attached hereto and incorporated herein by reference, as such Schedule A may be amended from time to time, together with any and all property subsequently transferred, conveyed, devised, bequeathed, or otherwise contributed to the trust, including, without limitation, property received pursuant to the Settlor's Last Will and Testament (Pour-Over Will) dated April 1, 2023, and all income, gains, and proceeds thereof.
(d) "Spouse" shall mean Eleanor Victoria Caldwell, the lawful spouse of the Settlor as of the date of this Trust Agreement. References to the "Spouse" shall be references to Eleanor Victoria Caldwell specifically and shall not include any subsequent spouse of the Settlor in the event of divorce, annulment, or the death and remarriage of the Settlor.
(e) "Children" shall mean the following natural-born children of the Settlor:
(i) Thomas Robert Caldwell (Date of Birth: June 7, 1985);
(ii) Katherine Claire Hartfield, née Caldwell (Date of Birth: November 19, 1987); and
(iii) Olivia Grace Caldwell (Date of Birth: April 2, 1993).
(f) "Grandchildren" shall mean the following grandchildren of the Settlor living as of the date of this Trust Agreement:
(i) James W. Hartfield (age 8 as of the Effective Date);
(ii) Charlotte M. Hartfield (age 5 as of the Effective Date);
(iii) Lucas T. Caldwell (age 3 as of the Effective Date); and
(iv) Nora E. Caldwell (age 1 as of the Effective Date);
together with any after-born or after-adopted descendants of the Settlor's Children who are born or legally adopted after the date of this Trust Agreement.
(g) "Descendants" or "Issue" shall mean the lineal descendants of the Settlor in any degree, whether natural or legally adopted, determined on a per stirpes basis in accordance with the definition of that term set forth in paragraph (q) of this Section 1.1.
(h) "Applicable Exclusion Amount" shall mean the federal estate tax applicable exclusion amount as in effect at the time of the Settlor's death under Section 2010(c) of the Internal Revenue Code, as adjusted for inflation and as may be modified by subsequent legislation, reduced by the aggregate amount of the Settlor's adjusted taxable gifts (as defined in Section 2001(b)(1)(B) of the Code) made during the Settlor's lifetime. For planning purposes, the Settlor notes that as of the Effective Date, the 2023 federal lifetime gift and estate tax exemption amount is $12,920,000 per individual, and the Settlor has made or is making adjusted taxable gifts totaling approximately $11,886,500 (inclusive of prior gifts, the $5,000,000 cash gift to the Dynasty Trust, the $136,500 annual ILIT premium exemption usage, and other lifetime gifts), leaving an estimated remaining exemption of approximately $1,033,500 as of the date of this Trust Agreement. The Settlor acknowledges that these figures are subject to change based on additional gifts, future legislation (including potential sunset of the increased exemption after December 31, 2025, pursuant to Section 11061 of the Tax Cuts and Jobs Act of 2017), and indexing adjustments.
(i) "QTIP Trust" or "Marital Trust" shall mean the Qualified Terminable Interest Property Trust described in Article V of this Trust Agreement, which is intended to qualify for the federal estate tax marital deduction under Section 2056(b)(7) of the Code.
(j) "Credit Shelter Trust" or "Bypass Trust" or "Family Trust" shall mean the trust described in Article IV of this Trust Agreement, which is intended to utilize the Settlor's remaining Applicable Exclusion Amount and to be excluded from the Spouse's gross estate for federal estate tax purposes.
(k) "Dynasty Trust" shall mean the Caldwell Family Dynasty Trust, an irrevocable trust established under the laws of the State of Delaware on April 1, 2023, with its principal situs in Wilmington, Delaware, with Northgate Trust Company of Delaware and Thomas R. Caldwell serving as co-trustees, and Victoria Chambers serving as Trust Protector.
(l) "Foundation" shall mean The Caldwell Family Foundation, a New York not-for-profit corporation (Employer Identification Number 88-3021547), incorporated on March 20, 2023, under the laws of the State of New York, and which has received its determination letter from the Internal Revenue Service confirming its status as a tax-exempt organization under Section 501(c)(3) of the Code.
(m) "GRAT" or "GRATs" shall mean, collectively, the Caldwell 2023 Securities GRAT, the Caldwell 2023 Realty GRAT, and the Caldwell 2023 Carried Interest GRAT, each of which is a grantor retained annuity trust established under the laws of the State of New York, and each of which is described more particularly in Section 13.6 and Exhibit B of this Trust Agreement.
(n) "ILIT" shall mean the Caldwell Family Insurance Trust, an irrevocable life insurance trust established on March 15, 2023, under the laws of the State of Delaware, with Northgate Trust Company of Delaware serving as trustee.
(o) "Code" or "IRC" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor statute thereto, together with the Treasury Regulations promulgated thereunder. Any reference to a specific section of the Code shall be deemed to include any successor provision.
(p) "EPTL" shall mean the New York Estates, Powers and Trusts Law, as amended from time to time, and any successor statute thereto.
(q) "Per Stirpes" shall mean per stirpes as defined under Section 1-2.14 of the EPTL. Under that definition, the descendants of a deceased ancestor take by representation, with each branch of the family receiving an equal share, divided at the first generational level at which there are living descendants.
