FLEXIBLE IRREVOCABLE LIFE INSURANCE TRUST (CAN BE USED WITH EITHER INDIVIDUAL OR SURVIVORSHIP LIFE POLICIES) EXPLANATION FOR LEGAL COUNSEL

Transcription

1 Estate Planning FLEXIBLE IRREVOCABLE LIFE INSURANCE TRUST (CAN BE USED WITH EITHER INDIVIDUAL OR SURVIVORSHIP LIFE POLICIES) For Attorney Use Only. This specimen form may be given to the client's attorney for consideration when requested. It is not adapted to the specific circumstances or objectives of any individual client, nor has it been prepared to meet the legal requirements of any particular state. All legal documents must be prepared only by a licensed attorney. All formalities required under applicable local law should be observed. ***** EXPLANATION FOR LEGAL COUNSEL With the current uncertainty in federal estate taxes, clients are looking for more flexibility out of their irrevocable life insurance trusts ("ILITs"). With a properly drafted Flexible ILIT, clients can have the flexibility they need, regardless of whether the ILIT is funded with individual or survivorship life insurance. The benefits of a Flexible ILIT can only be achieved when used with a married couple. Here are some drafting guidelines for attorneys to consider when establishing a Flexible ILIT for client(s). Grantor: Only one of the spouses should be the Grantor of the trust. It may be prudent to make the spouse who is most likely to die first the Grantor. Beneficiaries: Permissible beneficiaries of the trust include the non-grantor spouse and the insureds children, grandchildren, etc. Trustee: In order to provide maximum flexibility, neither insured should act as trustee of the Flexible ILIT. Although it is possible for the spousal beneficiary to be the trustee in situations where he or she is not an insured under the life insurance policy, the spousal beneficiary s discretion to make distributions to himself/herself would have to be limited by ascertainable standards (health, education, maintenance, and support), which can limit flexibility. Ideally, a friendly trustee should be chosen who would be receptive to the needs of the spousal beneficiary, Page 1 of 17

2 Trustee distributions: The key to the Flexible ILIT is the distribution authority given to the trustee. For maximum flexibility, the trustee should be given the absolute discretion "to make distributions of principal and income to the spousal beneficiary for any reason whatsoever, to the exclusion of other trust beneficiaries." The language in italics is important in order to avoid a potential breach of fiduciary issue should the trustee make disproportionate distributions to the spousal beneficiary (or even distribute the entire policy to the spousal beneficiary in the event of permanent estate tax repeal). Trust funding: The spousal beneficiary should not make direct gifts to the trust. Doing so may cause the policy death benefit to be included in his or her estate since he or she has a retained interest in the trust. Merely consenting to gift splitting should not cause the spousal beneficiary to be deemed a grantor of the trust. Survivorship life insurance: Special precautions should be taken if the Flexible ILIT will hold life insurance insuring the life of the spousal beneficiary. In such situations, the spousal beneficiary absolutely cannot be the trustee, even if distribution discretion is limited by ascertainable standards. This is due to the fact that being trustee would give the spousal beneficiary/insured incidents of ownership in the policy, thus causing inclusion of the policy in his or her estate. In addition, the spousal beneficiary should not be given a limited power of appointment, as this could be considered to be equivalent to being able to affect the time or manner of enjoyment of the policy proceeds, and once again could constitute a incident of ownership in the policy. Finally, it may also be wise to avoid giving the spousal beneficiary a Crummey withdrawal right, even if limited to the greater of $5000 or 5% of the trust corpus. Where the only asset of the Flexible ILIT is the life insurance policy, such a right could be interpreted as being equivalent to being able to force the trustee to take a loan or withdrawal from the policy, which once again could constitute an incident of ownership in the policy. Special precautions should also be taken with regard to payment of premiums in the event that the grantor spouse dies first. The spousal beneficiary cannot gift premiums to the trust, because that would be a transfer with a retained interest pursuant to IRC Section 2036 and could cause inclusion of part or all of the trust in his or her estate. One or more of the following options should be considered: Have the Flexible ILIT separately insure the grantor spouse by purchasing a separate individual life policy or placing a term rider on the survivorship policy. In the event of the grantor spouse s death, the trustee would receive the death benefit proceeds, and could use them to continue making premium payments for the survivorship policy. Page 2 of 17

