Smith Family Portfolio


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Sample of an Estate Plan for a married couple

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Smith Family Portfolio

  1. 1. Smith Family– DYNAMIC TRUST PORTFOLIO – File# 179652 – Electronic Signatures Verification Status – ALL APPLICABLE DOCUMENTS NOT "ESIGNED" (See Electronic Signature Page) ~ Provided By ~ MY LIFECARD PLAN 7373 E. Doubletree Ranch Rd., #200 Scottsdale, AZ 85258
  2. 2. GENERAL INSTRUCTIONS / IMPLEMENTATION Congratulations on your purchase! You have taken the first steps to help (i) enable specific proxy management/distribution of your assets in your stead (estate planning), and (ii) ensure your medical (emergency) preparedness. Now you will need to properly implement your plan. Enclosed are the documents that comprise your – Dynamic Trust Portfolio PLEASE NOTICE: A SHADED CHECKED BOX is positioned at the lower right hand corner of the pages where (a) you have to sign, (b) the Notary Public has to sign, (c) where witnesses enter their names and sign, and (d) where the current date is to be entered for the initial implementation of your Trust/Portfolio. NON-SHADED CHECKED BOXES are located on certain Trust pages (12-14) with optional decrees. The "Portable Document Format" / PDF page numbers posted to the right (>) of the document page numbers (listed below) locate the "signature page(s)" of each document stored in your electronic (Dynamic Trust Portfolio) PDF file. (NOTE: The Agent Notices are not to be signed until the time they are to be used.)  Co-Grantor (Marital) Living Trust / Pages 1 & 32 > . . PDF/53  Certificate of Trust / Pages 1 & 5 > . . . . . . . . . . . . . . . . PDF/61  Contemporaneous Property Agreement / Page 1 > . . . PDF/63  Assignment of Personal Property / Page 1 > . . . . . . . . PDF/64  Durable Power of Attorney Assets / Pages 3-4 > . . . . . PDF/100-1&104-5  Durable Power of Attorney Health Care / Page 4 > . . PDF/111&115  Advanced Health Care Directives / Page 8 > . . . . . . . PDF/127&137  Durable HIPAA Statement(s) / Pages 1-2 > . . . . . . . . PDF/128-9&138-9  Pro-Life Living Will(s)* / Pages 1-2 > . . . . . . . . . . . . . PDF/140-1&142-3  Living Will Declaration(s) / Page 3 > . . . . . . . . . . . . . PDF/146&149  Last Will & Testament(s) / Pages 1-2 & 4-5 > . . . . . . PDF/154-5&159-60 *The "Pro-Life" Living Will states that the Declarant does not want to be denied hydration and/or tube feeding – under any circumstances. Be advised that such a signed declaration may be deemed to be in conflict with a regular Living Will Declaration and/or other entries you may make in your Advanced Directives. NOTICE: The instructional information contained in this (Co-grantor) Dynamic Trust Portfolio is for reference ONLY, and is not intended to replace legal, tax planning, or personal health care counsel. You should obtain independent counsel before acting on any directives or other information described herein.PDF/2
  3. 3. – PORTFOLIO INDEX – Section Document PDF Page Portfolio Summary -- Portfolio Summary . . . . . . . . . . . . . . . . . . . . . . . . . 5 Trustee Memorandum -- Trustee Administrative Memorandum . . . . . . . . . 15 Revocable Living Trust -- Revocable Living Trust Declaration . . . . . . . . . . . 22 Certificate of Trust -- Certificate of Trust . . . . . . . . . . . . . . . . . . . . . . . . . 57 Schedules, Ledgers & Deeds -- Contemporaneous Property Agreement . . . . . . . 63 Assignment of Personal Property . . . . . . . . . . . . . 64 Property Schedules (A/B/C/D) . . . . . . . . . . . . . . . 65 Personal Property Schedules (Distribution) . . . . 70 Subtrust (A/B/C) Accounting Ledgers . . . . . . . . . 72 Locater Reference Ledger . . . . . . . . . . . . . . . . . . . 75 Administrative Documents -- Appointment of Nominee Trustee . . . . . . . . . . . . 78 Trust  “B”  Apportionment  Amendment . . . . . . . 79 Trust  “B”  Five  &  Five  Amendment . . . . . . . . . . . 80 Trust  “B”  Forfeiture  Amendment . . . . . . . . . . . . 81 Relinquishment of Trustee Duty to Spouse . . . . 82 Reinstatement as Co-Trustee . . . . . . . . . . . . . . . . 84 Relinquishment of Trusteeship / Successor . . . . 86 Successor Trustee Notice . . . . . . . . . . . . . . . . . . . 88 Successor Trustee Declination . . . . . . . . . . . . . . 89 Successor Trustee Termination . . . . . . . . . . . . . . 90 Amendment / Trustee Appointment . . . . . . . . . . 91 Amendment / Distribution of Trust Assets . . . . . 92 Surviving Spouse Disclaimers . . . . . . . . . . . . . . . 93 Physician Medical Certifications . . . . . . . . . . . . 95 Durable Powers of Attorney -- Durable Power of Attorney / Over Assets . . . . . 98 Durable Agent Notices / Assets . . . . . . . . . . . . . . 106 Durable Power of Attorney / Health Care . . . . . 108 Durable Agent Notices / Health Care . . . . . . . . . 116 Living Will & Directives -- Advanced Directives / HIPAA Statements . . . . . 120 Living Will Declaration . . . . . . . . . . . . . . . . . . . . 144 Last Will & Testament -- Last Will & Testament / Pour-over Wills . . . . . . 151 Trust Assets & Correspondence -- Guideline to Funding . . . . . . . . . . . . . . . . . . . . . . 162 Joint Request / Asset Retitlement . . . . . . . . . . . . 168 Sole Requests / Asset Retitlement . . . . . . . . . . . . 169 Sole Requests / New Beneficiary Change . . . . . . 171 Sole Requests / Cont. Beneficiary Change . . . . . 173 Joint Irrevocable Stock & Bond Powers . . . . . . 175 Sole Irrevocable Stock/Bond Powers . . . . . . . . . 177PDF/3
  4. 4. PORTFOLIO SUMMARY Introduction Congratulations on making the decision and taking the time needed to set up your Revocable Living Trust Estate Planning Portfolio. This Living Trust Portfolio represents a detailed and well organized estate plan for you that will meet your personal estate planning goals and objectives when implemented and funded properly. This first section, containing the Portfolio Summary, has been designed as a guide to take you through the rest of your Estate Planning Portfolio. Here you will find concise explanations of each subsequent section. The Portfolio Summary can be used as a reference for explanations of all of the various legal documents used in creating your estate plan. It also contains brief, generic summaries of each article in your trust document itself. In this section, you will find information about various documents and functions of your Portfolio. If you have a (Portfolio) question you cannot find an answer to, then you should contact your legal counsel or tax advisor. This section will also be helpful to your successor trustee concerning the use of certain administrative and other documents. If, at the time your successor trustee begins serving as trustee, you are unable to explain to hxm/hxr the basic functions of your estate plan, this section can be used as an additional reference for your successor trustee - with the Trustee Memorandum (proceeding). This section is for instructional purposes only. There are no legal documents contained in this section and no documents to sign. _______________PDF/4
  5. 5. PORTFOLIO SUMMARY (Marital Universal [A/B/C] Trust) First, thank you for your purchase. We know that you will be well served with this comprehensive estate plan. With the Revocable Living Trust (RLT), you have incorporated what is now a very popular mechanism used by millions of Americans that will protect you from unnecessary expenses incurred through formal administration of your estate (during lifetime and) when transferring your assets upon decease and allow you to maintain complete control of your estate. These objectives will be easily accomplished provided that your assets are transferred into the trust. In all likelihood, it would be of vital importance that your assets be transferred into your trust as soon as possible. The Trustee Memorandum (next section) covers that subject as well as the last page of this section. The Living Trust is actually only one of several parts of your entire Estate Planning Portfolio which includes various documents that will be very convenient to you and your family when certain needs arise requiring their use. Each document, and how they are used, will be discussed in this summary. The Portfolio Summary was designed to help give you a better understanding of your Portfolio. You can study this summary along with the documents in your Portfolio at your leisure. As you can see, there are ten (10) sections in your Estate Planning Portfolio including this one that you are now in. Let us briefly discuss each section: PORTFOLIO SUMMARY This first section (the one you are now reading) contains an explanatory of your Portfolio. It is designed to help you familiarize yourself with your entire compilation of estate planning documents. This explanatory/summary will be a guide for you now and then later when your successor trustee assumes the administration of the trust. TRUSTEE MEMORANDUM This second section is a directive for trustee duties and functions which are to be performed at different phases of trust administration. It is not intended to take the place of professional advice and help if it is needed; however, it can be used as a general guideline regarding the responsibilities of the trustee of your trust. Portfolio Summary Page 1 (of 9)PDF/5