(r) "HEMS" shall mean an ascertainable standard relating to the beneficiary's health, education, maintenance, and support, within the meaning of Section 2041(b)(1)(A) of the Code and the Treasury Regulations promulgated thereunder. The Trustee's exercise of discretion under a HEMS standard shall be limited to distributions that are reasonably required for the beneficiary's health, education, maintenance, and support in the beneficiary's accustomed manner of living, and shall constitute an ascertainable standard for purposes of Sections 2041 and 2514 of the Code.
(s) "Incapacity" or "Disabled" shall have the meaning assigned thereto in Article XI of this Trust Agreement.
ARTICLE II — TRUST PROPERTY; POUR-OVER PROVISIONS
Section 2.1 — Initial Trust Property
The Settlor hereby confirms that the trust property currently held in the Caldwell Revocable Trust as of the Effective Date consists of all property described on Schedule A (Amended Trust Property Schedule) attached hereto and incorporated herein by reference, as such schedule may be amended from time to time by the Settlor or by the Trustee to reflect transfers to or from the trust.
The Settlor acknowledges that the Trust Property as of the Effective Date reflects adjustments made in connection with the implementation of the 2023 Estate Plan, including the following transfers out of the Caldwell Revocable Trust:
(a) The transfer of approximately $60,000,000 in publicly traded securities from the trust's liquid securities portfolio to fund the Caldwell 2023 Securities GRAT (GRAT A);
(b) The transfer of an approximately 59.7% membership interest in Stonecrest Realty Holdings LLC to fund the Caldwell 2023 Realty GRAT (GRAT B);
(c) The transfer of certain carried interest and limited partnership interests in Caldwell Ridgeline Capital LP (Funds IV, V, and VI) with a combined value of approximately $38,000,000 to fund the Caldwell 2023 Carried Interest GRAT (GRAT C);
(d) The transfer of $5,000,000 in cash as the initial contribution to the Caldwell Family Dynasty Trust; and
(e) The transfer of $10,000,000 in cash as a joint contribution (together with Eleanor V. Caldwell) to The Caldwell Family Foundation.
After giving effect to the foregoing transfers, the Trust Property as of the Effective Date consists of the following categories of assets:
(i) Liquid Securities Portfolio: Approximately $37,000,000 in publicly traded equities, fixed-income securities, and cash equivalents, managed by Havensbrook Wealth Advisors LLC (Diana R. Linden, CFP®, Managing Director, 900 Third Avenue, 18th Floor, New York, New York 10022);
(ii) Stonecrest Realty Holdings LLC Membership Interest: An approximately 40.3% remaining membership interest in Stonecrest Realty Holdings LLC, a New York limited liability company with its principal office at 330 Madison Avenue, Suite 2401, New York, New York 10017 (Chief Operating Officer: Robert M. Sinclair). Based on the total entity value of approximately $134,000,000 as of the most recent appraisal, the Settlor's remaining 40.3% interest has an approximate pro rata value of $54,000,000, subject to applicable valuation discounts for lack of marketability and lack of control;
(iii) Art and Collectibles: Art, antiques, and collectibles with an appraised aggregate fair market value of approximately $9,000,000, as valued by Ashford Valuation Group LLC (Dr. Leonard K. Whitfield, ASA, Senior Appraiser); and
(iv) Other Personal Property and Miscellaneous Assets: Vehicles, household furnishings, jewelry, and other tangible and intangible personal property with an estimated aggregate value of approximately $7,000,000.
Section 2.2 — Additional Contributions
The Settlor reserves the right, at any time and from time to time during his lifetime, to transfer additional property to the trust by any lawful means, including by deed, assignment, endorsement, or other written instrument of transfer. Any property so transferred shall become part of the Trust Estate and shall be held, administered, and distributed in accordance with the terms of this Trust Agreement.
In addition, any property devised, bequeathed, or otherwise payable to the Caldwell Revocable Trust under the Settlor's Last Will and Testament (Pour-Over Will) dated April 1, 2023, shall be added to the Trust Estate upon receipt by the Trustee and shall be administered in accordance with the provisions of this Trust Agreement. The Settlor confirms that the Pour-Over Will dated April 1, 2023, revoked the Settlor's prior Last Will and Testament dated October 3, 2010, and directs that all property subject to probate in the Settlor's estate that is not otherwise specifically devised or disposed of shall be distributed to the Trustee of this trust, to be held and administered as part of the Trust Estate.
Section 2.3 — GRAT Remainder Interests
The Settlor acknowledges and confirms that the remainder interests payable upon the expiration of the annuity terms of each of the three GRATs established as part of the 2023 Estate Plan are designated to pass to the Caldwell Family Dynasty Trust, and not to this Caldwell Revocable Trust. Specifically:
(a) GRAT A (Caldwell 2023 Securities GRAT): Funded on April 15, 2023, with a corpus of $60,000,000 in publicly traded securities, with a two (2)-year annuity term. The remainder interest, if any, shall pass to the Caldwell Family Dynasty Trust upon expiration of the annuity term.
(b) GRAT B (Caldwell 2023 Realty GRAT): Funded on May 1, 2023, with a corpus of approximately $80,000,000 (pre-discount) in membership interests in Stonecrest Realty Holdings LLC, with a three (3)-year annuity term. The remainder interest, if any, shall pass to the Caldwell Family Dynasty Trust upon expiration of the annuity term.
(c) GRAT C (Caldwell 2023 Carried Interest GRAT): Funded on June 1, 2023, with a corpus of approximately $38,000,000 (pre-discount) in carried interest and limited partnership interests in Caldwell Ridgeline Capital LP (Funds IV, V, and VI), with a three (3)-year annuity term. The remainder interest, if any, shall pass to the Caldwell Family Dynasty Trust upon expiration of the annuity term.