3 Pay the premiums in as few of years as possible to help minimize the risk of the grantor spouse dying before all premiums have been paid. After the death of the grantor spouse, have the children make gifts to the trust to pay any additional premiums required. After the death of the grantor spouse, have the spousal beneficiary loan the any additional premiums required to the trust.3 Community property states: Special consideration should be paid to the drafting and funding of a Flexible ILIT in community property states. For example, the grantor spouse should create a separate property agreement and fund the trust with separate property. Clients in community property states should consult their own tax or legal counsel for advice on other drafting and tax issues present in their particular state. Other issues: If the spousal beneficiary predeceases the grantor spouse, the grantor spouse in effect losses his or her indirect access to the policy. To help minimize this risk, consider making the healthier spouse the beneficiary of the Flexible ILIT. References: See IRC 2513; Rev. Rul ; PLR ; PLR TRUST AGREEMENT This TRUST AGREEMENT made this day of, by and between (name) of (city, state), hereinafter called "Grantor," and (name) of (city, state), called "Trustee." WHEREAS, the Grantor has transferred $100 in Trust to the Trustee, and may in the future transfer additional property (including, without limitation, insurance policies) to be held and administered hereunder, NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Grantor and the Trustee hereby agree that all property held in trust hereunder (all of which is hereinafter referred to as the "trust estate") shall be held and administered in accordance with the following provisions. Page 3 of 17

4 ARTICLE I - NO RIGHT OF AMENDMENT OR REVOCATION 1.01 The Grantor does not reserve any right to alter, amend, revoke or terminate this trust agreement, and the Grantor acknowledges the same to be irrevocable. Without exception, the Grantor renounces all interests, either vested or contingent, including reversionary interests and possibilities of reverter or appointment, which the Grantor may at any other time be held to have in the income or principal of any trust hereunder and all incidents of ownership in any insurance policy ever held hereunder. ARTICLE II - DURING THE GRANTOR S LIFETIME 2.01 During the lifetime of the Grantor, the Trustee may distribute to such of one or more of the Grantor s spouse and the Grantor s issue so much of the principal and income of the trust estate as the Trustee, in his sole determination, deems advisable. The Trustee, in his sole discretion, may make disproportionate distributions to one or more beneficiaries, or may make distributions to one or more beneficiaries to the exclusion of the other trust beneficiaries. ARTICLE III - DISPOSITIVE PROVISIONS UPON AND AFTER THE GRANTOR S DEATH 3.01 Upon and after the Grantor s death, the Trustee shall hold, manage, invest and reinvest the trust estate and shall pay or apply the income and principal of the trust estate in the following manner: If the Grantor is survived by a spouse, the Trustee may distribute to such of one or more of the Grantor s spouse and the Grantor s issue so much of the principal and income of the trust estate as the Trustee, in his sole determination, deems advisable. The Trustee, in his sole discretion, may make disproportionate distributions to one or more beneficiaries, or may make distributions to one or more beneficiaries to the exclusion of the other trust beneficiaries Upon the death of the spouse of the Grantor or upon the death of the Grantor if he is not survived by a spouse, the Trustee shall divide all of the remaining principal and undistributed income of this trust into equal shares, one share for each child of the Grantor who is then living and one share for each child of the Grantor who is then deceased with issue then living as follows. The Trustee shall hold in a separate trust each such share so set apart for a living child of the Grantor until such child shall attain the age of twenty-five (25) years, at which time (or upon creation of the child s share, if the child Page 4 of 17