  6. 6. REVOCABLE LIVING TRUST This third section is the actual trust itself. Your Revocable Living Trust (RLT) is, as the name implies, fully revocable. This means that you may alter, amend or totally revoke the trust, in part or in whole, without the approval of any other person concerning your own property (your spouse has control of his/her property). The following is a brief review of each Article in your trust: The Declaration and Recitals declare (i) who you are, (ii) what you are and (iii) your purpose for establishing a revocable living trust. The name you have given your trust is shown here as well. Occasionally, transfer agents want to know the name of your trust for transfer/retitling purposes although (legally) it is not necessary to use the name of the trust as a title owner. Only the name of the trustee and the date the trustee was proclaimed as trustee (UDT) are necessary for retitling purposes (although the name of the trust can be used also). Article One - defines how your property is held in the trust, i.e. - community, tenants-in-common or sole & separate property. Instructions are given as to the use of the Chattel Schedule for the disposition of your personal property to specified persons. This allows you to hold your personal property in trust and have it distributed by the trustee at time of death, rather than by your Will, and thereby eliminating the need to have it probated. Article Two - states your reservation of rights, as settlors, and declares your power and authority to change or revoke a portion or all of the trust. These revocation rights are also referred to as "general powers of appointment". Article Three - is a statement concerning basic trustee responsibilities of the successor trustee, if appointed during the (mutual) lifetime of the settlors, as it regards the administration of the settlors assets for the settlors benefit. When you (as settlors) are serving as trustee, trustee administration is more of a token formality, rather than an actual function, during your joint lifetimes. Article Four - is used as a directive for the payment of any debts of the first spouse to die. Additionally, this Article provides the language used to determine what type of Marital Trust format will ultimately be utilized for your estate plan. There are three different Marital Trust formats normally used in Marital Trust planning - Non A/B Trust, the A/B Credit Shelter Trust and the A/B Trust with a QTIP provision. Notwithstanding the provisions of this Article to split the Trust into 3 distinct sub-trusts (A/B/C) at the death of the first spouse to die, in the event that the aggregate estate value (of both spouses) is less than the federal exemption equivalent amount at the time of death of the first spouse to die, then the trustee is not to partition the trust assets (into A/B) because the trust provides that all of the trust estate shall be under the control of the surviving spouse in the event that the aggregate estate value is less than the exemption amount at the time of the first spouses death. Portfolio Summary Page 2 (of 9)PDF/6
  7. 7. The Non A/B format does not utilize any tax planning formulas - when the first spouse dies the entire estate belongs to the surviving spouse. The A/B format uses a Credit Shelter (Bypass Trust) to take advantage of the unified credit of the first spouse to die and yet keep the estate of the first spouse to die IN TRUST for his/her lifetime use. The A/B/C format contains the A/B provisions along with a Qualified Terminable Interest Property (QTIP) provision; the QTIP provision allows the decedent settlor to control his/her entire estate even if it exceeds the federal exemption equivalent amount and still shelter it, or at least defer it, from transfer tax. Whatever size your estate is at the death of the first spouse to die will determine which tax planning format is to be used in this Marital Universal Trust. Concerning the accounting procedure(s) to be used when creating A/B partitioning at the first spouses death, in many cases, the trustee need not partition undivided interests or "retitle" certain properties for this accounting function; allocations can oftentimes be used instead. Whatever method is used, it is important that the allocations or divisions be made and be properly accounted for when creating an A/B split. If no A/B split is needed then such accounting entries do not have to be made. In many cases, the trustee need not make a division of undivided interests or "retitle" certain properties for partitioning the trust assets (when necessary); rather the allocations can be accomplished by using prorata values and accounting procedures. Article Five - concerns the administration of the Survivors Trust "A" after the A/B split. The surviving spouse has full control (general power of appointment) of Trust "A". The surviving spouse may elect to have the successor trustee serve at this time and this Article shows how the successor trustee is to administrate the trust estate on behalf of the surviving spouse. Additionally, the successor trustee may elect to pay any debts of the surviving spouse, after such spouses death, out of the funds of Trust "A" before such funds are commingled with Trust "B" (and Trust "C"). Article Six - outlines those administrative provisions you have elected to use concerning assets of Trust "B" (Decedents Trust) and Trust "C" (Qualified Terminal Interest Trust) used to support the surviving spouse (or children from Trust "B", if so elected) during surviving spouses lifetime. Trust "C", as defined in this Article, must pay all income to the surviving spouse for his/her lifetime. Also, any distributions that are to occur immediately at the death of the first spouse to die will be described in this Article. Article Seven - makes provisions for the trustee to allocate legal and binding reductions of a trust estate, as a result of estate taxes, passing to the beneficiaries of the settlors estate who are beneficiaries of property passing outside of the trust. Without these provisions, there could be unequal reductions in estate portions allocated to the trust beneficiaries in the event that there is an estate tax due. An example - beneficiaries of your life insurance, who may be different than the beneficiaries of your trust, would receive the insurance proceeds in full without a prorata reduction relative to any estate taxes due. Article Eight - outlines the final distribution and administration of the residual trust estate which is the remaining property in trust after the death of the last spouse to die. The instruction concerning the portions of your estate to be distributed to your beneficiaries or held in trust for a particular time are given in this Article (and Article Nine when necessary). Portfolio Summary Page 3 (of 9)PDF/7
  8. 8. Article Nine - lists not only the person(s) (usually yourselves) presently appointed to serve as trustee but also lists the names of the successor trustee(s) and describes the selection process of such appointees. The successor trustee(s) appointment is made effective upon certain contingencies which are: (a) resignation, (b) incapacitation or (c) death of the settlor(s). All appointments are, of course, subject to your change. Article Ten - concerns trustee administrative guidelines regarding property held in trust for beneficiaries who are not to receive an outright distribution. This Article is also a full definition of the parameters of the trustees power and authority. These rules are generally referred to as "prudent man" rules. These rules coincide with the Uniform Trustee Powers Act formulated under a uniform code which was adopted by most states. Unless you have directed otherwise, the successor trustee shall govern the trust assets (if the assets are to be held in trust after the death of both settlors) as would a prudent man seeking to gain income, interest and dividends yet preserving the principal; additionally, the trustee may invest in equities as well as debt securities. Article Eleven - applies to legal descriptions, general governing provisions and definitions of trust law. These standards are recognized in general trust law and usually need not be changed unless you wish otherwise - example - you may not want reference to adopted children as legal descendants for the purposes of receiving an inheritance. Article Twelve - outlines the basic procedures for the trustees receiving insurance proceeds payable to him/her as a trustee/fiduciary. This Article will help expedite the payment of any insurance policy to be payable to the trustee (as a result of making the trust the beneficiary) as the insurance company is careful to not make any mistakes concerning payments to beneficiaries of their insurance policies. Article Thirteen - pertains to any stock which may be transferred into the trust that is classified as Professional Corporation (PC) stock. PC stock can only be administrated by the professional, thus as sole trustee of, and not by any other person who is considered to be a "non-professional" as described by state statues. Article Fourteen - acknowledges the non-liability of separate parties such as transfer agents and the like who, absent from fraud, shall not be liable for any impropriety committed by any trustee of your trust. Article Fifteen - allows the Certificate of Trust to be used in lieu of the trust itself when presenting evidence of (i) the settlors duly appointed general power of appointment and (ii) the trustees authority concerning conveyances and transfer of assets from and/or to the trustees. Article Sixteen - gives power to the trustee to transmute (or change) jointly owned property, of the spouses, to sole and separate property of each spouse. This is applicable in cases where such transaction may avoid a "spend-down" of the trust estate when one spouse (during settlors joint lifetimes) requires some type of professional or institutionalized care in which a local, state or federal agency would otherwise supply the care or funds for such care. Portfolio Summary Page 4 (of 9)PDF/8