No remainder interest of any GRAT is payable to this Caldwell Revocable Trust. This provision is included solely for purposes of coordination and to avoid any ambiguity regarding the disposition of GRAT remainder interests in the event of the Settlor's death during the annuity period of any GRAT.
Section 2.4 — Coordination with ILIT
The Settlor acknowledges that the Caldwell Family Insurance Trust (ILIT), established on March 15, 2023, holds the second-to-die universal life insurance policy issued by Beacon Life Assurance Company (Policy No. BLA-2023-77419), insuring the joint lives of Jonathan R. Caldwell and Eleanor V. Caldwell, with a death benefit of $15,000,000. The proceeds of such policy are payable to the ILIT and are not part of the Trust Estate of this Caldwell Revocable Trust.
The Settlor directs the Trustee of this trust to cooperate fully with Northgate Trust Company of Delaware, in its capacity as trustee of the ILIT, in connection with all matters of estate administration, including, without limitation, the provision of such information, documentation, and access as may be reasonably necessary for the ILIT trustee to process and collect the death benefit proceeds upon the death of the survivor of the Settlor and the Spouse, and to coordinate the payment of any estate taxes, debts, or obligations as may be appropriate.
ARTICLE III — ADMINISTRATION DURING SETTLOR'S LIFETIME
Section 3.1 — Revocable Trust; Settlor as Primary Beneficiary
During the Settlor's lifetime and so long as the Settlor is not incapacitated (as determined under Article XI), this trust shall be revocable, and the Settlor shall retain full power and authority to amend, modify, or revoke this trust, in whole or in part, in accordance with Article XIV of this Trust Agreement. The Settlor shall be the primary beneficiary of the trust during his lifetime.
All net income of the trust, including interest, dividends, rents, and other income earned on the Trust Property, shall be distributed to or for the benefit of the Settlor at least quarterly, or more frequently as the Settlor may direct. The Trustee shall also distribute to the Settlor such additional amounts of income as the Settlor may request at any time.
The principal of the trust shall be available to the Settlor upon demand, without limitation or restriction. The Settlor may withdraw any or all of the principal of the trust at any time and for any purpose, without the requirement of any consent or approval from any other person. The Trustee shall promptly comply with any written or oral request by the Settlor for a distribution of principal.
Section 3.2 — Grantor Trust Status
The Settlor intends that this trust shall be treated as a "grantor trust" for federal income tax purposes under Sections 671 through 679 of the Internal Revenue Code during the Settlor's lifetime. As a grantor trust, all items of income, gain, loss, deduction, and credit of the trust shall be reported on the Settlor's individual federal and state income tax returns, and the trust shall not be required to file a separate income tax return (Form 1041) during the Settlor's lifetime, except as may be required for informational purposes.
The trust shall use the Settlor's Social Security Number (ending in 4781) as its taxpayer identification number during the Settlor's lifetime, in lieu of obtaining a separate employer identification number. Upon the Settlor's death, the Trustee shall apply for and obtain a separate employer identification number for the trust.
Section 3.3 — Incapacity of Settlor
If the Settlor becomes incapacitated, as defined and determined in accordance with the procedures set forth in Article XI of this Trust Agreement, the successor trustee designated in Section 10.2 shall assume management and administration of the trust. During any period of incapacity, the successor trustee shall apply the income and principal of the trust for the Settlor's health, education, maintenance, and support, and for the support of the Spouse and the Settlor's dependents, in the successor trustee's discretion, taking into account the Settlor's accustomed standard of living, other available resources, and any applicable government benefits.
The Settlor has executed, contemporaneously with this Trust Agreement, a Durable General Power of Attorney dated April 1, 2023, naming Eleanor V. Caldwell as agent and Thomas R. Caldwell as successor agent. The Trustee shall coordinate the administration of the Trust Estate with the agent acting under the Durable General Power of Attorney to ensure the orderly management of the Settlor's financial affairs during any period of incapacity, and shall consult with such agent regarding significant administrative decisions affecting the Trust Estate.
Section 3.4 — Power to Amend or Revoke
The Settlor reserves the unrestricted right to amend or revoke this trust, in whole or in part, at any time during his lifetime, by written instrument delivered to the Trustee. No amendment or revocation shall require the consent or approval of any beneficiary, trustee, or other person.
Upon revocation of this trust, the Trustee shall distribute the Trust Property to the Settlor, or as the Settlor may otherwise direct, within a reasonable time following receipt of the Settlor's written instruction. Any partial revocation shall be effective as to the specific property or provisions identified in the Settlor's written instrument, and the remaining provisions of this Trust Agreement shall continue in full force and effect.
The powers reserved in this Section 3.4 are personal to the Settlor and may not be exercised by any agent, attorney-in-fact, conservator, guardian, or other person acting on the Settlor's behalf, unless the Settlor has specifically authorized such exercise in writing.
ARTICLE IV — CREDIT SHELTER TRUST (BYPASS TRUST / FAMILY TRUST)
Section 4.1 — Establishment and Funding
Upon the Settlor's death, the Trustee shall divide the Trust Estate remaining after satisfaction of the obligations described in Article VIII (Payment of Debts, Expenses, and Taxes) into two separate trusts: the Credit Shelter Trust, as described in this Article IV, and the Marital Trust, as described in Article V.
