The Real Property Trust & Estate Section of The American Bar Association

Transcription

1 The Real Property Trust & Estate Section of The American Bar Association Charitable Planning & Exempt Organization Group Program Washington D.C. April 30, 2009 Julie K. Kwon Philanthropic Advisor Stanford University 326 Galvez Street Stanford, CA Copyright 2009 by Julie K. Kwon. All rights reserved.

2 The Real Property Trust & Estate Section of The American Bar Association Charitable Planning & Exempt Organization Group Program 1 Washington D.C. April 30, 2009 Julie K. Kwon Philanthropic Advisor, Stanford University 326 Galvez Street Stanford, CA juliekwon@stanford.edu I. Charitable Remainder Trusts: Ten Potential Pitfalls. A. Charitable Remainder Trust vs. Outright Sale. Donors often consider the creation of qualified charitable remainder trusts ( CRTs ) to defer taxation of capital gains in assets with low basis while maintaining cash flow for themselves and benefiting charity. However, donors considering a CRT primarily for its income tax advantages must understand that a CRT is most appropriate for donors significantly motivated by charitable intentions. In contrast, donors seeking primarily or exclusively to maximize their personal wealth without regard to the charitable gift ultimately may be more likely to benefit from an outright sale of the asset and reinvestment of the sale proceeds. While the donor ultimately may accrue greater personal wealth by creating a CRT, in the median cases representing typical markets over the long term, the donor must have a long time horizon to wait for the crossover when the CRT s benefit is likely to outpace the outright sale. See attached Exhibit A and also Exhibit B, pp. 8-12, both comparing the outright sale to creation of a CRUT (prepared by Bernstein Global Wealth Management). B. CRUT: Choice of Unitrust Percentage. Donors creating CRTs often choose to create charitable remainder unitrusts ( CRUTs ) with a percentage payout rather than charitable remainder annuity trusts providing a fixed annuity, to allow the lead beneficiary to share in the CRUT appreciation. In choosing the actual CRUT percentage, donors often pick the highest percentage distribution allowable within the parameters defined by the requirements for qualification of the CRUT. In cases where the donor needs cash flow from the CRUT sooner rather than later and this timing component weighs heavily in the analysis, then choosing the highest percentage may be most appropriate. 1 Prepared March 31, The author gratefully acknowledges the tremendous assistance in the preparation of these materials from Paul S. Lee and Patrick Boyle, of Bernstein Global Wealth Management; Amy Erenrich Heller, of Weil Gotshal & Manges LLP; and B. Howard Pearson, of Stanford University. Unless otherwise noted, all references herein to the Code refer to the Internal Revenue of Code of 1986, as amended; all references to Sections herein refer to Sections of the Code; and all references to Regulations refer to Treasury Regulations. - 1

3 ABA RPTE 2009 Spring CLE Charitable Group Meeting - April 30, 2009 Julie K. Kwon However, donors truly seeking to benefit charity as well as the lead beneficiary should analyze the totality of likely consequences that result from a particular payout rate. As shown below, a higher percentage payout rate eventually produces smaller payouts because of the increased depletion of trust assets in the early years. Conversely, a lower rate will generate smaller payouts in the beginning years, but ultimately is more likely to produce larger payout amounts because the CRT grows more over time. In fact, this pattern of payments may fit the cash flow needs of most individuals more closely when they may seek greater support from the CRT in later (retirement) years. See attached Exhibit A illustrating median after-tax payouts based on 5%, 8% and 11% CRUTs, and Exhibit B, pp illustrating range of payouts based on 5%, 10% and 14.6% CRUTs (both prepared by Bernstein Global Wealth Management). Thus, over a long time horizon, the amount of the lead beneficiary s accumulated wealth from the CRUT is not affected by the payout rate nearly as much as the charity s beneficial interest. As shown below, the likely remainder to charity is impacted tremendously by the choice of payout rate. Thus, donors creating the CRUT with a long time horizon may choose a lower payout percentage rate to ensure a significant gift to charity since the non-charitable interest will not be dramatically impacted overall. See Exhibit B comparing median total personal wealth (pp. 8-12) and median wealth to charity (pp ) (both prepared by Bernstein Global Wealth Management). C. Right to Revoke Non-Charitable Interest. An unlimited gift tax marital deduction is available for the annuity or unitrust interest that grantor gives to grantor s spouse only if the grantor and grantor s spouse are the sole noncharitable beneficiaries of the CRT. 2523(g). As a result, a CRT that provides an annuity or unitrust interest for any individual other than the grantor and grantor s spouse may create a taxable gift at inception. However, grantors are permitted to retain the testamentary right to revoke a non-charitable lead beneficiary s interest in the annuity or unitrust from the CRT as the regulations permit. Regs (a)(4), (a)(4). (The trust will not qualify as a CRT if the donor can revoke such interest during the donor s lifetime or any means other than by will. Id.) As discussed below, drafters often include this retained power to avoid completion of a taxable gift upon creation of the CRT; however, to the extent that this retained right may avoid an immediate complete gift, the power will cause CRT property to be included in the donor s taxable estate at death with a charitable deduction for the charitable remainder interest. 2036(a)(2), 2038, Right to Revoke: Effect on CRT Qualification. The permissible duration of a CRT is the life or lives of a named individual or individuals or a term not to exceed 20 years. Regs (a)(5), (a)(5). If the donor is not a beneficiary of the trust, caution suggests that the donor should not retain the right to revoke the non-charitable beneficiary s interest in a trust measured by the beneficiary s lifetime according to its terms. The donor s power to terminate the beneficiary s interest may disqualify the trust as - 2 -