5 has already then attained said age) one-third (1/3) of the then principal of such share shall be distributed outright to such child; and thereafter continue to hold the balance of said share for such child until she or he shall attain the age of thirty (30) years, at which time (or upon creation of the child s share, if the child has already then attained said age) onehalf (1/2) of the then principal of such share shall be distributed outright to such child; and thereafter continue to hold the balance of such share for such child until she or he shall attain the age of thirty-five (35) years, at which time (or upon creation of the child s share, if the child has already then attained said age) the remaining balance of such share shall be distributed outright to such child. If any property is added to a child s trust share hereunder after the creation of such share, the provisions of this paragraph shall apply to such property as if such share had been created at the time of such addition. a) The Trustee shall distribute each such share set apart for the living issue, collectively, of a deceased child of the Grantor, among the issue for whom the share was set apart, per stirpes, free and discharged of this trust, subject to paragraph , below If a living child for whom a trust share is set apart above shall die before attaining the age of thirty-five (35) years, the remaining balance of such share, as it shall then exist, shall be paid over and distributed by the Trustee in such amounts and manner, outright or in lesser estates, in trust or otherwise, to such one or more of the Grantor s issue (excluding such child) and spouses of the Grantor s issue as such child shall validly appoint by his or her Last Will by specific reference to this power of appointment. Any part of such principal not so appointed shall be paid over and distributed to the issue of such child living at the death of such child, per stirpes, and if there be no such issue then living, to the issue of the Grantor then living, per stirpes, in all cases subject to paragraphs and , below During the period that any principal of any trust set apart for a living child of the Grantor shall remain undistributed hereunder, the Trustee shall pay such part of all of the net income therefrom to such one or more of the child and the child s issue at such intervals as the Trustee, in his sole discretion, shall determine. At any time during the existence of a trust set apart for a living child of the Grantor, the Trustee may pay over any or all of the principal of the trust to such one or more of the child and the child s issue as the Trustee in his sole discretion deems advisable If any property is directed to be paid (otherwise than as a result of exercise of a power of appointment) under either of the foregoing paragraphs and to a person who has not attained the age of twenty-one (21) years, then notwithstanding such direction, such property shall be held as a separate trust share by the Trustee who shall apply the principal and income of such share or such part thereof as the Trustee, in his uncontrolled discretion, may determine, towards the health, education, maintenance and support of such person, and upon such person attaining the age of twenty-one (21) years, Page 5 of 17

6 the Trustee shall deliver to her or him the remaining principal and undistributed income, if any, discharged of all trusts. If such person dies under the age of twenty-one (21) years, the share of the trust estate then held for his or her benefit shall, at his or her death, be paid over and distributed free of all trust to such one or more members of the group consisting of such person s spouse and issue, and in such proportions, and subject to such limitations and trusts as such person shall appoint by will, making a specific reference to this power of appointment, or in the absence of such appointment, to those persons who would have taken such person s personal property if such person had died intestate, unmarried and domiciled in the State of (state) under the laws then in force, and the shares and proportions of taking shall be determined by said laws Notwithstanding the foregoing, if any property to be distributed hereunder is payable to a person for whom other property is then being held under this trust, then the property to be distributed hereunder shall instead be added to the other property so held in trust and administered therewith If at any time any property held in trust hereunder is not otherwise effectively disposed of in accordance with the provisions of this instrument, such property shall be distributed in two equal shares, one to those persons who would have taken such property under applicable law, if the Grantor and the Grantor s spouse had then died owning onehalf of such property, intestate, unmarried and domiciled in the State of (state), in the proportions specified in such law. ARTICLE IV - ADDITIONAL PROPERTY; WITHDRAWAL RIGHTS 4.01 The Grantor or any other person (except the Grantor s spouse) may, at any time or from time to time, transfer to the Trustee by lifetime gift or by will, any securities or other property, including policies of insurance. All such additions shall be subject to all of the terms and conditions of this Agreement Each member of the class of persons consisting of the Grantor s issue (each such member being herein referred to as the "withdrawal beneficiary") shall have the right upon and after the making of any gift by an individual to the trust estate (including, without limiting the generality of the foregoing, any direct or imputed gift resulting from the payment of any premium under any policy of insurance held hereunder), to make withdrawals from the trust in accordance with the following provisions: Each withdrawal beneficiary living at the time of the gift shall have the right to withdraw money or other property equal in value (when withdrawn) to the value of the gift (determined at the time the gift was made) divided by the total number of withdrawal Page 6 of 17