The Credit Shelter Trust shall be funded with an amount equal to the Applicable Exclusion Amount available to the Settlor's estate at the time of the Settlor's death, as determined under Section 2010(c) of the Code, taking into account and reduced by the aggregate amount of the Settlor's adjusted taxable gifts (as defined in Section 2001(b)(1)(B) of the Code) made during the Settlor's lifetime, including, without limitation:
(a) Prior taxable gifts totaling approximately $6,750,000 made before the implementation of the 2023 Estate Plan;
(b) The $5,000,000 cash gift to the Caldwell Family Dynasty Trust;
(c) The $136,500 aggregate annual exclusion usage for ILIT premium contributions (under Crummey withdrawal rights); and
(d) Such other taxable gifts as may be made by the Settlor between the Effective Date and the date of the Settlor's death.
As of the Effective Date, the 2023 federal lifetime gift and estate tax exemption amount is $12,920,000 per individual. Based on the Settlor's aggregate lifetime taxable gifts of approximately $11,886,500 (inclusive of the items enumerated above and all other lifetime gifts), the Settlor's estimated remaining exemption is approximately $1,033,500 as of the Effective Date, subject to adjustment for additional gifts and future inflation indexing. The Settlor acknowledges that if the increased exemption amount enacted by the Tax Cuts and Jobs Act of 2017 sunsets after December 31, 2025, as currently scheduled under Section 11061 of that Act, the basic exclusion amount may revert to approximately $5,000,000 (adjusted for inflation), and the funding amount of the Credit Shelter Trust may be significantly lower. This trust structure is designed to function effectively regardless of whether the current enhanced exemption level remains in effect or is reduced to a lower level.
The Trustee shall fund the Credit Shelter Trust with assets selected by the Trustee in its discretion, to the extent possible using assets that are not eligible for or do not require the QTIP election, and shall fund the Marital Trust with the balance of the Trust Estate as provided in Article V. The Trustee shall exercise reasonable judgment in selecting assets to fund each trust, taking into account the respective tax attributes of the assets, including basis, character, and any applicable valuation issues.
Section 4.2 — Income Distributions
The Trustee shall distribute all net income of the Credit Shelter Trust to Eleanor V. Caldwell for her lifetime, payable at least quarterly, or more frequently as the Trustee may determine. Net income for purposes of this Section shall include interest, dividends, rents, and other ordinary income earned by the Credit Shelter Trust, determined in accordance with the New York Principal and Income Act (EPTL Article 11-A) and applicable fiduciary accounting principles.
If the income of the Credit Shelter Trust is insufficient to provide adequately for the Spouse's reasonable needs, the Trustee may, in its sole discretion, also distribute income to or for the benefit of the Settlor's descendants, provided that such distributions do not impair the ability of the Credit Shelter Trust to meet the Spouse's current and anticipated future needs.
Section 4.3 — Principal Distributions
The Trustee may, in its sole discretion, distribute principal of the Credit Shelter Trust to Eleanor V. Caldwell for her health, education, maintenance, and support (HEMS standard), taking into account the Spouse's accustomed standard of living, other available resources (including the Spouse's own assets and any distributions available to her from the Marital Trust), and such other factors as the Trustee deems relevant.
In addition, the Trustee may, in its sole discretion, distribute principal of the Credit Shelter Trust to or among the Settlor's descendants — specifically, Thomas R. Caldwell, Katherine C. Hartfield, Olivia G. Caldwell, and their respective issue — for their health, education, maintenance, and support (HEMS standard), in such amounts and at such times as the Trustee deems appropriate, taking into account the needs and other available resources of each beneficiary.
In exercising its discretion under this Section 4.3, the Trustee shall give priority to the needs of the Spouse over the needs of the Settlor's descendants, and distributions to the Spouse shall take precedence over distributions to any descendant. The Trustee is further directed to consider the availability of distributions to the Settlor's descendants from the Caldwell Family Dynasty Trust and other sources before making discretionary distributions from the Credit Shelter Trust.
Section 4.4 — Disposition on Spouse's Death
Upon the death of Eleanor V. Caldwell, the remaining assets of the Credit Shelter Trust, including accumulated and undistributed income, shall be distributed outright, in equal shares, to the Settlor's then-living children (Thomas R. Caldwell, Katherine C. Hartfield, and Olivia G. Caldwell), or if any child has predeceased the Spouse, to such predeceased child's then-living issue, per stirpes.
Notwithstanding the foregoing, if any beneficiary who would otherwise receive a distribution under this Section 4.4 has not yet attained the age of thirty (30) years at the time of the Spouse's death, the Trustee shall, in its discretion, retain such beneficiary's share in a continuing trust for such beneficiary's benefit, to be administered and distributed as follows:
(a) The Trustee shall distribute income and principal of the continuing trust for the beneficiary's health, education, maintenance, and support (HEMS standard);
(b) One-third (1/3) of the then-remaining trust principal shall be distributed to the beneficiary outright upon attaining the age of thirty (30) years;
(c) One-half (1/2) of the then-remaining trust principal shall be distributed to the beneficiary outright upon attaining the age of thirty-five (35) years; and
(d) The entire balance of the then-remaining trust principal shall be distributed to the beneficiary outright upon attaining the age of forty (40) years.
If any beneficiary for whom a continuing trust is held under this Section 4.4 dies before receiving full distribution of his or her share, the undistributed balance shall be distributed to such beneficiary's then-living issue, per stirpes, or if none, in equal shares to the Settlor's then-living descendants, per stirpes.