4 ABA RPTE 2009 Spring CLE Charitable Group Meeting - April 30, 2009 Julie K. Kwon a CRT if its term is characterized as measured by the donor s life instead of the CRT beneficiary s life. However, the power also might be treated as a qualified contingency under Section 664(f) that that does not jeopardize qualification of the CRT. In contrast, a donor who creates a CRT for a term of years and is not a beneficiary may be able to retain a testamentary right to revoke a non-charitable beneficiary s interest without disqualification. See PLR (approving a CRT for a term of years that provided for distribution of the annual unitrust amount to seven individual beneficiaries that did not include the donor, who retained the power to revoke the interest of any of those seven individual beneficiaries by his last will). 2. Time of completion of gift. The IRS has taken varying positions regarding completion of the gift when a donor creates a CRT for a non-donor lead beneficiary who has an immediate interest in the CRT and the donor retains the testamentary power to revoke such beneficiary s interest. The IRS indicated in at least one ruling that the retained power to revoke suspends the completion of the entire gift upon creation of the CRT while the donor s annual gift tax exclusions apply to the annual distributions. In PLR , the donor retained the power to revoke by his last will the interest of any of the seven individual beneficiaries otherwise entitled to share in the annual unitrust distribution. The IRS concluded that the trust qualified as a CRT and that: [B]ecause the Taxpayer has reserved the power to terminate the unitrust interest of each Individual Beneficiary, there is no completed gift to any Individual Beneficiary at the time the Trust is funded. The receipt of the annual unitrust amount by each Individual Beneficiary is a completed gift of a present interest, qualifying for the $10,000 annual exclusion in the tax year received. If the Taxpayer, while living, releases the retained power to terminate the unitrust interest of any Individual Beneficiary, the then present value of such Individual Beneficiary s unitrust interest shall constitute a completed gift in the year during which such release occurs. Because the gift is a gift of a present interest, it would qualify for the $10,000 annual exclusion as allowed under section 2503(b) of the Code. See also PLR (IRS concluded that spouses made no completed gifts upon joint creation of a CRT which provided that the unitrust would be divided between them during their joint lifetime and paid to the survivor during the survivor s lifetime, due to their retained powers to revoke each other s interest by will). However, in PLR , the IRS indicated that the retained right to revoke the beneficiary s interest only suspends completion of the survivorship interest. The donor created a CRUT providing for distribution of the unitrust to donor and his spouse as the trustee determines. The IRS ruled that the spouse s interest prior to the donor s death would qualify for the gift tax marital deduction under Section 2523(g), indicating that it was a completed gift to that extent. In contrast, spouse s survivorship interest was not a completed gift because it was revocable by donor s will. By analogy, this ruling may indicate that a donor s testamentary right to revoke a - 3 -

5 ABA RPTE 2009 Spring CLE Charitable Group Meeting - April 30, 2009 Julie K. Kwon beneficiary s current interest in a CRT may only suspend completion of the gift measurable by the beneficiary s survivorship interest, while the balance of the taxable gift reflecting the donor s life expectancy is complete at inception. See also PLR (donor s retained testamentary right to revoke non-charitable interests suspended gift of survivorship interest but donor made completed gifts to current unitrust recipients to extent that donor was likely to survive them). The results reflected in PLRs and seem more consistent with the general gift tax principle that a donee s immediate and unrestricted use of funds from a trust constitutes a present interest gift. Regs (b). Thus, reliance on other PLRs to take the position that the entire gift remains incomplete may be inappropriate. Any completed gift at creation of the CRT would qualify for the annual gift tax exclusion. 2503(b). If a CRT includes the donor as the initial beneficiary before benefiting another individual, then the donor makes a gift of the survivorship interest, which does not qualify for the annual exclusion because it is not a future interest. Regs (c), Ex. 5. The donor s retained right to revoke the survivorship interest entirely prevents the completion of that gift. See 2511; Regs ; Rev. Rul ; PLRs , , D. Hedge Fund Investments: Phantom Income Under PFIC Rules. Trustees of CRTs generally avoid investments that generate unrelated business taxable income ( UBTI ) because it is subject to a 100% excise tax. 664(c)(2). Consequently, CRT investments usually occur through offshore hedge funds organized as corporations (instead of pass-through entities) for federal income tax purposes, so that income from the funds constitutes dividends or capital gains instead of UBTI. 512(b). However, most offshore hedge funds will constitute passive foreign investment companies ( PFIC ) under Section While such funds block UBTI, the CRT s non-charitable U.S. beneficiaries may be taxed on phantom income under the PFIC rules when the CRT sells an interest in a hedge fund or receives certain distributions from the fund. As one commentator explains: If a CRT holding an interest in a hedge fund were considered to be the hedge fund's shareholder for purposes of the PFIC rules, the fund's PFIC status would be [Footnote omitted.] of little consequence because a CRT is not taxable on PFIC income. The difficulty, however, is that Sections 1298(a)(3) and (b)(5) and Prop. Reg ("the Proposed Regulation") provide that the beneficiaries of a trust that holds stock of a PFIC will be treated as shareholders of the PFIC, owning an amount of the PFIC stock proportionate to their respective interests in the [Footnote omitted.] trust. The Proposed Regulation, which was promulgated in 1992 but never finalized, provides that the "determination of a person's indirect ownership is made on the basis of the facts and circumstances of each case." [Prop. Reg (b)(8)(i)]. The Proposed Regulation does not describe how to apply this proportionate ownership rule to the U.S. beneficiaries of a trust. In the case of a CRT, the IRS may argue that the CRT's U.S. noncharitable beneficiaries should be treated as - 4 -

6 ABA RPTE 2009 Spring CLE Charitable Group Meeting - April 30, 2009 Julie K. Kwon owning a portion of the PFIC stock that is proportionate to their actuarial interests in the trust. Amy Erenrich Heller, Structuring Hedge Fund Investments for Charitable Remainder Trusts to Avoid UBTI and PFIC Concerns, Journal of Taxation, at (December 2008). To block UBTI and also prevent the attribution of phantom income to beneficiaries under the PFIC rules, the CRT can hold hedge funds that are not classified as foreign corporations for federal tax purposes through a wholly owned foreign corporation. Id. at ; see also 318, , 958(b), 1297(d). While this structure would subject the CRT to the controlled foreign corporation ( CFC ) rules, the constructive ownership rules operate to allocate the typical passive income from hedge funds to the tax-exempt CRT rather than to its beneficiaries. Id.; 958(b). As a result: Unitrust or annuity distributions made by a CRT to its U.S. noncharitable beneficiaries will be taxable to the beneficiaries at ordinary income rates to the extent that such distributions are composed of Subpart F income allocated from a CFC to the CRT. [See 664(b) and Reg (d); see also Notice , CB 724.] Nevertheless, because most income generated by hedge funds is ordinary income or short-term capital gain, which is taxable at the same rate as ordinary income, a noncharitable U.S. beneficiary who receives distributions from a CRT in respect of Subpart F income will effectively pay tax at the same rate as if the beneficiary held hedge fund interests directly, and only when the beneficiary receives actual distributions from the CRT. Id. at 348. Heller notes that a CRT may elect to treat each offshore hedge fund in which the CRT invests as a qualified electing fund under Section 1295 to resolve the UBTI and PFIC concerns; however, she notes that this will not be a practical solution in most cases due to the information that the CRT must acquire annually from the hedge fund to make this election. Id. at 347. E. Potential Remainder Charities: Limitation to Public Charities. Typical CRT instruments limit the distribution of the CRT remainder to charities qualifying as organizations described in 170(c) and the relevant gift and/or estate tax charitable deduction provisions ( 2055(a), 2522(a)) at the time when any CRT property will be distributed to them. These parameters reflect the default provision defining the class of permissible charitable remainder beneficiaries described in the IRS s specimen CRT forms. See Revenue Procedures through Rev. Proc The 170(c) limitation typically appearing in CRT forms may be overlooked as a provision of boilerplate that is not often revised during drafting. However, Section 170(c) describes a variety of charities, including private non-operating foundations and other organizations beyond public charities. The amount of the donor s charitable income tax deduction for creation of a CRT is subject to the income percentage limitations described in 170(b). Since a limitation to charities described in Section 170(c) would permit private - 5 -