  9. 9. CERTIFICATE OF TRUST This fourth section contains the Certificate of Trust which is a document containing certain provisions from particular Articles of the trust itself. So, we can refer to this instrument as an "abstract" of the trust. This abstract is complete with enough information taken from your trust to enable those who are transfer agents (brokers, bankers, account managers etc.) to legally, and without any liability on their part, transfer your property from you - to you as trustee - without (the agents) having to secure a complete copy of the trust. Remember that once the certificate is executed by your signature(s), you can continue to use a photo copy(s) of the executed certificate as an original. SCHEDULES, LEDGERS & DEEDS This fifth section contains transfer/funding related documents such as the Contemporaneous Property Agreement, Assignment of Tangible Personal Property, Quit Claim Deed(s), Secured Realty Interest, etc. The Asset Schedules onto which you may list your titled assets (death benefits payable to trustee are listed on Schedule "D") that are funded into your trust are held in this section. You will retain the character of your property, whether it is jointly owned or separately owned, by the proper entry on these respective Schedules. The Asset Accounting Ledgers are to be used by the trustee (usually the surviving spouse) to designate assets as portioned or held on account to each respective subtrust (A, B & C) for record keeping. Also included in this Section is the Locater Reference Ledger for use in maintaining a handy list of pertinent names and addresses of beneficiaries of your Trust. ADMINISTRATIVE DOCUMENTS This sixth section is a compilation of documents reducing or eliminating any need for future drafting of such documents thereby voiding any additional costs; they have already been created for you. Lets briefly discuss each one: Amendment - Apportion Trust Estate allows you, the settlors, to determine, before the death of the first spouse to die, that the marital trust will be split/apportioned into two separate trusts - Trust "A" & Trust "B" - regardless that it may not be necessary for tax purposes. The premise of this amendment technique allows the estate of the first spouse to die to be protected from a spend-down of his/her portion of the estate because of a lawsuit or because of a long-term nursing care situation that may cause a spend-down of the surviving spouses estate. Also, it ensures that the decedent spouse can control his/her portion of the estate even after death in that it will be administrated and distributed according to his/her bequest only. Amendment - Five & Five Rule allows you, the settlors, to select, before the death of the first spouse to die, the option of allowing the surviving spouse to receive Five Thousand dollars ($5,000) or five percent (5%) of the principal of the Trust "B" (if the A/B format is used), whichever is greater, on an annual non-accumulative basis; this does not forego any of the other options already in place. Portfolio Summary Page 5 (of 9)PDF/9
  10. 10. Amendment - Surviving Spouse Forfeiture of Trust "B" Benefits by Remarriage can be executed by both settlors to require that if the surviving spouse remarries then the surviving spouse shall no longer receive benefits of Trust "B" and it shall terminate and be distributed outright to the heirs as though the surviving spouse had then died. Relinquishment of Trustee Duty (for each spouse) allows a settlor to voluntary resign as trustee thereby allowing the remaining settlor to serve alone. This is a voluntary relinquishment of a co-trusteeship position with a spouse. Reinstatement as Co-Trustee (for each spouse) allows a settlor who has voluntarily resigned to reinstate (i.e. - reappoint) himself/herself. Relinquishment of Trusteeship (to successor trustee) is the document that you, as settlor, would execute in the event you wanted to voluntarily relinquish your trusteeship to the successor trustee whom you have already named and appointed in the trust. This document can be executed by both spouses simultaneously or the surviving spouse. Successor Trustees Notice is the document that will be executed by the named successor trustee upon one of three of the contingencies occurring that would empower him/her with the right and authority to act as trustee. This Notice is to be used for fiduciary transactions as a trustee. It enables the parties, whom the successor trustee is transacting with, to know that such appointee is now acting as trustee. This document would be used with one of any three documents viz - (i) Relinquishment of Trusteeship, (ii) Medical Certification or (iii) Death Certificate. Successor Trustees Declination is the document used by the appointed successor trustee if he/she desires to rescind his/her appointment by vacating or declining such appointment. The execution of this document would be sufficient proof of his/her vacation/declination. The trustee resignation can take up to 60 days, after the deliverance of the Notice, to become effective. Once trusteeship is accepted, however, it generally requires the majority vote of the beneficiaries to allow the trustee to resign from such duties in order for the resigning trustee to be indemnified from and against any liabilities. Successor Trustees Termination is the document you would execute in the event you decide to revoke the trusteeship of the (successor) trustee who may be serving at the present time (other than yourselves) because of your earlier incapacitation or resignation. This makes it clear to all transfer agents that you, the settlor(s), are now serving as trustee of your own trust. Amendment - Trustee Appointment Change is the document you would execute in the event that you change your mind about your appointment of the successor trustee whom you had appointed to serve in such capacity. Do not confuse this with the Successor Trustees Termination document; that document applies to after the successor trustee has begun serving as trustee. This document applies to making the change before the successor begins serving. Identify the name of the rescinded appointee under the paragraph of revocation and then list the name of the person you are appointing to serve in lieu of the first appointee. Portfolio Summary Page 6 (of 9)PDF/10
  11. 11. Amendment - Distribution of Assets allows you to make a (small) change in your trust describing the final distribution of your assets. Normally, you should seek professional help with this type of change in your trust. Nevertheless, a small change or alteration can be accomplished with this document and therefore you need not incur additional costs to draft an amendment for such a change/alteration. Medical Certification(s) is the document which would be executed by your attending physician on your behalf to certify that, in his/her opinion, you are unable, because of mental or physical incapacities, to carry on the normal duties of trustee of your own trust. This document legally circumvents any requirements that you ever have to be adjudicated in a court of law as being incapacitated (providing your assets are held in this trust) and thus a court- governed conservatorship will be unnecessary. DURABLE POWERS OF ATTORNEY This seventh Section contains separate documents used for two different purposes viz: to (i) give another person the power to make fiduciary decisions, on your behalf, concerning any assets not funded into your trust at the time of incapacitation and to (ii) make medical decisions on your behalf in the event you are unable to do so: Durable Power of Attorney Over Assets gives attorney-in-fact powers over your assets to the person you have named as agent therein. It is called a "springing power of attorney" in that it springs into effect when the contingency of incapacitation occurs (although you can elect to make it effective immediately). This enables the DPA agent, whom you have selected, to fund assets that have not been funded into the trust (for one reason or another) instead of the necessity of a court-ordered conservatorship over such assets in the event of your incapacitation. Durable Agent Notice is to be executed by your appointed agent, but only at the time he/she is to begin acting on your behalf as your agent. The notice serves to notify, in writing - whom it concerns - that your agent has accepted the appointment and will carry out such duties. Durable Power of Attorney for Health Care (DPAHC) will allow your agent to make medical decisions on your behalf in lieu of your own decisions concerning your desire for specific medical procedures such as surgery or other medical treatment (including the termination of life support systems), in the event you were unable to do so. It is now so closely used in conjunction with the Living Will Declaration (below) by a large number of medical institutions that the two documents are considered as one complete document in that one cannot legally function without the other. Portfolio Summary Page 7 (of 9)PDF/11
  12. 12. LIVING WILL & ADVANCE DIRECTIVES This eighth Section contains the Living Will and Advance Health Care Directives which allow you to determine how you want medical care administered if you have a terminal illness or are in a comatose state and all natural hope of your recovery has been exhausted. If such a condition should happen to you, these instruments will serve to give notice that you desire to not be kept alive by such artificial means. Your Living Will agents are also considered to be the guardian of your person. In most cases, your Advance Health Care Directive can take the place of a Living Will. LAST WILL & TESTAMENT This ninth Section contains your will; however, it is better described as a Pour-Over Will. It is always used in conjunction with a RLT and its function is to convey everything (you may have forgotten to fund) into the trust at the time of your death. Such assets will go through probate first, however, unless they are minimal in value. Additionally, you may appoint guardians for your minor or incapacitated dependents and give any last instructions or statements in your Pour-over Will. TRUST ASSETS & CORRESPONDENCE This tenth (and last) section contains "retitlement" letters (or other correspondence regarding the trust) which you can mail to respective agencies (transfer agents) for transfer of title or change of beneficiary of your various assets. There are other documents included in this section for other functions. Lets examine each document: Joint Request for Asset List & Retitlement is a requisition letter to send to transfer agents, account managers, bankers etc. (transfer agents) requesting (i) a list of your assets as well as (ii) a change of title of your jointly-held assets from yourselves to yourselves as trustee with assets held in that particular account; make as many copies of this letter as necessary for you to accomplish this matter. The letter is self explanatory to the agent and should assist you very nicely. Joint Request for Asset Retitlement functions the same as the previously mentioned requisition letter but without a request for a list of your assets held on account with the firm. The separate letter-requests (the documents following this one in the Portfolio) function the same way but are for requesting retitlement for accounts held in a single name (spouse or spouse) rather than for those held jointly. Requisition for New Beneficiary Appointment (spouse or spouse) is a requisition letter used to appoint the trust as the primary beneficiary of your life insurance or other payable-on-death assets. It would be wise, in most cases, to keep your spouse as the primary beneficiary of your IRAs and/or other qualified plans so that a tax free roll-over, of qualified assets, would be available for your spouse. If your estate is large enough and your life insurance policy is substantial (about $100,000 or more) then, in all likelihood, it would be advantageous to appoint the trust/trustee as the primary beneficiary of the insurance for the purposes of helping to avoid estate tax consequences at the death of the surviving spouse. Portfolio Summary Page 8 (of 9)PDF/12