Section 4.5 — No General Power of Appointment
Eleanor V. Caldwell shall have no general power of appointment over any portion of the Credit Shelter Trust, as defined in Section 2041 of the Code. No power granted to the Spouse under this Article IV shall be construed as conferring upon the Spouse the power to appoint any part of the Credit Shelter Trust to herself, her estate, her creditors, or the creditors of her estate.
The Spouse shall, however, hold a limited (or "special") power of appointment over the Credit Shelter Trust, exercisable by specific reference to this trust in the Spouse's last will and testament, to appoint all or any portion of the Credit Shelter Trust among the Settlor's descendants. The class of permissible appointees shall be limited to the Settlor's descendants (as defined in Section 1.1(g)), and shall expressly exclude the Spouse, the Spouse's estate, the Spouse's creditors, and the creditors of the Spouse's estate.
Section 4.6 — Tax Objectives
The Credit Shelter Trust established under this Article IV is designed and intended to be excluded from the gross estate of Eleanor V. Caldwell for federal estate tax purposes under Sections 2036, 2038, and 2041 of the Code. The Trustee shall not exercise any power or take any action, and shall not permit any beneficiary to exercise any power or take any action, that would cause all or any portion of the Credit Shelter Trust to be included in the Spouse's gross estate for federal estate tax purposes.
The Settlor acknowledges that, as an alternative or supplement to the Credit Shelter Trust structure, the executor of the Settlor's estate may elect portability of the Settlor's deceased spousal unused exclusion amount ("DSUE amount") under Section 2010(c)(4) of the Code by filing a timely federal estate tax return (Form 706) and making such election thereon. However, the Settlor's estate plan is designed to utilize the Settlor's full available exemption through the Credit Shelter Trust, and the portability election is viewed as a secondary and supplemental measure. The Trustee and the executor are directed to consult with the Settlor's estate planning counsel at Calderwood & Harkness LLP and tax advisors at Strathmore Corporation & Greaves LLP in determining whether a portability election is advisable under the circumstances existing at the Settlor's death.
ARTICLE V — MARITAL TRUST (QTIP TRUST)
Section 5.1 — Establishment and Funding
The Marital Trust shall be funded with the balance of the Trust Estate remaining after funding of the Credit Shelter Trust under Article IV, after satisfaction of all debts, expenses, and taxes payable under Article VIII, and after distribution of all specific bequests under Article VII. The Marital Trust is intended to qualify in its entirety for the federal estate tax marital deduction under Section 2056(b)(7) of the Code as Qualified Terminable Interest Property ("QTIP").
The executor of the Settlor's estate shall make the QTIP election with respect to all property passing to the Marital Trust on the federal estate tax return (Form 706) filed for the Settlor's estate. The Trustee and the executor are authorized to make a partial QTIP election if, in consultation with the Settlor's tax advisors at Strathmore Corporation & Greaves LLP and estate planning counsel at Calderwood & Harkness LLP, a partial election would be more advantageous from a tax planning perspective.
Section 5.2 — Income Distributions
All net income of the Marital Trust shall be distributed to Eleanor V. Caldwell for her lifetime, payable at least quarterly or at more frequent intervals as the Trustee may determine or as the Spouse may request. No person other than the Spouse shall receive or be entitled to receive any distribution of income from the Marital Trust during the Spouse's lifetime. The Trustee shall not accumulate income in the Marital Trust for any purpose during the Spouse's lifetime.
These provisions are required to satisfy the qualifying income interest for life requirements of Section 2056(b)(7) of the Code and the Treasury Regulations promulgated thereunder, and shall be construed liberally to ensure compliance with such requirements.
Section 5.3 — Principal Distributions
The Trustee may, in its sole discretion, distribute principal of the Marital Trust to Eleanor V. Caldwell for her health, education, maintenance, and support (HEMS standard), taking into account the Spouse's accustomed standard of living, other available resources, and such other factors as the Trustee deems relevant.
In addition to distributions made by the Trustee in its discretion, the Spouse may direct the Trustee to distribute principal of the Marital Trust to the Spouse for her benefit, and the Trustee shall comply with any such written direction. The Spouse's ability to direct principal distributions is included to provide maximum flexibility in the management of the Spouse's financial affairs and to ensure that the Spouse has access to the full resources of the Marital Trust during her lifetime.
Section 5.4 — General Power of Appointment
Eleanor V. Caldwell shall hold a general power of appointment over the entire Marital Trust, exercisable only by specific reference to this trust in the Spouse's duly executed and admitted last will and testament. The power of appointment shall extend to all property held in the Marital Trust at the time of the Spouse's death, including accumulated and undistributed income.
If the Spouse does not exercise the general power of appointment, or to the extent the general power of appointment is not effectively exercised, the remaining assets of the Marital Trust shall be distributed as provided in Section 5.5 of this Trust Agreement.
The Settlor intends that the general power of appointment granted to the Spouse under this Section 5.4 shall cause the assets of the Marital Trust to be included in Eleanor V. Caldwell's gross estate for federal estate tax purposes under Section 2041 of the Code, thereby ensuring that the Marital Trust qualifies for the federal estate tax marital deduction in the Settlor's estate under Section 2056. The Settlor acknowledges that the inclusion of Marital Trust assets in the Spouse's estate may result in the imposition of estate tax in the Spouse's estate, and the Settlor has structured the overall estate plan, including the Credit Shelter Trust, the Dynasty Trust, and the ILIT, to mitigate such tax liability to the extent possible.