7 ABA RPTE 2009 Spring CLE Charitable Group Meeting - April 30, 2009 Julie K. Kwon foundations to be remainder beneficiaries, the donor s deduction is limited to 20% of adjusted gross income and to the basis of appreciated assets contributed other than publicly traded stock. For certain donors, the flexibility to choose a charitable remainder beneficiary from as broad a range as possible may be worth the sacrifice of any greater income tax deduction (e.g., a family foundation is the intended recipient). However, many donors may contemplate that their CRTs will benefit public charities or a donor advised fund in lieu of a private foundation. As the IRS points out in its annotations, the drafter might consider further limiting the class of CRT remainder beneficiaries to public charities described in Section 170(b)(1)(A) to maximize any resulting income tax deduction. See, e.g., Rev. Proc at This further limitation to public charities would raise the deductibility limit from 20% to 30% of adjusted gross income. In certain cases, the donors may prefer to take advantage of the increased deduction in exchange for limiting the remainder to public charities, meriting a revision to narrow the standard 170(c) limitation to 170(b)(1)(A). F. GST Tax: Allocations of GST Exemption. The federal generation-skipping transfer ( GST ) tax regime imposes special rules regarding charities and their interests in trusts. A charity s interest in a trust is only recognized for GST tax purposes if (i) it has a present non-discretionary right to receive income or corpus from the trust, or (ii) if the charity is described in 2055(a) and is the remainder beneficiary of a qualified CRT or pooled income fund. Charities described in 511(a)(2) and 511(b)(2) and governmental entities are non-skip persons, assigned to the transferor s generation. 2651(f)(3). Thus, the charitable remainder beneficiary s interest will be recognized in most qualified CRTs, but the initial transfers to such CRTs will never be direct skips. Moreover, since charity is a nonskip person with an interest in the trust for GST tax purposes, no taxable termination of the trust can occur. 2612(a)(1), 2651(d)(3). As a result, the only potential GSTs that might occur with respect to a qualified CRT are taxable distributions. 2612(a). No allocations of GST exemption to a CRT will occur automatically. The automatic allocations that occur with respect to direct skips will not apply because no direct skips can occur as to a CRT. 2632(b). The automatic allocations that occur with respect to indirect skips to a GST trust will not occur because the term GST trust is defined to exclude CRTs entirely. 2632(c)(3)(B)(v). While it may be unlikely that allocation of GST exemption to a CRT is optimal, given charity s interest in the trust, donors intending to produce an inclusion ratio of zero for the trust must affirmatively allocate GST exemption to transfers to the trust and cannot rely on protective automatic allocations. The distributee bears liability for any GST tax imposed on a taxable distribution; any attempts to spare the distributee this liability by further distribution or direct payment of the GST tax by the trustee will generate another GST taxable distribution. 2621(b), Reg (c)(1). G. Testamentary CRTs: Funding from Estates. Section 642(c) describes the unlimited charitable fiduciary income tax deduction for gross income of an estate or trust that is required by the terms of the governing instrument to be paid or set aside for charitable purposes described in Section 170(c). No amount will be considered to be permanently set aside or used for a charitable purpose as required under Section 642(c) unless the possibility that such amount - 6 -

8 ABA RPTE 2009 Spring CLE Charitable Group Meeting - April 30, 2009 Julie K. Kwon will not be devoted to such purpose is so remote as to be negligible. Reg (c)-2(d). Consequently, the IRS maintains that distributions from a trust or estate to split-interest charitable trusts including non-charitable beneficiaries, such as CRTs, are not eligible for the Section 642 charitable deduction, and must qualify for the general distributions deduction. See PLRs , ; see also 642, ; Reg (c)-2(a), (b)(1), (d). Thus, expeditious funding of the CRT is advisable because the estate will not receive a distributions deduction if it delays funding and merely sets aside income for future distribution to the CRT. In addition, funding and carrying out current distributable net income to the CRT shifts such income from the taxable estate to the tax-exempt CRT. In addition, a testamentary CRT that is created by a pecuniary gift or bequest of a specific sum of money or of specific property described in Section 663(a)(1) will not entitle the funding estate or trust to a distributions deduction and could trigger gain if funded with in-kind assets. 663(a)(1); Regs (a)-2(f). H. Special Needs Trusts CRT Beneficiaries. To qualify as a CRT lasting for an individual s lifetime under Section 664, [o]nly an individual or an organization described in section 170(c) may receive an amount for the life of an individual. Reg (a)(5)(i), (a)(2)(i). Consequently, the IRS maintains that a second trust is not a permissible non-charitable beneficiary of a CRT that will last for the lifetime of the beneficiary of the second trust. See Rev. Rul , IRS 794; PLR [add cites]. However, the IRS has recognized a narrow exception for trusts created for disabled or incompetent beneficiaries. Rev. Rul , IRS 794; see also PLRs , , , , In Revenue Ruling , the IRS concluded that a trust will be a qualified CRUT if the unitrust will be paid for the life of a financially disabled individual to a separate trust that will administer the unitrust payments on that individual s behalf and will distribute the remainder to the individual s estate or (after reimbursing the state for Medicaid benefits) pursuant to the individual s power of appointment. The IRS also stated that [t]he same result would apply if [CRT] were a charitable remainder annuity trust. Id. Revenue Ruling cites Section 6511(h)(2)(A) as defining financially disabled. An individual is financially disabled if unable to manage his financial affairs by reason of a medically determinable physical or mental impairment of the individual which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. 6511(h)(2)(A). However, Section 6511(h)(2)(B) specifies that [a]n individual shall not be treated as financially disabled during any period that such individual s spouse or any other person is authorized to act on behalf of such individual in financial matters. Thus, an incompetent individual who has a guardian, conservator or agent acting under a durable power of attorney presumably would not qualify as financially disabled for purposes of Revenue Ruling However, many of such individuals are the most likely to have such other persons authorized to act for them in financial matters as a matter of sound and protective planning. As a result, many of the incompetent persons who might have benefited most from Revenue Ruling would be excluded from its scope (unless the citation to specific - 7 -