7 beneficiaries living at the time of the gift; provided, however, that the total amount becoming subject to withdrawal by any one withdrawal beneficiary as a result of gifts to the trust by any one donor in any one calendar year shall not exceed the amount of the federal gift tax annual exclusion available to such donor for such gifts (plus the amount of any such exclusion available to the spouse of such donor for such gifts, unless the donor notifies the Trustee that the gifts are not to be "split" for federal gift tax purposes) The right to withdraw amounts from the trust estate pursuant to this Article shall be exercised by means of a written instrument signed by the withdrawal beneficiary and delivered to the Trustee On the last day of each calendar year, each withdrawal beneficiary s power to withdraw amounts from the trust estate shall terminate as to an amount equal to the greater of Five Thousand Dollars ($5,000) or five percent (5%) of the trust estate s value (determined at the time of such termination); provided, however, that such termination shall not occur to the extent that the withdrawal right arose as a result of any gift made to the trust less than forty-five (45) days before termination. Any amount with respect to which withdrawal rights have not terminated shall be carried over and be available for withdrawal in subsequent years, subject to termination of such rights in such subsequent years in accordance with the preceding sentence Except as otherwise provided herein, the Trustee shall promptly notify in writing each person entitled to withdraw of the making of any gift to the trust estate and of their right to make a withdrawal In the case of a withdrawal beneficiary who is a minor or is under a legal disability, the withdrawal beneficiary s right of withdrawal under this Article and notice thereof shall be exercisable by and made to his or her duly appointed legal representative (if any) or the withdrawal beneficiary s parent, as natural guardian acting on behalf of the child; provided, however, that no amounts withdrawn by the natural or legal representative of a child of the Grantor shall be expended in a manner that would discharge or satisfy the Grantor s or the representative s legal obligation of support of the child The Trustee may satisfy the exercise of any right of withdrawal by distributing to the person making the withdrawal cash or other assets, including insurance policies or interests therein, and the Trustee is authorized to withdraw or borrow against the cash value of any policy to make a distribution. Page 7 of 17

8 The donor of any gift to the trust estate may, at the time of making such gift, restrict or eliminate the foregoing withdrawal rights over such gift with respect to any or all of the withdrawal beneficiaries This Article shall be construed and applied in light of relevant provisions of federal gift and estate tax law. ARTICLE V - INSURANCE POLICIES 5.01 For the purposes of this agreement, the terms "policy", "policies", "insurance policies" or "policies of insurance" shall mean all insurance contracts (or interests therein) subject to this agreement (whether purchased by the Trustee from the issuing insurer or transferred to the Trustee after such original purchase) including, without limiting the generality of the foregoing, whole life, universal life, variable life and term policies of every kind and nature, group insurance certificates or coverage or interests in such whole life, universal life, term or group insurance certificate or coverage. Whenever the context permits or requires, the singular shall include the plural and the plural shall include the singular The Trustee shall have all right, title and interest in and to insurance policies that are subject to this agreement. The Trustee is empowered to exercise and enjoy, for the purposes of this trust and as absolute owner of such insurance policies, all incidents of ownership thereof including, without limitation, the right to borrow upon such policies and to pledge them for a loan or loans and the right to enter into any premium paying arrangement for such policies such as a split dollar or loan arrangement With respect to any group insurance certificate or group coverage provided by the Grantor s employer and made subject to this trust, the Trustee shall have all right, title and interest and incidents of ownership, both present and future, in such certificate of coverage. Without limiting the generality of the foregoing, the Trustee shall have the sole and exclusive right to exercise the privilege of obtaining an individual policy of life insurance in accordance with any conversion privilege contained in the group insurance certificate or coverage, the right to make to the group policyholder any contributions which may be required to maintain such insurance in force under the plan, the sole and exclusive right to exercise any and all other rights, privileges and options under such group coverage or which may be granted by the insurer, and the sole and exclusive right to demand, collect and receive any and all proceeds of the group or individual policy The insurance companies which have issued such insurance policies are authorized and directed to recognize the Trustee as absolute owner of such policies and any receipts, Page 8 of 17