Section 5.5 — Default Disposition on Spouse's Death
To the extent the general power of appointment described in Section 5.4 is not exercised by the Spouse, the remaining assets of the Marital Trust, including accumulated and undistributed income, shall be distributed outright, in equal shares, to the Settlor's then-living children (Thomas R. Caldwell, Katherine C. Hartfield, and Olivia G. Caldwell), or if any child has predeceased the Spouse, to such predeceased child's then-living issue, per stirpes.
If any beneficiary who would otherwise receive a distribution under this Section 5.5 has not yet attained the age of thirty (30) years at the time of the Spouse's death, the Trustee may, in its discretion, retain such beneficiary's share in a continuing trust for the beneficiary's benefit, to be administered and distributed in the same manner as provided in Section 4.4 of this Trust Agreement, including the staggered distribution schedule at ages thirty (30), thirty-five (35), and forty (40).
Section 5.6 — Reverse QTIP Election
The executor of the Settlor's estate is authorized, but not required, to make the reverse QTIP election under Section 2652(a)(3) of the Code with respect to all or any severed portion of the Marital Trust. If such election is made, the Settlor shall be treated as the transferor of the Marital Trust (or the applicable severed portion thereof) for purposes of the generation-skipping transfer tax under Chapter 13 of the Code, notwithstanding the QTIP election made under Section 2056(b)(7).
The purpose of the reverse QTIP election is to permit the allocation of the Settlor's remaining unused generation-skipping transfer ("GST") tax exemption to the Marital Trust, thereby sheltering distributions from the Marital Trust to or for the benefit of the Settlor's grandchildren and more remote descendants from the imposition of GST tax. The executor shall coordinate the reverse QTIP election and the allocation of GST exemption with the overall GST exemption allocation strategy developed as part of the 2023 Estate Plan, as described in the GST Allocation Memorandum prepared by Sylvia Hartwell, Esq., of Calderwood & Harkness LLP, dated April 1, 2023.
Section 5.7 — QTIP Compliance Provisions
The following provisions are included to ensure compliance with the requirements for qualification as Qualified Terminable Interest Property under Section 2056(b)(7) of the Code and the Treasury Regulations promulgated thereunder:
(a) No person shall have the power to appoint any part of the Marital Trust to anyone other than the Spouse during the Spouse's lifetime, except as may be required under the Spouse's general power of appointment described in Section 5.4;
(b) All income of the Marital Trust must be distributed to the Spouse at least annually, and in no event less frequently than quarterly;
(c) The Trustee shall not invest or retain any assets in the Marital Trust that are unproductive or that do not generate a reasonable rate of return, unless the Spouse consents in writing to the retention of such assets. The Spouse shall have the right to require the Trustee to convert any unproductive or underproductive property to income-producing property within a reasonable time;
(d) The Trustee shall not exercise any power or discretion in a manner that would diminish the Spouse's qualifying income interest for life or that would cause the Marital Trust to fail to meet the requirements of Section 2056(b)(7) of the Code; and
(e) In the event of any conflict between the provisions of this Article V and the requirements of Section 2056(b)(7) of the Code and the applicable Treasury Regulations, the provisions of Section 2056(b)(7) and the applicable Treasury Regulations shall control, and this Trust Agreement shall be construed and administered accordingly.
ARTICLE VI — PROVISIONS FOR DESCENDANTS
Section 6.1 — Identification of Descendants
The Settlor's children are as follows:
(a) Thomas Robert Caldwell, age 38 as of the Effective Date, residing at 55 Perry Street, Unit 3, New York, New York 10014. Thomas currently serves as Vice President of Acquisitions at Meridian Crest Partners LLC, a private equity firm. Thomas is married to Dr. Sarah P. Caldwell. Thomas and Dr. Sarah P. Caldwell are the parents of Lucas T. Caldwell (age 3) and Nora E. Caldwell (age 1).
(b) Katherine Claire Hartfield, née Caldwell, age 35 as of the Effective Date, residing at 210 Briarcliff Lane, Greenwich, Connecticut 06830. Katherine is married to Dr. Andrew W. Hartfield. Katherine and Dr. Andrew W. Hartfield are the parents of James W. Hartfield (age 8) and Charlotte M. Hartfield (age 5).
(c) Olivia Grace Caldwell, age 30 as of the Effective Date, residing at 1240 North Dearborn Street, Apt. 807, Chicago, Illinois 60610. Olivia is an associate attorney at the law firm of Linden & Fairchild LLP.
The Settlor's grandchildren, living as of the Effective Date, are: James W. Hartfield (age 8), Charlotte M. Hartfield (age 5), Lucas T. Caldwell (age 3), and Nora E. Caldwell (age 1). Any child or descendant of the Settlor born or legally adopted after the Effective Date shall be included as a beneficiary of this trust and shall be treated as a descendant of the Settlor for all purposes of this Trust Agreement.