9 ABA RPTE 2009 Spring CLE Charitable Group Meeting - April 30, 2009 Julie K. Kwon Section 6511(h)(2)(A) was intended to exclude the limitation of Section 6511(h)(2)(B)). Conrad Teitell warns that the ongoing qualification of an initially qualified CRT may be jeopardized by the application of Section 6511(h)(2)(B) if someone is later authorized to handle the disabled person s financial matters, which may warrant a savings clauses that directs payment of the unitrust or annuity to the disabled individual thereafter. Conrad Teitell, Not Your Father s CRT, Trusts & Estates, (December 2002). I. Charitable Remainder: Administration of Endowed Funds. While CRT terms defining the lead beneficiary s interests, identifying the charitable remainder beneficiaries and addressing federal tax requirements typically receive close attention, similar attention should be devoted to the terms governing administration of the charitable remainder upon maturity. In many cases, the CRT may simply direct the outright distribution of amounts to the charitable remainder beneficiaries. However, donors who have created CRTs likely to result in significant remainders may intend to create an endowed fund from the ultimate distribution to a charitable beneficiary. If so, certain provisions would be helpful to facilitate the charity s effective administration of the gift, such as the following: a) Merger of investments: The terms should specify that the property comprising the gift to the charity may, for investment purposes, be merged with any of the investment assets of the charity, though it must be entered in the charity s books and records as a separate fund to be named as the donor specifies. b) Sufficiency of assets: The terms can specify that if the value of the remainder is large enough to create a separate endowed fund, then the charity shall invest and maintain the gift as an endowed fund for the purpose that the donor specifies. However, the final value of the CRT remainder upon distribution will remain uncertain until termination; thus, the terms could specify that if the remainder is not sufficient to create a separate endowed fund, an expendable fund will be created to support those same purposes. c) Expenditures: the Uniform Prudent Management of Institutional Funds Act recently updated the standards for expenditures from endowed funds to conform them to standards governing endowment investments, consistent with modern portfolio theory. Instead of requiring the maintenance of historical dollar value or specifying whether items of a particular character (e.g., income or capital appreciation ) can be used, the prudence standard now applies to distributions: Subject to the intent of a donor expressed in the gift instrument, an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the endowment is established..... Uniform Prudent Management of Institutional Funds Act, 4(a), National Conference of Commissioners on Uniform State Laws (2006)

10 ABA RPTE 2009 Spring CLE Charitable Group Meeting - April 30, 2009 Julie K. Kwon While UPMIFA expands the pre-existing rule of construction of terms such as income or endowment based on the donor s intent, 2 any specific indication that the donor intended to limit expenditures will remain restricted. Forms that were prepared prior to UPMIFA may describe permissible expenditures by reference to historic gift value or limit expenditures to particular components of overall return, such as income and appreciation, as described in UPMIFA s predecessor, the Uniform Management of Institutional Funds Act (1972). If so, such language should be updated to reflect the current prudence standard reflected in UPMIFA. J. Cy pres. CRT instruments typically are comprehensive in addressing the possibility that a named charity may not exist or qualify as a permissible recipient at the time of distribution of the remainder. While many donors retain the right to designate the ultimate charitable remainder beneficiary, donors working with a charity to satisfy a pledge or provide a reliable commitment may irrevocably designate the remainder at some time after creation of the trust. As with any other charitable trust, the CRT instrument or the designation of the remainder also should include a cy pres provision allowing modification of any restrictions if the donor has specified a particular charitable purpose. The CRT can specify that if the donor s specified purpose is or becomes impossible, impractical, or otherwise inappropriate as of the date of the distribution of the remainder or thereafter, the charity can use the gift for such qualifying charitable purpose that is as close as possible to the donor s original purpose. II. Charitable Lead Annuity Trusts. Due to the combination of recent investment market declines, low interest rates and recent IRS clarification that graduated CLAT payments are permissible, the current economic climate may be optimal for creation of charitable lead annuity trusts ( CLATs ) (described in Section 2522(c)(2)(B) or Section 2055(e)(2)(B)). Section 7520 proscribes the interest rate for valuation of any annuity, interest for life or a term of years or remainder or reversionary interest. Thus, a zeroed-out charitable lead annuity trust that is structured to eliminate any taxable gift on creation must outperform the Section 7520 rate (or hurdle rate) during the CLAT term to leave a remainder for the non-charitable remainder beneficiary. The Section 7520 rate for April, 2009, is 2.6%, extremely low by historical standards. By comparison, the Section 7520 rate averaged 6.7% during the period of approximately twenty years from May, 1989 (11.6%), through February, 2009 (2.0%). This low hurdle rate together with the current depressed valuation of assets that lower the annuity payments make this an ideal time to create CLATs. See attached Exhibit C, pp , illustrating the improvement in probabilities of success 2 According to the drafters: The assumption in the Act is that a donor who uses one of these terms intends to create a fund that will generate sufficient gains to be able to make ongoing distributions from the fund while at the same time preserving the purchasing power of the fund. Comments, National Conference of Commissioners on Uniform State Laws, p

11 ABA RPTE 2009 Spring CLE Charitable Group Meeting - April 30, 2009 Julie K. Kwon of zeroed-out CLAT for terms of ten, fifteen and twenty years due to the change in Section 7520 rates (prepared by Bernstein Global Wealth Management). In addition, the IRS has clarified that a CLAT may be structured with annuities that vary and increase during the term of the CLAT as long as the total annuity amount is ascertainable when the CLAT is created. See Rev. Proc (providing annotated sample testamentary CLAT), Rev. Proc (providing annotated sample inter vivos CLAT). The Regulations require that a CLAT must provide a guaranteed annuity which provides a determinable amount at least annually during the CLAT term. Regs (e)(2)(vi)(a), (c)- 3(c)(2)(vi)(a). An amount is determinable if the exact amount that must be paid under the conditions specified in the instrument of transfer may be ascertained at the time of the transfer to the trust. Id. The IRS now has specifically addressed whether the annuity payments may vary from one year to the next: Payment requirements. CLATs are not subject to any minimum or maximum payout requirements. The governing instrument of a CLAT must provide for the payment to a charitable organization of a fixed dollar amount or a fixed percentage of the initial net fair market value of the assets transferred to the trust. Alternatively, the governing instrument of a CLAT may provide for an annuity amount that is initially stated as a fixed dollar or fixed percentage amount but increases during the annuity period, provided that the value of the annuity amount is ascertainable at the time the trust is funded. Rev. Proc , 5.02(2) (italics added); see also Rev. Proc , 5.02(2) (almost identical language but referencing time of decedent s death with respect to testamentary CLAT). The ability to backload CLAT annuities and shelter the trust s growth from depletion early on by gradually increasing the annuities each year (similar to grantor retained annuity trusts, as described in Regulations Section (b)(1)(ii)) improves the probabilities of leaving any remainder and a larger remainder for non-charitable beneficiaries. See attached Exhibit C, pp , comparing CLAT results based on annuity payments that are (i) equal/level, (ii) increase by 20% annually, (iii) increase by 50% annually and (iv) remain level at $1,000 per year until a significant payment of the balance necessary to zero out during the final year (referred to in Exhibit C as a shark fin CLAT), during terms of ten, twenty and thirty years (prepared by Bernstein Global Wealth Management). As the comparison in attached Exhibit C shows, the donor achieves the greatest improvement in likely CLAT results by increasing the annuity payments 20%-50% per year. However, perhaps counter to intuition, the results in the shark fin scenario are not optimal; this is likely due to the subset of worst market conditions included in the probabilistic model in which the depletion by the single large final payment offsets or exceeds the benefit from allowing the CLAT to grow in the earlier years. Id