9 releases, and other instruments executed by the Trustee in connection with such policies shall be finding and conclusive upon the respective insurance companies and upon all persons interested in this trust If it is established that the insured is totally and permanently disabled within the meaning of any insurance policy held by the Trustee as a result of a claim, court proceeding or other action, and if such policy contains a provision under which any premium may be waived during the pendency of such disability, then the Trustee, upon learning of such disability, shall promptly notify the insurance company which has issued such policy and shall take any and all steps necessary to make such waiver of premium provision effective. The Trustee shall have full authority to take any action that he deems best in regard to such waiver of premium and to pay the expense thereof out of the principal or undistributed income of this trust, but he shall not be required to enter into or maintain any litigation to establish any such waiver until he shall have been indemnified to his satisfaction against all expenses and liabilities to which he might, in his judgment, be subjected by any such action on his part Upon the death of the insured, the Trustee shall make reasonable efforts to carry out the provisions of this agreement and to collect the proceeds of all insurance policies on the life of the insured that are subject to this agreement. The Trustee shall have full authority to take any action in regard to the collection that he deems best and to pay the expense thereof out of the principal or undistributed income of this trust, but he shall not be required to enter into or maintain any litigation to enforce payment of such policies until he shall have been indemnified to his satisfaction against all expenses and liabilities to which he might, in his judgment, be subjected by any such action on his part. The Trustee may repay any advances made by him or reimburse himself for any such fees and costs out of any principal or undistributed income of this trust. The Trust shall have full authority to make any compromise or settlement with respect to any such policies that he may deem expedient and to give to the insurance companies all the necessary and proper releases and acquittances in full discharge of all their liabilities under such policies No insurance company whose policy shall be held hereunder and who shall make payment of the proceeds thereof to the Trustee shall be required to inquire into or take notice of any of the provisions of this agreement or to see to the application or disposition of the proceeds of such policy, and the receipt of the Trustee to any such insurance company shall be effective to release and discharge it for any payment so made and shall be binding upon every beneficiary of the trusts hereby created Although the Trustee may pay the premiums which may become due and payable under the provisions of any insurance policies held hereunder, the Trustee shall be under no obligation to do so, nor shall the Trustee be obliged to make certain that such premiums are paid by the Grantor or others or to notify any persons of the nonpayment of Page 9 of 17

10 such premiums. The Trustee shall be under no responsibility or liability of any kind for unpaid premiums except that he shall apply any dividends received by him on such insurance policies to the payment of the respective premiums thereon. Upon notice at anytime during the continuance of this trust that premiums due upon such insurance policies are in default, or that premiums to become due will not be paid either by the Grantor or by any other person, the Trustee, within his sole discretion, may apply any cash values attributable to such policies to the purchase of paid-up or extended insurance, or may borrow upon any and all such policies for the payment of premiums due thereon, or may accept the cash values of such policies upon their forfeiture, and may take any and all action which he, in his sole discretion, deems appropriate with respect to all policies held in the trust estate. ARTICLE VI - DEALINGS WITH THE ESTATE OF THE GRANTOR AND GRANTOR S SPOUSE 6.01 The Trustee is authorized, in his absolute discretion, without regard to whether he may also be serving as a personal representative of the estate of the Grantor or the Grantor s spouse, to purchase any property, real, personal, or mixed, tangible or intangible, and wherever situated, belonging to either estate, or to make loans, secured or unsecured, to the personal representative of either such estate for any purpose whatsoever. Any such purchases and loans shall be made upon such reasonable terms and conditions as the Trustee, in his discretion, deems appropriate. The Trustee shall incur no liability as a result of any such purchase or loan whether or not purchased assets constitute investments which may be legally made by a Trustee, nor shall the Trustee be liable for any loss to the trust estate by reason of acting in accordance with this Article, except for his own negligence. ARTICLE VII - TRUSTEE'S POWERS 7.01 In addition to and not in limitation of the powers given the Trustee bylaw or other provisions of this agreement: The Trustee may sell, exchange, or retain any of the assets purchased from the estate of the Grantor even though such property (by reason of its character, amount, proportion to the total trust estate or otherwise) would not be considered appropriate for sale, exchange, or retention by a fiduciary apart from this provision, and he shall incur no liability by reason of such sale, exchange, or retention With respect to any corporation, the shares, bonds or other securities of which may form part of this trust, the Trustee is empowered to participate in any merger, voting trust, Page 10 of 17