  13. 13. Requisition for Contingent Beneficiary Appointment (spouse or spouse) is a requisition used to appoint the trust (i.e. - the trustee) as the contingent beneficiary of your insurance policies etc. In the event the primary beneficiary does not survive you (and there was no contingent beneficiary alive) then the proceeds of your insurance, for example, would go to the probate estate of the primary beneficiary since such beneficiary would not be alive to receive the proceeds. Naming the trust as the contingent beneficiary will solve that problem. For marital estates that are average or smaller, its generally sufficient to name the trust as the contingent beneficiary. It is recommended, however, that you consult your advisor on these matters. Stock & Bond Powers (joint and/or separate) are designed for retitling stock or bond certificates without having to actually sign the certificate itself. This precludes mailing or delivering certificates than can cause inconveniences or losses. A Signature Guarantor (a member of the NYSE or commercial bank or trust company having its principal office or correspondent in New York City) must "guarantee" your signature. When the signed stock and/or bond powers are received by the transfer agent, they are simply attached to the certificate - validating the transfer. Portfolio Summary Page 9 (of 9)PDF/13
  14. 14. TRUSTEE MEMORANDUM Introduction This second section, containing the Trustee Memorandum, has been designed as a directive for trustee duties and functions to be performed at different administrative phases of your trust. It is not intended to take the place of professional assistance/advice. However, it is a helpful guide regarding general responsibilities of the trustee. There are three different phases of trust administration over the entire existence of your trust viz - (1) administrative duties during the lifetime of both settlors, (2) administrative duties after the death of the first settlor to die, i.e., during the lifetime of the surviving settlor and (3) administrative duties after the death of the surviving settlor. There will be functions and duties for the trustee to perform that are unique to each phase. This section will help define the differences and identify the functions. Trust law exists around the ability of one (the settlor) to bestow responsibilities on another (the trustee) who then accepts the obligations and carries them out. The Trustee Memorandum will be helpful to any person carrying out these important trust administrative functions. This section is for instructional purposes only. There are no legal documents contained in this section and no documents to sign. This memorandum is not intended for replacement of tax or legal counsel; it is provided only as a guideline for administration of a living trust. _______________PDF/14
  15. 15. TRUSTEE (ADMINISTRATIVE) MEMORANDUM (Marital Universal [A/B/C] Trust) There are three persons or entities in a Revocable Living Trust (RLT) - (i) settlor, (ii) trustee and (iii) beneficiary. This memorandum is a reference digest on the duties and functions of the trustee. There are three phases of trustee management/duties in a marital RLT defined as follows: PHASE ONE - SETTLORS JOINT LIFETIMES: - Transferring / Funding of Assets - A. Your RLT is in existence the moment it is executed by you, the settlors. In order to obtain the benefits of your trust, however, it is absolutely imperative to transfer (to fund) your assets to the trustee. That is what the name "living trust" implies - the trust is funded while the settlors are living. Different types of assets may require different procedures for funding; however, the final outcome must always be the same - to hold the assets as trustee. Remember that only those assets held in the trust (except for payable-on-death assets or right-of- survivorship property) will avoid formal and supervised administration - probate. B. In addition to the requisition for retitlement letters provided (in the last section of this Portfolio) for transferring assets to your trust, you should use the Certificate of Trust contained in Section Four; that is - have it available to present to the transfer agent if he/she needs it. By doing so, you are providing him/her with a document proving your power and authority to make such transfer which is a transfer from your present ownership status to your ownership status as settlors/trustees. 1. Assets you presently own which have a "certificate of title" certifying ownership (i.e. - real estate, bank accounts, stocks, bonds, mutual funds, limited partnerships, safe deposit boxes, etc.) should always have the title transferred or changed - from you to you as trustee (or to whomever is serving as trustee). Here is an example, which is used in this Portfolio, of how to title your assets -- HENRY J. SMITH & MARY A SMITH, Trustees SMITH FAMILY TRUST Dated: (date of trust) , 2012 a. Real estate held in your name must be funded into the trust with a quit claim deed that will transfer that certain piece of real estate property from you to the trustee - to your trust. Trustee Memorandum Page 1 (of 6)PDF/15
  16. 16. b. All property that you are carrying paper on (example - deed of trust) is not transferred as such; however, you must transfer the interest of that paper (the payments sent to you) to the trust (to the trustee). After you have received the draft (a Secured Realty Interest document) conveying such interest, you would then send a copy of the deed of trust and the conveyance document in your Portfolio (the Secured Realty Interest document) to the payor of the deed of trust and a requisition saying that from henceforth he/she is to send the payments to the trustee. 2. Assets without a certificate-of-title should have an "assignment" document (or bill of sale) assigning such asset to the trust. The Assignment of Tangible Personal Property document will accomplish that for you. Assets held in bearer form (certificate-less securities) should be kept in a safe deposit box titled to the trustee. 3. Assets such as IRAs, other qualified plans, annuities and life insurance policies which have a payable-on-death provision in the contract (i.e. - a named beneficiary to receive the assets at death of the insured) should name the trustee as either the primary or contingent beneficiary and be listed on Schedule "D". Caution should be taken to ensure that when a surviving spouse has a 60 day period for a roll-over option, such as in some IRAs, then the trustee should be named as the contingent beneficiary. The spouse would, in this case, remain as primary beneficiary. - Administration & Duties - C. During your joint lifetimes, as the settlors, you have complete and unhindered control of the trust assets (even if another than yourselves is serving as trustee). In effect then, the trustee has no significant responsibility during the joint lifetimes of both settlors (unless - neither of the settlors is serving as trustee or are incapacitated). D. You, as settlors, will continue your own fiduciary duties basically the same as you did before you set up the trust with the exception that you buy and sell as trustees; thus, transactions concerning your assets are accomplished as trustees and not as individuals. E. The IRS no longer requires a separate tax ID number for a RLT (during the joint lifetime of the settlors) as long as (i) the settlors file jointly and (ii) either one (or both) of the settlors is serving as the trustee; simply report all income from trust assets on your 1040 just as before. If any transfer agent insists on a tax ID number for your joint trust, instruct him/her to read the retitlement letter carefully and to use your social security (personal tax ID) numbers. 1. If the above criteria are not met then the trust becomes a taxable entity and a federal tax ID number must then be obtained by the filing of a SS-4 application form. Thenceforth, all income must be reported on a 1041 (fiduciary income tax) form. 2. Check with the state revenue office of your domicile concerning the filing of any fiduciary tax return regarding your living trust. Most individual state requirements are similar to the federal government. Trustee Memorandum Page 2 (of 6)PDF/16