12 EXHIBIT A

13 Charitable Remainder Unitrust Contribution of appreciated assets Donor Immediate charitable income-tax deduction* Charitable Remainder Unitrust Liquidate assets and reinvest tax-deferred Charity Remainder when trust expires Annual cash payouts: percentage of CRT value Recipient Recipient pays taxes on unitrust payouts Personal / Family Wealth Dollars to Charity Create income stream for donor or family Diversify low-basis assets in tax-deferred environment Up-front income-tax deduction...but deduction limited based on expected value to charity Assets grow in tax-advantaged environment but charity does not receive gift until trust expiration, and size of gift highly dependent on payout and allocation decisions

14 Low-Basis Stock Is a CRT Better than Outright Sale? Median Personal Wealth After Tax ($ Mil.): 8% CRUT, $10 Mil. Initial Investment With a low-basis asset, the CRT may generate more personal wealth than selling and diversifying in a taxable portfolio but at today s low tax rates, it can take time Sell appreciated assets, pay taxes, and reinvest $8.4 Contribute assets to CRUT and reinvest payout $0.8 $13.6 $8.6 $22.5 $21.5 $37.2 $43.0 Year 1 Year 10 Year 20 Year 30 Probability of Being Better Off with a CRUT* The higher the payout rate, the earlier the crossover the point at which a CRT is likely to create more personal wealth (%) 100 Payout 80 11% % 5% 20 0 Year *Probability that in a particular year, personal wealth from contributing assets into a CRT and retaining the payout indicated would exceed personal wealth from selling the assets outright, paying the taxes, and reinvesting in a taxable portfolio. All CRUTs modeled in this presentation are based on a 55-year-old donor contributing $10 million in zero-basis assets to a lifetime charitable remainder unitrust (CRUT) with annual payouts, and with 12 months preceding the first unitrust payout. All calculations of permissible payouts and associated tax deductions are according to Sections 7520 and 664 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. CRT is allocated 100% to stocks; personal wealth is invested 60% stocks/40% bonds. Based on Bernstein s estimates of the range of returns for the applicable capital markets over the next 30 years. Data do not represent any past performance and are not a promise of actual future results. See Notes on Wealth Forecasting System at the end of this presentation.

15 Lower Payout Better for Charity and Total Wealth Median After-Tax Payouts ($ Mil.)* $0.88 $0.80 5% But high payouts are unlikely to be sustained over time, while low payouts tend to grow $0.64 $0.40 $0.56 $0.32 8% 11% Years Total Wealth in Year 30 ($ Mil.)*...and so over the long term low payouts can provide an attractive trade-off: a small difference in personal wealth for a substantially larger gift to charity Wealth to Charity Personal Wealth $63.6 $ $ $38.7 $43.0 $43.7 5% CRUT 8% CRUT 11% CRUT *CRT is allocated 100% to stocks. Donor retains a 5%, 8%, or 11% unitrust payout. All payouts in this presentation are shown after donor s payment of taxes under IRC Section 664 at rates indicated in Assumptions and Notes on Wealth Forecasting System at the end of this presentation. Based on Bernstein s estimates of the range of returns for the applicable capital markets over the next 30 years. Data do not represent any past performance and are not a promise of actual future results. See Assumptions and Notes on Wealth Forecasting System.

16 The Risks and Benefits of Large Stock Allocation Odds of 20% Year-over-Year Decline in Payout 8% CRUT 1 in 8 yrs. A higher equity allocation creates a more volatile income stream for the donor, but if he can ride it out 1 in 25 yrs. 4% 1 in 13 yrs. 8% 12% 60% Stocks/ 40% Bonds 80% Stocks/ 20% Bonds 100% Stocks Wealth from 8% CRUT ($ Mil.): Year 30 ($ Mil.); Starting Value $10 Mil. Personal Wealth Wealth to Charity he s likely to generate more wealth for himself and for charity Level of Confidence 10% $64.1 $82.2 $ % 90% $37.6 $43.0 $22.8 $23.8 $11.5 $10.1 $6.3 $3.6 $4.2 60% Stocks/ 40% Bonds 100% Stocks 60% Stocks/ 40% Bonds 100% Stocks CRT allocations are as indicated; personal wealth is invested 60% stocks/40% bonds. Based on Bernstein s estimates of the range of returns for the applicable capital markets over the next 30 years. Data do not represent any past performance and are not a promise of actual future results. See Notes on Wealth Forecasting System at the end of this presentation.

17 Charitable Lead Annuity Trust (Non-Grantor) Contribution of assets Donor No Taxable Gift** Annual Cash Payouts Charitable Lead Annuity Trust* Trust Income-Tax Deduction Beneficiary (usually grantor s children) Remainder when trust expires if assets outperform hurdle rate** Charitable Organization Personal / Family Wealth Charity Potential to pass wealth to children free of gift/estate tax but success requires outperforming hurdle tied to interest rates, and tax deduction goes to trust, not to donor Annuity payment provides stable charitable commitment but charity s financial upside is limited *Throughout this analysis, we assume a non-grantor trust. **Assumes a zeroed-out CLAT. If a trust is zeroed-out, the present value of its annuity stream, discounted by the IRS Section 7520 rate when the trust was established, equals the grantor s original contribution. The entire remainder, if any, of a zeroed-out trust can be transferred to the beneficiaries free of gift or estate tax. Bernstein does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decision.