Section 6.2 — Contingent Trust for Minor or Young Adult Beneficiaries
If any share of the Trust Estate is distributable under the terms of this Trust Agreement to a beneficiary who has not yet attained the age of twenty-five (25) years, the Trustee shall not distribute such share outright to the beneficiary but shall instead retain such share in a separate trust for the benefit of that beneficiary (a "Beneficiary's Trust"). The Trustee shall administer the Beneficiary's Trust as follows:
(a) The Trustee shall distribute income and principal of the Beneficiary's Trust to or for the benefit of the beneficiary for the beneficiary's health, education, maintenance, and support (HEMS standard), taking into account the beneficiary's age, needs, other resources, and accustomed standard of living;
(b) One-third (1/3) of the then-remaining trust principal shall be distributed to the beneficiary outright and free of trust upon the beneficiary's attainment of the age of twenty-five (25) years;
(c) One-half (1/2) of the then-remaining trust principal shall be distributed to the beneficiary outright and free of trust upon the beneficiary's attainment of the age of thirty (30) years; and
(d) The entire balance of the then-remaining trust principal shall be distributed to the beneficiary outright and free of trust upon the beneficiary's attainment of the age of thirty-five (35) years.
In exercising discretion under this Section 6.2, the Trustee shall consider the beneficiary's other available resources, including, without limitation, any benefits available to the beneficiary from the Caldwell Family Dynasty Trust, the ILIT, or any other source, and shall endeavor to avoid unnecessary duplication of distributions from multiple trusts and entities.
If a beneficiary for whom a Beneficiary's Trust is held under this Section 6.2 dies before receiving full distribution of his or her share, the undistributed balance shall be distributed to such beneficiary's then-living issue, per stirpes, or if the beneficiary has no then-living issue, in equal shares to the Settlor's then-living descendants, per stirpes.
Section 6.3 — Spendthrift Provision
No interest in the income or principal of any trust created under this Trust Agreement shall be subject to the claims of any creditor of any beneficiary, nor to any legal process by any creditor of any beneficiary. No beneficiary shall have the right or power to anticipate, alienate, encumber, pledge, hypothecate, or assign his or her interest in any trust created hereunder, whether voluntarily or involuntarily, before actual receipt of such interest by the beneficiary. This spendthrift provision is intended to comply with Section 7-1.5 of the New York Estates, Powers and Trusts Law, and shall be enforced to the fullest extent permitted by applicable law.
Any purported assignment, alienation, or encumbrance of a beneficiary's interest in any trust created under this Trust Agreement shall be void and of no effect. This spendthrift provision shall apply to all trusts created under this Trust Agreement, including the Credit Shelter Trust, the Marital Trust, and any continuing trust or Beneficiary's Trust created for the benefit of a descendant.
Section 6.4 — Coordination with Dynasty Trust
The Trustee is authorized and directed, in exercising its discretion over distributions from any trust created under this Trust Agreement, to take into account and consider any distributions or benefits available to the beneficiaries from the Caldwell Family Dynasty Trust (established under the laws of the State of Delaware on April 1, 2023, with its principal situs in Wilmington, Delaware, with Northgate Trust Company of Delaware serving as institutional co-trustee and Thomas R. Caldwell serving as family co-trustee). The Settlor's intent is that the assets of the trusts created under this Trust Agreement be preserved and protected to the maximum extent consistent with the beneficiaries' needs, and that unnecessary duplication of distributions from this trust and the Dynasty Trust be avoided in order to maximize the overall estate tax efficiency of the 2023 Estate Plan.
The Trustee shall communicate and coordinate with the co-trustees of the Dynasty Trust regarding the needs and resources of the beneficiaries, and shall share such financial and personal information as may be reasonably necessary to facilitate this coordination, subject to applicable privacy and confidentiality requirements.
Section 6.5 — Charitable Distributions
The Trustee is authorized, but not required, to make charitable distributions from the Trust Estate to The Caldwell Family Foundation (Employer Identification Number 88-3021547; principal office at 330 Madison Avenue, Suite 2401, New York, New York 10017) or to other organizations described in Sections 170(c), 2055(a), and 2522(a) of the Code, subject to applicable fiduciary duties and tax considerations. The Settlor notes that The Caldwell Family Foundation received its determination letter from the Internal Revenue Service under Section 501(c)(3) of the Code, dated July 14, 2023, confirming its status as a tax-exempt charitable organization.
Any charitable distributions made under this Section 6.5 shall be subject to the Trustee's fiduciary duties to the beneficiaries of this trust, and the Trustee shall not make charitable distributions to the extent that doing so would materially impair the ability of the trust to provide for the health, education, maintenance, and support of the Spouse and the Settlor's descendants.
ARTICLE VII — SPECIFIC BEQUESTS AND TANGIBLE PERSONAL PROPERTY
Section 7.1 — Tangible Personal Property Memorandum
The Settlor may, from time to time during his lifetime, prepare, amend, or revoke a written memorandum (the "Tangible Personal Property Memorandum") disposing of specific items of tangible personal property, consistent with Section 3-3.7 of the New York Estates, Powers and Trusts Law. If such memorandum is in existence at the time of the Settlor's death, the Trustee shall distribute the items of tangible personal property identified therein to the persons named in such memorandum, provided that the memorandum is signed by the Settlor and describes the property and the intended recipients with reasonable specificity.
The Settlor's art collection and collectibles, with an aggregate appraised value of approximately $9,000,000 as of June 15, 2023 (as appraised by Ashford Valuation Group LLC, Dr. Leonard K. Whitfield, ASA, Senior Appraiser), shall be distributed in accordance with the Tangible Personal Property Memorandum, if any. If no such memorandum exists at the time of the Settlor's death, or to the extent the memorandum does not dispose of all items of art and collectibles, such items shall be distributed as part of the residuary Trust Estate in accordance with the provisions of Articles IV and V.