  17. 17. PHASE TWO - AT DEATH OF FIRST SPOUSE TO DIE: - Taxation/Allocation/Record Keeping - F. The Marital Universal Trust has been designed to cover all tax phases of marital trust planning. If it is not necessary, for tax purposes, to apportion the trust estate into two separate trusts (Trust "A" & Trust "B") then the trustee is not required, by the provisions of this trust, to create the two trusts; the only exception would be if the settlors changed their minds (during their joint lifetimes) and executed an amendment to require the split regardless of the size of the estate. 1. If the aggregate value of the entire trust estate is less than the then available exemption amount (at the time of death of the first settlor to die), as it pertains to the transfer tax laws in effect at the time of this writing, then there is to be no split into Trust "A" and Trust "B". 2. If the aggregate value of the entire trust estate is equal to or greater than the then available federal exemption equivalent amount, then there shall be a split into Trust "A" and Trust "B". 3. If there is a need, for tax purposes, to create the split at the death of the first spouse to die then the trust estate should be allocated into three separate trusts - the Survivors Sub-Trust "A", the Decedents Sub-Trust "B" and the Qualified Terminable Interest Property Sub-Trust "C". Trust "C" would only be created, however, if the value of the estate of the first spouse to die exceeds the exemption equivalent (from the transfer tax credit) then available to the decedents estate. G. All trust assets should have a proper evaluation assigned to them. Additionally, the trustee must apply for a tax ID number, for Trust "B", by filing a SS-4 Form (not necessary if the surviving settlor does not want to subdivide the trust). All income, capital gains etc. must then be reported on a 1041 (fiduciary income return); all income beneficiaries must be sent a IRS K-1 form (and corresponding state forms) for the purpose of reporting income paid to them from Trust "B"; the surviving spouse must receive all income from Trust "C" and thus the same filing requirements apply. H. If it is necessary to create Trust "C" because of the excess value of the Decedents estate, the trustee will need to take the "marital deduction" for the Trust "C" property. QTIP is an acronym for "qualified terminable interest property", which, as the name implies, may qualify a portion of the Decedents estate for the marital deduction. Thus, there is no tax to be paid on the Decedents estate (until the Survivor dies, if necessary) even if it exceeds the available exemption equivalent provided that trustee properly elects to qualify the value of Trust "C" for the marital deduction. Current rules allow a fiduciary (trustee) to shelter the value of Trust "C" under the Survivors transfer credit (to the extent available) at the Survivors death. At the death of the Survivor, the QTIP property goes to the Decedents beneficiaries - determined in the trust by the Decedent (first spouse to die) before his/her death. Trustee Memorandum Page 3 (of 6)PDF/17
  18. 18. 1. The burden of proof is on the trustee to prove the value of trust assets for any estate tax due. Generally, for valuation purposes, the trustee must adhere to the "highest and best use" rule when giving valuations to property for estate tax purposes. 2. A 706 Federal Estate Tax return can be filed even if the decedents estate is under the federal exemption limits and not subject to estate tax as a result of his/her available Unified Credit; this is especially true if the decedents gross estate value is near the maximum allowable Exemption Equivalent. This establishes, with the IRS, the value of the decedents property at date of death (or six months later). Copies of appraisals etc. should be submitted with a 706 if filed. The decedents executor is required to file when the gross estate is over the current allowable Exemption Equivalent. 3. Determinations of income, expenses and capital gains are usually divided and allocated to the respective trusts. Additionally, federal law enables the trustee to minimize or eliminate taxes by allowing a valuation of trust assets either at the date of death or at a date six months after death. 4. To facilitate better management of assets, it is allowable to use "prorata" allocations instead of re-registering title to assets or dividing undivided interests. Whichever method is used, it is important that book entries in the accounting records be made in regard to the allocation of such assets to the respective trusts. The trustee must distinguish between income and principal in receipts and disbursements. Fair allocations may be required between income and principal if there are income beneficiaries receiving income. - Trustee Powers & Duties - I. As a rule all trustee powers are set forth in the trust instrument. However, there are certain implied laws (Uniform Trustees Powers Act) which may be utilized in the general administration of the trust. It is important to know that one of the trustees duties concerning the Decedents Trust is that preservation of principal is a primary duty of the trustee; he/she must act in good faith toward the income beneficiaries and remaindermen. J. The trustee may delegate ministerial duties (accounting etc.) to another but may not delegate discretionary authority and decision making unless the trustee formally resigns (Successor Trustee Declination document). K. In your trust, the trustee can buy and sell between himself/herself and the trust (unless drafted otherwise). This does not, however, allow for any self dealing if there is the possibility of detriment to the beneficiaries. Generally, the trustee may not commingle his/her property with that of the trust. Thus, proper record keeping is important. L. The trustee has been given basic "prudent man" powers (unless you have determined otherwise) which allow him/her to invest in equities as well as debt securities. In general that means he/she is allowed to invest as a prudent man would in obtaining income and at the same time preserving the principal. Trustee Memorandum Page 4 (of 6)PDF/18
  19. 19. M. If there are losses to the trust because of gross negligence or impropriety on the part of the trustee or if the trustee fails to pay a death tax that was due, he/she could incur personal liability. PHASE THREE - AT DEATH OF SURVIVING SPOUSE: N. Generally speaking, the duties of the successor trustee are basically the same as were those of the surviving settlor/trustee. At the death of the surviving settlor, the assets of Trust "B" and Trust "C" are added to by any remaining assets of Trust "A" if so designated (or as you may have determined otherwise in your trust) and shall be combined to create the Family Share which will either be divided into specific allocations or divided into trusts for further administration for minor children etc. O. The successor trustee may use the Certificate of Trust the same as the settlors did for the purpose of transferring and transacting assets from or to the trust; the reason is that - at this point, the trustee must now assume legal title to the assets. In making disbursements to beneficiaries, the trustee must file a Successor Trustee Notice (and accompanying appendages) with the respective transfer agents in order to initially obtain assets in his/her name - as trustee - so that he/she may assume his/her appointment of trustee. P. If the trust has been divided into different "sub-trusts" for the beneficiaries, the successor trustee will have to keep separate accounts and/or devise an accounting method of allocation to ensure proper allocation of income and/or principal distributions to the beneficiaries for assets held IN TRUST until the final distribution is made. Q. When a final distribution has been accomplished, the trustee has discharged himself/herself from the duties of the trustee, provided, of course, that proper accounting, tax return filing etc. has been made. R. The duties of an administrator of an estate (the personal representative) and the duties of a trustee of a trust (holding an estate in-trust) are usually quite similar if not identical in many cases. The following page will define some final actions that may be required by the trustee. Trustee Memorandum Page 5 (of 6)PDF/19
  20. 20. - Administrator Checklist - THE FOLLOWING - is a guideline/checklist for the administrator (personal representative) of an estate. Generally the duties of an executor and trustee overlap. Usually the trustee is the same person as the executor. If they are not, then they must work together in accomplishing the goal of proper estate administration. Most of the following instructions are applicable in the administration of the estate at the death of the first spouse to die as well as for the successor trustee administration at the death of the surviving spouse:  The executor/trustee should immediately secure trust property for transferring such to himself/herself as trustee (the trustee will not be able to make transactions or distributions until title of such trust property has been properly vested to him/her). Funeral arrangements, or applicable proceedings, should be arranged if not previously made by the decedent and arrange for organ donations if the settlor or family expressed such a desire.  As soon as possible the executor/trustee should locate known assets, remove contents of decedents safe deposit box, apply for any Veterans Administration benefits, file life and medical insurance, cancel all subscriptions etc.; have property appraised; and apply for an estate ID number (Form SS-4) if the trust is currently or will be paying out income and, if necessary, file an estate tax return (Form 706) for the decedents estate.  The executor/trustee should now consider selling certain assets where necessary and invest proceeds in liquid income-producing accounts (if prudence requires); consider administration and final medical expense deductions on a 1041 or 706; check for accumulation of pension/profit sharing benefits and life insurance payable to the trust estate.  The executor/trustee should locate and list every insurance policy on the life of the decedent (regardless of who owns it - for the purpose of the 3-year inclusion rule) and check for any insurance policies on credit cards etc. Also, include a copy of any other trust of which the decedent may have been a grantor/settlor.  Where applicable, the executor/trustee may revaluate the estate by using the alternate valuation method and decide which date to use (date of death or 6 months later) on the 706 Form for final, property evaluation.  The decedents final 1040 is to be filed (if necessary) by the 15th of April of the year following the year of death; within nine months of death the 706 must be filed, if necessary; filing of any outstanding gift tax returns must be done; any tax due must be paid. NOTICE: Our office now offers easy-to-use, online ESTATE SETTLEMENT SERVICES; please contact our office for more information if estate settlement assistance is needed. Trustee Memorandum Page 6 (of 6)PDF/20