18 CLATs Must Outperform Hurdle Rate Section 7520 Rate* 12 Success depends on beating a hurdle tied to interest rates set when the trust is established; the lower the rate, the better for a CLAT. Today it s low relative to history Average 7.1% Aug % 2 3/89 7/91 11/93 3/96 7/98 11/00 3/03 7/05 Probability of Success:** 20-Yr. CLAT at Different Section 7520 Rates (100% Equities)..but if interest rates rise, CLATs become less attractive 81% 74% 65% 56% 3% Rate Aug % 9% *The hurdle rate for CLATs and certain other trusts, named after the section of the IRS Code authorizing its use **Success is defined as meeting all annuity payments to charity and having a remainder left over for children. Based on Bernstein s estimates of the range of returns for the applicable capital markets over the next 25 years. Data do not represent any past performance and are not a promise of actual future results. See Notes on Wealth Forecasting System at the end of this presentation for further details. Equity allocation comprises 35% U.S. Value, 35% U.S. Growth, 25% Developed Foreign, and 5% Emerging Markets. Throughout this presentation the Section 7520 rate is assumed to be 4.8%. Source: IRS and Bernstein

19 CLATs: Charity and Children Probability of Meeting All Annuity Payments to Charity (100% Equities) Maximizing gift to charity: The longer the term of the trust, the greater the probability the charity will receive the full intended gift 61% 66% 70% 74% 5 Yrs CLAT Term Transferring wealth to children: The assetallocation challenge is to balance the desire to secure charity without compromising long-term growth for children CLATs: Success by Asset Allocation (20 years) $5 Million Initial Investment 50% Stocks/40% Bonds/ 10% REITs 70/20/10 Probability of Success 80% 79% Median Wealth to Children $2.0 Mil. $2.8 Mil. 100% Equities 74% $3.4 Mil. Based on Bernstein s estimates of the range of returns for the applicable capital markets over the next 25 years. Data do not represent any past performance and are not a promise of actual future results. See Notes on Wealth Forecasting System at the end of this presentation for further details. Equity allocation comprises 35% U.S. Value, 35% U.S. Growth, 25% Developed Foreign, and 5% Emerging Markets. Bond allocation is intermediate-duration taxables. REITs are represented by the NAREIT Index. Throughout this presentation the Section 7520 rate is assumed to be 4.8%.

20 Notes on Wealth Forecasting System 1. Purpose and Description of Wealth Forecasting Analysis Bernstein s Wealth Forecasting Analysis is designed to assist investors in making their long-term investment decisions regarding their allocation of investments among categories of financial assets. Our planning tool consists of a four-step process: (1) Client-Profile Input: the client s asset allocation, income, expenses, cash withdrawals, tax rate, risk-tolerance level, goals, and other factors; (2) Client Scenarios: in effect, questions the client would like our guidance on, which may touch on issues such as when to retire, what his cash-flow stream is likely to be, whether his portfolio can beat inflation long term, and how different asset allocations might impact his long-term security; (3) The Capital Markets Engine: a model that uses our proprietary research and historical data to create a vast range of market returns, which takes into account the linkages within and among the capital markets (not Bernstein portfolios), as well as their unpredictability; and finally (4) A Probability Distribution of Outcomes: 80% of the estimated returns and asset values the client could expect to experience based on the assets invested pursuant to the stated asset allocation, represented within a range established by the 10% and 90% probabilities. However, outcomes outside this range are expected to occur 20% of the time; thus, the range does not establish the boundaries for all outcomes. We also often consider 90% of the estimated returns, within a range established by the 5% and 95% probabilities. Expected market returns on bonds are derived taking into account yield and other criteria. An important assumption is that stocks will, over time, outperform long bonds by a reasonable amount, although this is in no way a certainty. Moreover, actual future results may not meet Bernstein s estimates of the range of market returns, as these results are subject to a variety of economic, market, and other variables. Accordingly, the analysis should not be construed as a promise of actual future results, the actual range of future results, or the actual probability that these results will be realized. 2. Rebalancing Another important planning assumption is how the asset allocation varies over time. We attempt to model how the portfolio would actually be managed. Cash flows and cash generated from portfolio turnover are used to maintain the selected asset allocation among cash, bonds, stocks, REITs, and hedge funds over the period of the analysis. Where this is not sufficient, an optimization program is run to trade off the mismatch between the actual allocation and targets against the cost of trading to rebalance. In general, the portfolio will be maintained reasonably close to the target allocation. In addition, in later years there may be contention between the total relationship s allocation and those of the separate portfolios. For example, suppose an investor (in the top marginal federal tax bracket) begins with an asset mix consisting entirely of municipal bonds in his personal portfolio and entirely of stocks in his retirement portfolio. If personal assets are spent, the mix between stocks and bonds will be pulled away from targets. We put primary weight on maintaining the overall allocation near target, which may result in an allocation to taxable bonds in the retirement portfolio as the personal assets decrease in value relative to the retirement portfolio s value. Positions in a single stock are not rebalanced. 3. Expenses and Spending Plans (Withdrawals) All results are generally shown after applicable taxes and after anticipated withdrawals and/or additions, unless otherwise noted. Liquidations may result in realized gains or losses, which will have capital-gains tax implications.

21 Notes on Wealth Forecasting System 4. Modeled Asset Classes The following assets or indexes were used in this analysis to represent the various model classes: Asset Class Modeled as... Annual Turnover Rate Cash Equivalents 3-month Treasury bills 100% Intermediate-Term Diversified Municipal Bonds AA-rated diversified municipal bonds of 7-year maturity 30 Intermediate-Term Taxable Bonds Taxable bonds with maturity of 7 years 30 Diversified U.S. Stocks S&P 500 Index 15 U.S. Value Stocks S&P/BARRA Value Index 15 U.S. Growth Stocks S&P/BARRA Growth Index 15 Developed-International Stocks MSCI EAFE Index (Unhedged) 15 Emerging-Markets Stocks MSCI Emerging Markets Index 20 Single Stock (Avg. Volatility) Volatility: 28% Dividend: 1.7%; Beta: Real-Estate Investment Trusts NAREIT Index 30 Hedge Funds Long/Short Equity Hedge Funds Relative Value CSFB Tremont Long/Short Equity Hedge Fund Index CSFB Tremont Equity Market Neutral Hedge Fund Index 0 0

22 Notes on Wealth Forecasting System 5. Volatility Volatility is a measure of dispersion of expected returns around the average. The greater the volatility, the more likely it is that returns in any one period will be substantially above or below the expected result. The volatility for each asset class used in this analysis is listed in Note #10. In general, two-thirds of the returns will be within one standard deviation. For example, assuming that stocks are expected to return 8.0% on a compounded basis and the volatility of returns on stocks is 17.0%, in any one year it is likely that two-thirds of the projected returns will be between (8.9)% and 28.9%. With intermediate government bonds, if the expected compound return is assumed to be 5.0% and the volatility is assumed to be 6.0%, two-thirds of the outcomes will typically be between (1.1)% and 11.5%. These ranges are slightly skewed relative to what you might expect because the volatility calculation assumes the returns are log-normally distributed. Bernstein s forecast of volatility is based on historical data and incorporates Bernstein s judgment. It should also be noted that volatility varies in different time periods, particularly for inflation and fixed-income assets. 6. Technical Assumptions Bernstein s Wealth Forecasting Analysis is based on a number of technical assumptions regarding the future behavior of financial markets. Bernstein s Capital Markets Engine is the module responsible for creating simulations of returns in the capital markets. These simulations are based on inputs that summarize the condition of the capital markets as of March 31, Therefore, the first 12-month period of simulated returns represents the period from March 31, 2005, through March 31, 2006, and not necessarily the calendar year of A description of these technical assumptions is available on request. 7. Tax Implications Before making any asset-allocation decisions, an investor should review with his/her tax advisor the tax liabilities generated by the different investment alternatives presented herein, including any capital gains that would be incurred as a result of liquidating all or part of his/her portfolio, investments in municipal or taxable bonds, etc. 8. Tax Rates* Bernstein s Wealth Forecasting Analysis has used the following marginal tax rates for this analysis: Start Year End Year Federal Income- Tax Rate Federal Capital- Gains Tax Rate Qualified Dividend Rate State Income-Tax Rate % 15.00% 15.00% 6.00% *The federal income-tax rate represents Bernstein s estimate of either the maximum marginal tax bracket or an average rate based on the marginal-rate schedule. The federal capital-gains tax rate is represented by the lesser of the maximum marginal income-tax bracket or the current cap on capital gains for an individual or corporation, as applicable. Federal tax rates are blended with applicable state rates by including, among other things, federal deductions for state income and capital-gains taxes. The state tax rate generally represents Bernstein s estimate of the maximum unified rate, if applicable.