11 reorganization or consolidation affecting the trust estate and in connection therewith, to take any legal action which the Trustee could take if he owned in his individual capacity the shares, bonds or other securities concerned; and generally to have any exercise as to all such shares, bonds and other securities of which this trust may at any time consist, the powers of an individual owner who is under no trust obligation The Trustee may hold the trust corpus in one or more consolidated funds in which separate shares shall have undivided interests The Trustee may sell, lease, exchange, give options upon, partition or otherwise dispose of any property which he may hold from time to time, at public or at private sale or otherwise, for cash or such other consideration as he shall think fit, and may transfer and convey the same free of all trust and may execute, acknowledge and deliver deeds, notes, mortgages, transfers, leases, options, contracts and other instruments whether or not the terms or effect thereof may extend beyond the duration of the trust The Trustee may keep on hand and uninvested such monies as he may deem proper and for such period as the Trustee may find expedient The Trustee may compromise, settle or arbitrate any claim or demand in favor of or against the trust estate The Trustee is authorized to employ such brokers, banks, custodians, investment counsel, attorneys and other agents to delegate to them such of the duties, rights and powers of the Trustee (including among others, the right to vote on shares of stock held by the Trustee) for such periods as the Trustee thinks fit, and to pay their reasonable fees and expenses from the trust (in addition to the reasonable compensation to which the Trustee shall be entitled from the trust for the Trustee s own services). The Trustee may keep any of the trust estate in the name of a nominee without mention of the trust in any instrument of ownership. The Trustee may also delegate to anyone or more persons serving as a trustee hereunder authority to take on behalf of the Trustee any action that such person or persons is not otherwise prohibited from taking In making any division of the trust property into shares for the purpose of any distribution hereunder, it shall be proper for the Trustee to make such division or distribution, either in cash or in kind, or partly in cash and partly in kind, as the Trustee shall deem most expedient. Distribution in kind shall be at the market value of the property distributed at current values as of the date of distribution and the Trustee may, in his discretion, cause the share of any distributee to be composed of property like or different from that transferred to any other distributee. Page 11 of 17

12 The Trustee may purchase from any legal reserve life insurance company licensed and doing business in any state, any form or plan of life insurance policy and any annuity contract issued on the life of any beneficiary of any trust herein established or continued, or on the life of any person, or the joint lives of any persons, in whom such beneficiary shall have an insurable interest. The Trustee may be the owner and beneficiary of any such policy with the right to exercise any and all rights and privileges existing thereunder. The Trustee may pay any and all premiums payable under any such policy as and when the same are due and payable. The Trustee may pay premiums on any policy owned by any beneficiary under any trust out of any funds that he might otherwise distribute to such beneficiary whether or not such beneficiary is then of full legal age. If any such policy or contract is payable to the Trustee upon the death of a beneficiary hereunder, the Trustee may give his receipt therefore to the issuing insurance company which shall have no duty to see to the application of any such proceeds by the Trustee The Trustee may make loans, secured or unsecured, in such amounts, upon such terms, at such rates of interest, and to such persons, firms, or corporations as he shall think fit including, but not limited to, loans to any beneficiary under any trust provided for herein The Trustee may borrow money, execute promissory notes therefor, and secure said obligations by mortgage, pledge or assignment of any of the trust estate The Trustee may buy, retain, investment and reinvest in any property, real or personal, including (without limiting the generality of the foregoing language) securities of domestic and foreign corporations and investment trusts, bonds, preferred stocks, common stocks, mortgages, mortgage participation, even though such investment (by reason of its character, amount, proportion to the total trust estate or otherwise) would not be considered appropriate for a fiduciary apart from this provision, and even though such investment causes a greater proportion of the total trust estate to be invested in investments of one type or of one company than would be considered appropriate for a fiduciary apart from this provision The Trustee may subdivide any trust fund or share hereunder into such further separate subshares (to be held and accounted for separately) as the Trustee deems advisable for any purpose (including, without limitation, the purpose of creating subshares some of which are wholly exempt from the generation-skipping transfer tax and some of which are wholly subject thereto) The Trustee is authorized to improve any real estate held as part of the trust estate, including the power to demolish any buildings in whole or in part and to erect Page 12 of 17