  21. 21. ~ REVOCABLE LIVING TRUST ~ Introduction This third section contains the centerpiece of your Estate Planning Portfolio - the Revocable Living Trust. In particular, this is a Marital Universal (A/B/C) Trust - the trust format you have selected. This trust is completely under your control (see Article One). You can transfer your assets back out of your trust just as easily as you can transfer your assets in. Below are descriptions of Articles (of your Trust) that you should review first. Article Four defines the partitioning of the Trust that may be required for estate tax purposes. If your aggregate estate value is less than the federal exemption equivalent amount at the time of death of the first Settlor to die, then no partitioning would occur (unless otherwise determined by an Amendment). The stipulations to determine those events are found in this Article. Article Six outlines the administrative (and distributive) provisions of the estate of the first spouse to die - Trust B (the Credit Shelter Trust) and Trust C (the amount of the decedents estate, if any, which exceeds the exemption equivalent amount and qualifies for the marital deduction yet remaining under the control of the decedent spouse). Distributions of income and/or principal from Trust B and Trust C - to the surviving spouse are provided here. Also, if there are to be distributions to other beneficiaries, at the death of the first spouse to die, such distributions are described in this Article. Article Eight describes the final distribution of the Trust Estate at the death of the surviving spouse. Read this Article through carefully to be sure it conforms to the distribution format you want. Article Nine confirms your declaration that you are serving as trustee as stated. It also names the appointees that you have selected to serve as successor trustee(s). Article Nine mandates the contingencies that must occur before the successor trustee is to assume administrative responsibilities. Both spouses need to sign this document in the presence of a Notary Public. ________________PDF/21
  22. 22. REVOCABLE LIVING TRUST Declaration & Agreement ~ RECITALS ~ This Revocable Declaration of Trust acknowledged and referred to as the: SMITH FAMILY TRUST Dated: ______________________, 2012 is hereby made and entered into on this day being the date stated above between – HENRY J. SMITH & MARY A SMITH (a married couple) domiciled in the County of Maricopa, State of Arizona, hereinafter referred to as the "Settlors" and HENRY J. SMITH & MARY A SMITH domiciled in Maricopa County, State of Arizona, hereinafter referred to as the "Trustee". It is the primary purpose and intent of this Trust to provide for the management of the Settlors assets both presently and during any future period of disability. This Trust Agreement is a chosen alternative preferred to guardianship or formal conservatorship proceedings that are conducted in and supervised by a court of law. This Trust Agreement shall serve as a simplified means of accomplishing both lifetime and death transfers of both Settlors assets. ARTICLE ONE - Declaration of Property Ownership - 1.1. The Settlors have contemporaneously transferred certain property to the Trustee with the signing of this agreement, the receipt of which they, as Trustee, hereby acknowledge. 1.2. The Settlors shall list all of their co-owned property on Schedule "A" attached herewith to be held in this Trust as Community property. All property owned separately by HENRY J. SMITH, Spouse, held in this Trust as his Sole and Separate property shall be listed on Schedule "B" attached herewith. All property owned separately by MARY A SMITH, Spouse, held in this Trust as her Sole and Separate property shall be listed on Schedule "C" attached herewith. (a) All property co-owned by the Settlors and transferred to Trustee by the Settlors, as invested and reinvested, together with the rents, issues and profits therefrom, shall be deemed as (and retain its character as) Community property of the Settlors, subject, however to the provisions of this agreement. RLT Page 1 (of 32)PDF/22 
  23. 23. (b) Sole and Separate property of either Settlor transferred to Trustee, as invested and reinvested, together with the rents, issues and profits therefrom, shall retain its character as separate property of the Settlor who transferred such property to Trustee, subject, however to the provisions of this agreement. 1.3. The Settlors shall list all of their tangible personal property on separate schedules (for each spouse), attached hereto and made a part hereof, in which they hereby direct that, at their death, Trustee shall (first) distribute and deliver such property to the persons described in such schedules to wit: the Spouses tangible personal property shall be listed on and distributed according to the "Spouses Chattel Schedule" and the Spouses tangible personal property shall be listed on and distributed according to the "Spouses Chattel Schedule". Any such Chattel distributions shall not be  deemed  as  a  part  of  the  recipient’s  portion  of  this  Trust   Estate as prescribed in Article Eight (infra) and the remainder Trust Estate – remaining after any  such  specific  “Chattel”  distributions  – shall be distributed as provided and prescribed in Article Eight (infra). 1.4. All property with a "death benefit" owned by either Settlor which is made payable to Trustee is listed on Schedule "D" attached herewith. ARTICLE TWO - Reservation of Rights - 2.1. The Settlors reserve the following rights, individually as to their respective interest in Community property and as to their respective Sole and Separate property, to be exercised at any time and from time to time by a written instrument effective immediately upon its execution during their joint lives without the consent or participation of any other person: (a) Settlors may amend this Trust, in whole or in part, or to revoke this Trust agreement in its entirety (by a writing delivered to a Trustee other than themselves if such Trustee is serving) and to remove any or all of their respective interests in their respective property transferred to this Trust. (b) Settlors may add any other property to this Trust by transferring such property to Trustee, which property shall be described in a receipt signed by Trustee, and to add any other property by their wills. Trustee shall administer and distribute any such property as if it had been a part of the original Trust assets. (c) Settlors may make payable to Trustee death benefits from insurance on their lives, annuities, retirement plans or other sources. Settlors reserve all incidents of ownership of such insurance and shall have the duties of safekeeping all documents, of giving any necessary notices, of obtaining proper beneficiary designations, of paying premiums, contributions, assessments or other charges and of maintaining any litigation. RLT Page 2 (of 32)PDF/23
  24. 24. (d) Settlors may direct any Trustee as to the retention, acquisition, or disposition of any Trust assets by a writing delivered to such Trustee. Any assets retained or acquired pursuant to such directions shall be retained as a part of this Trust Estate while they are Trustee(s) unless otherwise directed in a like writing so delivered (Trustee shall not be liable to anyone for any loss resulting from any action taken in accordance with any such direction given by the Settlors). (e) Settlors may examine the records of any Trustee appointed hereunder. 2.2. A Settlors reserved powers, unless specifically provided otherwise herein or in such Settlors Will, are personal and shall not be exercisable by any other person, any guardian or any legal representative. 2.3. Upon the death of either Settlor, this Trust shall be irrevocable and not amendable subject, however, to any power of appointment, right of withdrawal or right of revocation hereinafter granted to the Survivor concerning property held in the Survivors Trust as provided in Article Five. 2.4. Notwithstanding the provisions of this Article, however, the duties, powers, liabilities and compensation of Trustee shall not be materially changed or altered without Settlors written notification to Trustee. ARTICLE THREE - Trust Administration During Settlors Lifetime - 3.1. Trustee shall hold and distribute, for the benefit of the Settlors, the principal and income of the Trust Estate out of their respective individual interests in their respective Community and Sole & Separate property as follows: (a) Trustee shall pay to the Settlors, or in accordance with their instructions, such portions of net income and principal as directed in a writing (or otherwise) delivered to Trustee. (b) Trustee shall pay to or for the benefit of the Settlors, such portions of net income and principal as Trustee, in such Trustees discretion, deems necessary or advisable to provide for their health, education, care, comfort, support, maintenance and general welfare. 3.2. Either Settlor may withdraw a portion or all of his/her Sole & Separate property and/or interest in Community property (or other jointly-held property with his/her spouse) of this Trust Estate at any time, from time to time, by a notification in writing to Trustee. RLT Page 3 (of 32)PDF/24