23 Notes on Wealth Forecasting System 9. Hedge-Fund Asset Classes The hedge-fund investment(s) modeled represented hedge-fund indexes. The risk of an individual hedge fund, or even a fund of funds, may be substantially higher. For a number of reasons, including survivor bias and voluntary reporting, even hedge-fund index performance and volatility can be misstated. 10. Assumptions: Capital-Market Statistics Annualized Compound Return Average Annual Return Average Annual Income* 1-Year Volatility 20-Year Annualized Equiv. Volatility Cash Equivalents 2.4% 2.4% 2.4% 0.7% 6.7% Int.-Term Diversified Munis Int.-Term Taxable Bonds Diversified U.S. Stocks U.S. Value Stocks U.S. Growth Stocks Developed-Int l Stocks Emerging-Markets Stocks Single Stock (Avg. Volatility) Real-Estate Investment Trusts Hedge Funds Long/Short Equity Hedge Funds Relative Value Inflation N/A Based on 10,000 simulated trials, each consisting of 20-year periods. Reflects Bernstein s estimates and the capital-market conditions as of March 31, Does not represent any past performance and is not a guarantee of any future specific risk levels or returns or any specific range of risk levels or returns. *For hedge-fund asset classes, Average Annual Income represents income and short-term capital gains.

24 EXHIBIT B

25 Charitable Remainder Unitrust Analysis March, 2009 Patrick S. Boyle, CFA, CFP Vice President This presentation booklet has been provided to you for use in a private and confidential meeting to discuss a potential or existing investment advisory relationship. This presentation is not an advertisement and is not intended for public use or distribution beyond our private meeting. Bernstein does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.

26 P ATH OF RETURNS MATTERS: SAMPLE CASE Wealth Values (Spending 5%) Average Return Return* Path 1 Return* Path2 Year 1 10% 38% (22)% Year 2 10% 23% (12)% Year 3 10% 33% (9)% Year 4 10% 29% 21% Year 5 10% 21% 29% Year 6 10% (9)% 33% Year 7 10% (12)% 23% Year 8 10% (22)% 38% Compound Annual Return 10% 10% 10% ($) Mil Path 1 Average Path 2 $1.8 $1.6 $1.2 Path 1 ends with 50% more wealth than path *Returns for Path 1, Year 1 - Year 8. represent hypothetical returns; Returns for Path 2 are identical to Path 1, but the order is reversed. **Spending in the first year is calculated as a percentage (5%) of initial assets - after the first year, spending is assumed to grow with inflation; All figures are pre-tax Data is not based upon any specific client circumstances nor any specific product or service and is no guarantee of future returns.

27 B ERNSTEIN S WEALTH FORECASTING PROCESS * 5% Possible Client Profile Data Scenarios Wealth Forecasting Model 10% Great Personal Profile Financial Goals Income Expenses Withdrawals Assets Tax Rates Other Input Scenarios A B C D Simulated observations based on Bernstein s proprietary capital markets research 10,000 Outcomes Distribution of 50% Typical Years 90% Poor 95% Possible Past performance is no guarantee of future results. *The Wealth Forecasting System, one of the biggest R&D projects ever undertaken at our firm, is based upon our proprietary analysis of historical capital-markets data over many decades. We looked at variables such as past returns, volatility, valuation ratios, and the correlations among them to address the planning questions our clients ask. The model s output is a vast range of possible outcomes relating to market asset classes, not Bernstein portfolios all of which can be used by the client in his or her decision making. Of course, there is no assurance that any specific outcome suggested by the model will actually come to pass. But by quantifying the possibilities of achieving financial goals under changing capital markets conditions, including extreme scenarios, the tool should help our clients make better choices, working together with their Bernstein Advisors.

28 Essential Facts

29 ESSENTIAL FACTS* PURPOSE The purpose of this analysis is to evaluate the trade-offs involved in diversifying a concentrated low basis asset in a taxable environment versus creating a joint lifetime Charitable Remainder Unitrust ("CRUT") over a period of 30 years. DONOR / TAX RATES In this example, we have assumed the donors are approximately 70 years of age and residents of California. We have further assumed that the donor will be subject to top marginal state and federal tax rates for the duration of the analysis. For purposes of this analysis, we have not modeled any tax deductions you may receive as a result of establishing a CRUT. CRUT ASSUMPTIONS We have assumed that the donor has $1 million in a concentrated stock position with a cost basis of $0. In our base case, we assume that the donor sells this stock outright today, pays the resulting capital gains tax, and reinvests the proceeds in a diversified taxable portfolio. In our alternative scenarios, we assume that this stock is contributed to a joint lifetime charitable remainder trust in exchange for annual Unitrust payments back to the donor. We have assumed a 7520 rate of 2.4% and that the ultimate beneficiary will be a public charity. *Based on information supplied by the client. Bernstein is not a legal, tax, or estate advisor. Investors should consult these professionals as appropriate before making any decisions.

30 ESSENTIAL FACTS (CONT'D)* ALTERNATIVE SCENARIOS For purposes of this analysis, we have modeled the following alternative scenarios: Scenario A Sell stock outright in taxable portfolio Scenario B Diversify stock in a CRUT with a 5% payout (minimum payout) Scenario C Diversify stock in a CRUT with a 10% payout Scenario D Diversify stock in a CRUT with a % payout (maximum payout based on your age and current 7520 rate) ASSET ALLOCATION In each scenario, the personal and CRUT assets are both invested in an allocation of 70% globally diversified equities* and 30% municipal bonds. *Globally diversified equities are defined as 35% US value, 35% US growth, 25% developed international, and 5% emerging markets. *Based on information supplied by the client. Bernstein is not a legal, tax, or estate advisor. Investors should consult these professionals as appropriate before making any decisions.