13 buildings; to lease real estate on such terms as he thinks fit, including the power to give leases for periods that may extend beyond the duration of the trust; to foreclose, extend, assign, partially release, and discharge mortgages; and to do all things necessary or proper in the management and operation of such property The grant of any of the foregoing specific powers to the Trustee or the failure to grant specifically any other power or discretion shall not be construed to limit in any manner the power, authority and discretion which the Grantor intends to grant to the Trustee. All such powers and discretions shall be exercisable for the duration of all trusts created by this agreement as to any and all matters and without application to any court. This agreement shall always be construed in favor of the validity of any act or failure to act by the Trustee. Generally, and except as otherwise limited herein, the Trustee shall hold and dispose of each trust hereunder to the same extent as if the Trustee were the absolute owner thereof, subject to the terms of this agreement Notwithstanding the power of sale and the power of investment or any other power herein given, no person serving as a trustee shall be liable for any failure to sell or any error in judgment in the execution of his official duties, it being the Grantor s intention that he shall be liable only for his own negligence No person dealing with the Trustee shall be obliged to see to the application of any property delivered to the Trustee or to inquire into the Trustee s authority to take any action The Trustee may apply any part or all of any beneficial distribution for the benefit of a beneficiary instead of transferring it directly to the beneficiary, if the Trustee deems it advisable to do so. ARTICLE VIII - PRINCIPAL AND INCOME 8.01 The Trustee shall have the power to determine, to the extent not mandated by applicable law, how all receipts and disbursements shall be allocated to principal or income. Unless expressly required to be distributed, income may be accumulated and, in the Trustee s discretion, may be added to principal at any time. Page 13 of 17

14 ARTICLE IX - RESTRICTIONS ON TRUSTEE BENEFICIARIES; MAJORITY ACTION 9.01 Notwithstanding any other provision of this instrument, no person serving as a trustee shall (a) participate in any discretionary decision respecting distribution of income or principal to himself or to any person to whom he owes a legal duty of support, or (b) have or participate in exercise of any incident of ownership in any policy of insurance under which he is an insured. Except as otherwise expressly provided in this instrument, any action of the "Trustee" hereunder may be taken by a majority of the person or persons who, at the time when such action is taken, are serving as trustee or trustees and are not prohibited (by the preceding sentence or otherwise) from participating in such action. ARTICLE X - SITUS AND GOVERNING LAW The Trust hereby created shall be administered in the State of (state) and in all respects shall be governed by the laws of the State of (state). ARTICLE XI - PROTECTIVE PROVISION No interest in income or principal shall be alienated, encumbered or otherwise disposed of (voluntarily or involuntarily) by any beneficiary of this trust while the same is in the possession and control of the Trustee herein. ARTICLE XII - ACCEPTANCE OF TRUST By signing this instrument each person named as a trustee hereby accepts the trust created hereunder and agrees to carry out the provision hereof according to the best of his ability, but no person serving as a trustee shall be responsible for any mistake in judgment or for any decrease in value of or loss to the trust estate or for any cause whatsoever except his own negligence. No one serving as a trustee shall be required to give any bond or other security for the faithful performance of his or her duties as such hereunder. Page 14 of 17