  25. 25. ARTICLE FOUR - Administration Upon Death of First Settlor - 4.1. The remaining Trust assets not effectively disposed of by the preceding Article Three shall be allocated, administered and distributed by Trustee upon the death of the first Settlor to die, hereinafter referred to as "Decedent", as follows (the surviving Settlor shall hereinafter be referred to as "Survivor"): (a) Trustee shall pay, after a prorata designation of common debts owed by the Decedent and the Survivor respectively (e.g. one half of any common debt shall be charged equally to each spouse), his/her (first spouse to die) debts, expenses of any last illness and burial costs. (b) Such payments shall be made first out of Decedents Sole and Separate property, unless such payments would require liquidation of Decedents non-cash assets, and then out of Decedents interest in Settlors Community property, to the extent that these shall not be paid, or the responsibility for their payment be assured, by some other person or estate. 4.2. Trustee shall create three (3) separate trusts: the (1) Survivors Trust - Trust "A", the (2) Credit Shelter (Decedents Trust) Trust - Trust "B", the (3) Qualified Terminable Interest Property (QTIP) Trust - Trust "C" and apportion such Trust assets as follows: (a) Trust "A" shall consist of all of the Survivors interest in his/her Community property, Tenants-in-Common property and all of his/her Sole and Separate property. (b) Trust "B" shall consist of the largest amount, if any, of the Decedents Sole and Separate property of this Trust Estate and all of his/her interest in the Community property and any of his/her interest in Tenants-in-Common property of this Trust Estate that can pass free of federal estate tax by reason of the allowable federal unified credit and state death tax credit (provided that its use does not require an increase in the state death taxes paid) allowable after deducting the value of property disposed of by previous Articles of this trust and property passing outside of this trust that is includible in the Settlors gross estate that does not qualify for the marital or charitable deduction and after deducting charges to principal that are not allowed as deductions in computing the federal estate tax. The values finally determined for federal estate tax purposes shall be used for establishing the sums allocated pursuant to this Article. (c) Trust "C" shall consist of the remainder of the Decedents Trust Estate not allocated to Trust "B" - as determined by the formula in the previous paragraph (supra). The Decedents Executor (or the Trustee of this Trust, if appropriate) may elect, under Section 2056(b)(7) of the Internal Revenue Code as of 1986, as amended, to qualify all or any portion of the property in such Trust "C" (not otherwise designated to the Credit Shelter Trust) for the federal estate tax marital deduction as Qualified Terminable Interest Property and to be held and administered under the provisions of Article Six. RLT Page 4 (of 32)PDF/25
  26. 26. (d) In making the computations necessary for determining the distributions as provided in this Article, the values finally determined for federal estate tax purposes shall be used. In the sole power and discretion of Trustee, the distributions may be either in cash or property as selected by Trustee; provided, however, that all such property so selected shall be valued at the value as finally determined for federal estate tax purposes. In allocating property, Trustee shall select assets, including cash that are fairly representative, on the date or dates of distribution, of appreciation or depreciation to determine the value of property available for distribution. (NOTE TO SETTLORS: The following Section (4.3) provides a waiver regarding the formation of the Unified Credit Shelter Trust - when specific conditions exist - as described herein. A   Trust   “B”   Apportionment   Amendment   is   available   in   the   Portfolio Administrative Documents Section that can mandate the creation of Trust “B”  regardless  that  the  aggregate  value  of  the  Trust  Estate  is  less  than  the  Federal   Exemption Equivalent amount at the date of death of the first spouse to die. If, or when, your aggregate estate exceeds One Million Dollars [$1,000,000], it is recommended  to  implement  the  Trust  “B”  Apportionment  Amendment  for  estate  tax   purposes because of the uncertainties of the federal transfer tax laws.) (Tax Elections Not Required) 4.3. NOTWITHSTANDING this Article (Paragraphs of this Article preceding this Paragraph), in the event that the total, aggregate net value of the estates of both the Spouse/Settlor and Spouse/Settlor - after including the calculation of any lifetime taxable transfers made during Settlors joint lifetimes, by either Settlor - is less than the "exemption equivalent" amount, being the amount which the Federal Unified Credit would credit against federal gift & estate transfer taxes for a individual transferor, which is then available to exempt any part of Settlors estates through the application and election of the Federal Unified Credit as defined under IRC section 2010 (as amended) and state death taxes as defined under IRC section 2011 against any transfer tax incurred as a result of any transfer of property as defined IRC section 2003, then Trustee shall not allocate any of the estate of the first Settlor to die to the Credit Shelter Trust (Trust B). (a) In such case of the Settlors total net estate value being less than the then available exemption equivalent amount, as described in Paragraph 4.3, Trustee shall transfer all of the Decedent Settlors estate directly to the Survivors Trust "A". The Survivor shall, in such case (as described above), have complete control over all Trust assets and all Trust assets shall therefore be under his/her general power of appointment as defined in IRC section 2041. (b) Upon the death of the first Settlor to die, in such case (as described in Paragraph 4.3), the Paragraphs of this Article pertaining to the division of the Trust Estate into a Decedents Trust (Trust B) and a Survivors Trust (Trust "A") (and the creation of the QTIP Trust, if needed) shall not apply. Article Five shall apply to the extent it pertains to the surviving Settlors general power of appointment over all Trust assets and Article Six (infra) shall not apply and portions of Article Seven - applicable to the Decedents Trust shall not apply. Upon the death of the Survivor, in such case, the Trust Estate shall be distributed as per Article Eight (below). RLT Page 5 (of 32)PDF/26
  27. 27. (c) Notwithstanding this Section 4.3 et seq., in the event that the surviving Settlor elects to make an IRC section 2518 disclaimer regarding any allocations received from the Trust Estate of the first Settlor to die (including as per this Section), then any such disclaimed  property   shall   be  allocated/distributed  to   Trust   “B”  per  Section  4.2  (supra)  of  this   Article as though this Section 4.3 did not apply. ARTICLE FIVE - Administration/Distribution of Survivors Trust - 5.1. The Survivor shall retain full (and unhindered) general power of appointment of all property held in the Survivors Trust, including the power to alter, amend or revoke, in whole or in part, any and all provisions (including the revocation and appointment of any Trustee of the Survivors Trust) concerning such property held in the Survivors Trust. 5.2. Assets allocated to the Survivors Trust shall be valued as finally determined for federal estate tax purposes as per Article Four. 5.3. The Survivor shall have the power to direct Trustee to dispose of (and reinvest) any assets in the Survivors Trust that fail to provide income to the Survivor; all such income from the Survivors Trust shall be distributed (only) to the Survivor and at least annually or in more frequent installments, for his/her lifetime. 5.4. In the event the Survivor elects to relinquish his/her Trusteeship or becomes incapacitated as defined in this agreement, the Successor Trustee shall administer the Survivors Trust as follows: (a) Trustee shall distribute, at least annually, the net income to the Survivor in convenient installments. (b) Trustee shall, from time to time, distribute or apply for Survivors benefit such portions of the principal to provide liberally for his/her maintenance, comfort and enjoyment. (c) The Survivor may withdraw all or any portion of the Trust assets at any time by written request filed with Trustee. (Administration at Survivors Death) 5.5. Upon the death of the Survivor, Trustee shall administer and distribute any assets of the Survivors Trust (including accrued and undistributed income of the Survivors Trust) and including those assets, if any, that the Survivor may have disposed of by the last unrevoked written instruction(s) to the Trustee - including any specific directives in Survivors Last Will & Testament or Codicil to such Will (if any) - separate and apart from this Trust agreement, making specific reference to this power of appointment, exercisable alone by the Survivor and in all events, as follows: RLT Page 6 (of 32)PDF/27