Other personal property, including vehicles, jewelry, household furnishings, and miscellaneous items with an estimated aggregate value of approximately $7,000,000, shall likewise be distributed in accordance with any Tangible Personal Property Memorandum, or, in the absence of such memorandum, as part of the residuary Trust Estate.
Section 7.2 — Specific Devises
The following specific devises shall be made prior to the division of the Trust Estate into the Credit Shelter Trust and the Marital Trust:
(a) Residence. The Settlor's residence located at 418 East 72nd Street, Apt. 14A, New York, New York 10021, together with all furniture, furnishings, equipment, and personal property located therein at the time of the Settlor's death, shall be distributed outright to Eleanor V. Caldwell. If Eleanor V. Caldwell does not survive the Settlor, the residence and its contents shall be added to and administered as part of the Credit Shelter Trust established under Article IV.
(b) Vehicles and Personal Effects. All motor vehicles owned by the Settlor at the time of his death, together with all personal effects, clothing, and household furnishings not otherwise disposed of by the Tangible Personal Property Memorandum or paragraph (a) of this Section 7.2, shall be distributed outright to Eleanor V. Caldwell.
ARTICLE VIII — PAYMENT OF DEBTS, EXPENSES, AND TAXES
Section 8.1 — Payment of Debts and Expenses
The Trustee shall pay from the residuary Trust Estate (prior to division into the Credit Shelter Trust and the Marital Trust) all legally enforceable debts of the Settlor that are outstanding at the time of the Settlor's death, together with all funeral and burial expenses, costs of estate administration, and expenses of administering this trust, including, without limitation, attorneys' fees, accountants' fees, appraisal fees, and trustee compensation.
The Settlor represents that, as of the Effective Date, he has no significant personal liabilities. All indebtedness secured by properties owned by Stonecrest Realty Holdings LLC is non-recourse debt at the entity level and is not a personal obligation of the Settlor. The Trustee shall not pay or satisfy any entity-level indebtedness of Stonecrest Realty Holdings LLC, Caldwell Ridgeline Capital LLC, or any other entity from the Trust Estate, except to the extent such payment is required as a condition of the Settlor's personal guaranty, if any, and is a legally enforceable obligation of the Settlor's estate.
Section 8.2 — Payment of Estate Taxes
All federal estate taxes (including any additional taxes imposed under Section 2032A of the Code), state estate or inheritance taxes, and any generation-skipping transfer taxes attributable to assets of this Trust Estate shall be paid from the residuary Trust Estate before the division of the Trust Estate into the Credit Shelter Trust and the Marital Trust.
The following tax apportionment provisions shall apply:
(a) Tax Apportionment. Taxes attributable to assets passing outside of this trust — including, without limitation, assets held in the Caldwell Family Dynasty Trust (whether received as GRAT remainder interests or otherwise), proceeds of the Beacon Life Assurance Company insurance policy held by the ILIT, and assets held in or passing through any other trust or entity not forming part of this Trust Estate — shall not be charged against or paid from this Trust Estate, unless otherwise required by applicable law or unless the governing instruments of such other trusts or entities specifically direct that such taxes be paid from this Trust Estate.
(b) Marital Trust Tax Allocation. No estate tax shall be payable from the Marital Trust (QTIP Trust) to the extent the federal estate tax marital deduction under Section 2056 eliminates the estate tax attributable to assets passing to the Marital Trust. The Settlor's intent is that the Marital Trust bear no burden of estate tax in the Settlor's estate.
(c) Estimated Tax Impact. For planning purposes, the Settlor's estate planning team has estimated that, without the implementation of the 2023 Estate Plan, the Settlor's taxable estate would be approximately $293,830,000, resulting in an estimated federal estate tax liability of approximately $117,532,000 (at the current 40% marginal rate). With the implementation of the 2023 Estate Plan, including the GRATs, the Dynasty Trust, the ILIT, and the charitable contributions to The Caldwell Family Foundation, projected estate tax savings are estimated at approximately $24,000,000 to $30,000,000, depending upon the actual performance of GRAT assets relative to the Section 7520 hurdle rate of 5.0% applicable to the GRATs at the time of their funding. These estimates are based on current law, current asset values, and assumptions regarding future asset performance, and are subject to change.
(d) Tax Return Preparation. The Trustee shall engage Strathmore Corporation & Greaves LLP (Martin J. Prescott, CPA, 600 Third Avenue, 28th Floor, New York, New York 10016) for the preparation and filing of the federal estate tax return (Form 706) and any state estate or inheritance tax returns required to be filed in connection with the Settlor's estate. The Trustee shall also engage Calderwood & Harkness LLP as legal counsel in connection with the estate tax return and any audit or dispute with the Internal Revenue Service or any state taxing authority.
ARTICLE IX — GENERATION-SKIPPING TRANSFER TAX PROVISIONS
Section 9.1 — GST Exempt Share
The Trustee is directed to create a separate GST Exempt Share of the Credit Shelter Trust (the "GST Exempt Share"), to be funded with an amount equal to the Settlor's remaining available generation-skipping transfer tax exemption under Section 2631 of the Code at the time of the Settlor's death. As of the Effective Date, the 2023 GST exemption amount is $12,920,000 per individual. The Settlor has previously allocated or expects to allocate approximately $5,000,000 of his GST exemption to the initial contribution to the Caldwell Family Dynasty Trust, together with such other prior allocations as have been made on gift tax returns filed for prior years. The remaining GST exemption available for allocation to the GST Exempt Share will be determined at the time of the Settlor's death based on the then-applicable exemption amount and the Settlor's prior allocations.