15 ARTICLE XIII - DEFINITIONS All pronouns used herein shall include any other pronoun of any gender rendered appropriate by the context or circumstances, and the singular shall include the plural and vice versa whenever the facts and the context so require. Further, the term "trustee" as used throughout this instrument shall include any and all person(s) and/or institution(s) then serving as trustee(s) hereunder, including any successor, and shall include the plural and all genders where the context or the facts so admit. For all purposes of this agreement, whether for determination of relationships or otherwise, the terms "child", "descendant" and "issue" (which includes children and more remote descendants), in both singular and plural forms, are meant to include any person who is the lawful child of his or her parents, whether natural or adopted, and whether born before or after the execution of this agreement. ARTICLE XIV - PARAGRAPH HEADINGS Headings, titles and subtitles are for convenience of reference only and are not intended to be a part of or affect the meaning, interpretation or construction of any provision of this trust. ARTICLE XV - ANTI-PERPETUITIES CLAUSE This agreement shall not be construed as postponing the distribution of any trust hereunder beyond the period of twenty-one (21) years less one day from the date of death of the last survivor of the Grantor, the persons named in this instrument and the issue of any of them who are in being upon the date of execution of this instrument. Upon the expiration of such period, the assets of each trust then being held pursuant to the provisions of this agreement shall be paid in equal shares free and clear of such trust to the beneficiary or beneficiaries then eligible to receive income from such trust. ARTICLE XVI - TRUSTEE SUCCESSION There may (but need not) be more than one (1) person serving as a trustee hereunder at any time. If any person ceases to serve as a trustee, a successor may be appointed by a written instrument signed and acknowledged by a majority of the Grantor s children who are then living and under no legal disability, if any. If no successor is chosen pursuant to the foregoing provisions, one may be appointed by a written instrument signed and acknowledged (i) by a majority of the person or persons then serving as trustees hereunder, if any, and, if none, (ii) by a majority of the Page 15 of 17

16 beneficiaries then eligible to receive distributions of income under this instrument (including the legal guardian, if any, of any such beneficiary who is then under a legal disability, but not including the Grantor s spouse). Any person so appointed shall become a trustee only upon delivery of his signed and acknowledged acceptance to one of the persons who signed the appointment. Any person serving as a trustee may resign by an instrument signed and acknowledged by him and delivered to another person then so serving or to any beneficiary then eligible to receive distributions hereunder. Neither the Grantor nor the Grantor s spouse shall serve as a trustee. ARTICLE XVII - ACCOUNTING The Trustee s duty to account with respect to any trust fund hereunder shall be discharged for any period for which the Trustee shall have rendered a written account in good faith to the beneficiary or beneficiaries eligible to receive income from such fund during such period (including the parent or duly appointed legal representative, if any, of any such beneficiary who is under a legal disability) if such person or persons approve the account or do not object to it with particularity and in writing within ninety (90) days after delivery (including mailing to the last known address of any such person). IN WITNESS WHEREOF, the Grantor and the Trustee have executed this agreement the day and year first above written. Grantor Trustee ***** Page 16 of 17

17 Copyright 2011, Pentera Group, Inc., 5546 Shorewood Drive, Indianapolis, Indiana All rights reserved. This service is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that neither the publisher nor any of its licensees or their distributees intend to, or are engaged in, rendering legal, accounting, or tax advice. If legal or tax advice or other expert assistance is required, the services of a competent professional should be sought. While the publisher has been diligent in attempting to provide accurate information, the accuracy of the information cannot be guaranteed. Laws and regulations change frequently, and are subject to differing legal interpretations. Accordingly, neither the publisher nor any of its licensees or their distributees shall be liable for any loss or damage caused, or alleged to have been caused, by the use of or reliance upon this service. U.S. Treasury Circular 230 may require the Pentera Group, Inc. to advise you that "any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor." Page 17 of 17