  28. 28. (a) Trustee may apply any assets of the Survivors Trust for the payment of (i) Survivors federal estate transfer taxes and/or state (or local) transfer/death taxes (if any); (ii) expenses of Survivors last illness, funeral, valid debts and estate administration (if any); and/or, (iii) federal estate and/or state transfer (or other local) taxes attributed to Survivors assets not held in this Trust being transferred to Survivors beneficiaries who may or may not be named or identified in this Trust as beneficiaries of this Trust. (b) Trustee shall pay any of Survivors federal, state and local transfer tax obligations, if any, that will become due at such time except any generation-skipping transfer taxes otherwise payable by a reverse qualified terminable interest property election(s) that may be established hereunder, between the Settlors, within or without this instrument. (c) All payments under the preceding provisions of this Article shall be made from the remaining (Survivors Trust) Trust assets prior to the final allocation of Trust assets to the Trust beneficiaries as provided in this agreement. (d) Notwithstanding the preceding paragraph, any assets that are to be distributed as a specific distribution, in kind, to a certain beneficiary(s) of the Survivors and/or the Decedents Trust Estate that may be described herein - shall not be used, unless otherwise provided herein, to pay expenses of either the Survivors or the Decedents Trust Estate. (e) Any assets of the Survivors Trust then remaining at the time of the Survivors death, not otherwise disposed of pursuant to Section 5.5 of this Agreement shall be distributed as per the provisions of Article Eight. ARTICLE SIX - Administration/Distribution of Trusts "B" & "C" - (Decedents Trust - Trust "B") 6.1. All administrative and distributive provisions of Trust "B", concerning property of Trust "B", may be altered or terminated by amendment, from time to time, only during the joint lifetimes of the Settlors; such amendment shall be signed by both Settlors and shall be attached hereto and made a part of this Trust agreement. 6.2. During Survivors lifetime, Trustee shall administer Trust "B" as follows: (a) Annual Income - Trustee shall pay or distribute all net income to or for the benefit of the Survivor only at such intervals as shall be mutually convenient but not less frequently than annually. (b) Necessary Support from Principal - If the Survivors Trust has been depleted to the extent that available funds are not sufficient to maintain and support the Survivor, portions of the principal may be used to provide for such Settlors maintenance and support. RLT Page 7 (of 32)PDF/28
  29. 29. (c) During any period in which an Independent Trustee is serving as Trustee, it may, in its sole discretion, direct distribution of any amount of the principal to or for the benefit of the Survivor as it deems to be in Survivors best interests without limitation and without regard to the purpose or application of such distribution. 6.3. Upon the death of the Survivor, the assets of the Decedents Trust "B" shall be held, administrated and distributed as provided in Article Eight of this Agreement. (QTIP Trust - Trust "C") 6.4. During the lifetime of the Survivor, Trustee shall hold, administer and distribute the property of Trust "C" (QTIP Trust) as follows: (a) Trustee shall pay all net income, from Trust "C", to or for the benefit of the Survivor, for his/her lifetime, at such intervals that shall be mutually convenient but not less frequently than annually. The Survivor shall have the power to compel the Trustee to dispose of (and reinvest) any assets in Trust "C" that fail to provide a reasonable income to the Survivor as income beneficiary of Trust "C". Any income accrued but not distributed at the Survivors death shall be distributed to Trust "A" and be added to the principal of such trust. (b) If the Survivors resources (including property in Trust "A") have been depleted to the extent that available funds are not sufficient for such Survivors general welfare, portions of the principal, as the Trustee deems advisable, may be used to provide for Survivors health, maintenance or support. (c) During the lifetime of the Survivor, the principal of Trust "C" shall not be distributed to, or for the benefit of, any other person than the Survivor. (d) At the Survivors death, any remaining principal of Trust "C" shall be held, administrated and distributed as provided in Article Eight of this Agreement. ARTICLE SEVEN - Estate Tax Elections & Debt Allocations- 7.1. It is the main purpose and intent of this Article that, so far as is practical, any estate taxes paid shall be paid out of a decedent Settlors entire estate whether passing by this Trust instrument or outside of this Trust instrument concerning property over which a decedent Settlor possessed a general power of appointment, before distribution to any beneficiary. 7.2. If any estate (or income) tax is paid by a deceased Settlors Trustee or Executor because of any interest passing to or in the possession of any person other than the deceased Settlors Trustee or Executor, the following shall apply: (a) The Trustee or Executor shall be entitled to a just and equitable reimbursement from the beneficiary(s) of such deceased Settlors estate whose interest(s) were received, in whole or in part, outside of the possession of the Trustee or Executor. RLT Page 8 (of 32)PDF/29
  30. 30. (b) Such reimbursements may be realized by the Trustee or Executor by allocating a just and equitable reduction of any portion of this Trust Estate passing to the persons whose interest in the estate of the deceased Settlor would have been otherwise reduced if the tax had been paid before the distribution of the estate or whose interest is subject to equal or prior liability for the payment of taxes, debts, or other charges against the estate. 7.3. If any part of the gross estate on which estate/transfer tax has been paid consists of the value of property included in a decedent Settlors gross estate under IRC Section 2041, the deceased Settlors Trustee or Executor shall be entitled to recover from the person (or persons, prorata if more than one recipient) receiving such property by reason of the exercise, non-exercise, or release of a power of appointment, such proportion of the total tax paid as the value of such property bears to the taxable estate. 7.4. In the case of property passing outside this Trust Estate being insurance on the life of the Settlor, with such Settlor having "incidents of ownership" on such insurance receivable by other than Trustee, Trustee shall be entitled to recover from such beneficiary such proportion of the total tax paid as the proceeds of such policies pertain to the taxable estate. If there is more than one such beneficiary, Trustee shall be entitled to recover from such beneficiaries in the same ratio respectively. 7.5. If any part of the gross estate consists of property the value of which is includible in the gross estate by reason of IRC Section 2044, relating to certain property for which a marital deduction was previously allowed, such decedent Settlors estate shall be entitled to recover from the person receiving the property the amount by which the total tax which has been paid exceeds the total tax which would have been payable if the value of such property had not been included in the gross estate. 7.6. Any assets that are to be distributed as a specific allocation/distribution - to a certain beneficiary(s) of this Trust Estate - shall not be used, nor the value thereof, to pay expenses of this Trust Estate as described in this Article. Notwithstanding, any mortgage, lien, or encumbrance on a specific devise to a certain beneficiary shall NOT BE EXONERATED, or charged against the Trust Estate, or paid by the Trustee prior to distribution but shall rather be included in any such specific allocation – unless otherwise prescribed hereunder. 7.7. Trustee may exercise all of the foregoing elections and any others available under any tax law – including the under-funding (or over-funding) of the Credit Shelter Trust as may be beneficial (to all parties of this Trust) under the terms of Rev. Proc. 2001- 38 or other (similar) law under consideration of state and/or federal transfer tax law at the time of decease of the first Settlor to die – only to obtain, to the extent practicable, both the optimum reduction in taxes estimated to be payable by a (respective) Settlors estate, this Trust, the beneficiaries of both, any business interests in the Trust Estate and the optimum deferral of all taxes. Additionally, Trustee may make adjustments between income and principal accounts and allocate the benefits from any election among the various beneficiaries of this Trust, and may compensate for the consequences of any election that Trustee believes has had the effect of directly or indirectly preferring one beneficiary or a group of beneficiaries over others. RLT Page 9 (of 32)PDF/30
  31. 31. ARTICLE EIGHT - Estate Distribution Upon Death of Survivor - Trustee shall allocate the balance of the principal and accrued (but) undistributed income of Trust "A", the principal and accrued undistributed income of Trust "B" and the principal of Trust "C" referred to as the Residual Trust Estate - and distribute as follows: 8.1. Trustee shall allocate and distribute equal share values of the Trust Estate to the following named beneficiaries – HENRY J SMITH, JR, ANN B SMITH & JUSTIN F SMITH 8.2. Contingent Distributions. If any beneficiary named above does not survive the last Settlor to die then such deceased beneficiarys portion shall be distributed EQUALLY TO HIS (HER) SURVIVING LEGAL CHILDREN/ISSUE, BY RIGHT OF REPRESENTATION. If any such named beneficiary does not survive the last Settlor to die and leaves no surviving children/issue, in such case, then that decedent beneficiarys portion shall be distributed equally to the other surviving beneficiaries named above (or as otherwise may be prescribed in Section 8.6, below). 8.3. Notwithstanding the provisions defined above, Section 8.4 (below) provides a "Schedule of Other/Alternate Primary Beneficiaries" which is a list of beneficiaries (if any), and the percentages of the Trust Estate that each respective beneficiary listed thereon shall receive prior to the allocations and distributions prescribed in Section 8.1 of this Article. (a) Section 8.1 allocations – in such case of utilizing Section 8.4 – shall then be deemed as allocations of the remainder of the Trust Estate (that is) remaining after the allocations/distributions prescribed in Section 8.4. (b) If there is/are no beneficiary(s) identified above in Section 8.1 – and the beneficiaries listed in Section 8.4 (and/or   under   Section   “8.6”   /   by   Special   Directives,   if   applicable) are to receive a total aggregate of 100% of the Trust Estate (in the portions prescribed therein) – then, unless otherwise prescribed by an amendment to this trust, the allocations defined in Section 8.4 (and/or   under   Section   “8.6”   /   by   Special   Directives,   if   applicable) shall be deemed as the ONLY “Distribution Schedule(s)”  of this Trust Estate and the only allocation and distribution terms for beneficiary distributions provided herein. RLT Page 10 (of 32)PDF/31