31 How Do Charitable Remainder Trusts Work? Donor Contribution (Irrevocable) Charitable Remainder Trust (tax-exempt) Remainder Charity Partial income tax deduction Annual Cash Payments (taxable) WMG: Custom Analysis Recipient

32 HOW ARE THE DISTRIBUTIONS TAXED? Taxed as: Tier Rules of Accounting Order: Type: Worst-In, First Out Tax Rate*: 1 Ordinary Income Comes out first Rent Interest Dividends 35% 35% 15% 2 Capital Gain Second Capital Gain 15% 3 Tax-Exempt Income Third Municipal Bond Interest 0% WMG: Custom Analysis 4 Tax-Free Principal Fourth Principal 0% *Highest Federal income tax brackets. Does not include the applicable state income tax rate. Reflects recent changes to the Internal Revenue Code of 1986, as amended, under the Jobs and Growth Tax Relief Reconciliation Act of Further assumes all capital gain is taxed at the long-term capital gain tax rate, and dividends do not include those payable by Real Estate Investment Trusts. For complete explanation see Section 664(b) of the Internal Revenue Code of 1986, as amended, and the Regulations thereunder.

33 Will I Compromise My Wealth? Accumulated Wealth ($ Mil.) Asset Growth After Taxes (Cumulative Results) Additional wealth from creating CRT Sell outright, pay taxes, and reinvest Crossover WMG: Custom Analysis 10 0 Contribute to CRT, accumulate and reinvest payouts Years Based on 55-year-old donor contributing $10 million to a CRUT, with an adjusted tax basis of $2.5 million, retaining a % unitrust payout for life, payouts payable annually with 12 months preceding the first payout. CRUT is invested 70% diversified US equities, 25% diversified international equities half-hedged, 5% emerging markets equities. Personal portfolio is invested in 42% diversified US equities, 15% diversified international equities half-hedged, 3% emerging markets equities and 40% in-state municipal bonds. Highest marginal federal and state tax rates.

34 Personal Wealth

35 WHEN W ILL I A Personal Portfolio - Crossover Occurs in Approximately 22 Years in the Median Case Accumulated Wealth ($Million) CHIEVE C ROSSOVER*? "Crossover" is the point at which one accumulates more personal wealth by creating the CRT than by selling and diversifying without the CRT. Median Asset Value After Taxes Years Asset Allocation A 70% Equities 30% Bonds B C D No CRT 5% Payout 10% Payout 14.6% Payout 70% Equities 30% Bonds 70% Equities 30% Bonds 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital makets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

36 R RANGE OF Taxable (Real) ACCUMULATED PERSONAL WEALTH* AFTER TAXES AND CASH FLOWS 10TH YEAR Probability 5% Value ($Million) 10% 50% 90% 95% A: No CRT 70% Equities 30% Bonds B: 5% Payout 70% Equities 30% Bonds C: 10% Payout 70% Equities 30% Bonds D: 14.6% Payout 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital markets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

37 R RANGE OF Taxable (Real) ACCUMULATED PERSONAL WEALTH* AFTER TAXES AND CASH FLOWS 15TH YEAR Probability 5% Value ($Million) 10% 50% 90% 95% A: No CRT 70% Equities 30% Bonds B: 5% Payout 70% Equities 30% Bonds C: 10% Payout 70% Equities 30% Bonds D: 14.6% Payout 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital markets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

38 R RANGE OF Taxable (Real) ACCUMULATED PERSONAL WEALTH* AFTER TAXES AND CASH FLOWS 20TH YEAR Probability 5% Value ($Million) 10% 50% 90% 95% A: No CRT 70% Equities 30% Bonds B: 5% Payout 70% Equities 30% Bonds C: 10% Payout 70% Equities 30% Bonds D: 14.6% Payout 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital markets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

39 R RANGE OF Taxable (Real) ACCUMULATED PERSONAL WEALTH* AFTER TAXES AND CASH FLOWS 25TH YEAR Probability 5% Value ($Million) 10% 50% 90% 95% A: No CRT 70% Equities 30% Bonds B: 5% Payout 70% Equities 30% Bonds C: 10% Payout 70% Equities 30% Bonds D: 14.6% Payout 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital markets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

40 Charity Wealth

41 RANGE OF CHARITY VALUES* 10TH YEAR Charitable Remainder Trust (Real) Probability 5% Value ($Million) 10% 50% 90% 95% B: 5% Payout 70% Equities 30% Bonds C: 10% Payout 70% Equities 30% Bonds D: 14.6% Payout 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital markets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

42 RANGE OF CHARITY VALUES* 15TH YEAR Charitable Remainder Trust (Real) Probability 5% Value ($Million) 10% 50% 90% 95% B: 5% Payout 70% Equities 30% Bonds C: 10% Payout 70% Equities 30% Bonds D: 14.6% Payout 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital markets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

43 RANGE OF CHARITY VALUES* 20TH YEAR Charitable Remainder Trust (Real) Probability 5% Value ($Million) 10% 50% 90% 95% B: 5% Payout 70% Equities 30% Bonds C: 10% Payout 70% Equities 30% Bonds D: 14.6% Payout 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital markets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

44 RANGE OF CHARITY VALUES* 25TH YEAR Charitable Remainder Trust (Real) Probability 5% Value ($Million) 10% 50% 90% 95% B: 5% Payout 70% Equities 30% Bonds C: 10% Payout 70% Equities 30% Bonds D: 14.6% Payout 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital markets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

45 Payouts

46 RANGE OF PAYOUTS* 10THYEAR Charitable Remainder Trust (CRUT) - Unitrust Payout (Real - After-tax) Probability 5% Value ($Thousand) 10% 50% 90% 95% B: 5% Payout 70% Equities 30% Bonds C: 10% Payout 70% Equities 30% Bonds D: 14.6% Payout 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital markets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

47 RANGE OF PAYOUTS* 15THYEAR Charitable Remainder Trust (CRUT) - Unitrust Payout (Real - After-tax) Probability 5% Value ($Thousand) 10% 50% 90% 95% B: 5% Payout 70% Equities 30% Bonds C: 10% Payout 70% Equities 30% Bonds D: 14.6% Payout 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital markets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

48 RANGE OF PAYOUTS* 20THYEAR Charitable Remainder Trust (CRUT) - Unitrust Payout (Real - After-tax) Probability 5% Value ($Thousand) 10% 50% 90% 95% B: 5% Payout 70% Equities 30% Bonds C: 10% Payout 70% Equities 30% Bonds D: 14.6% Payout 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital markets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

49 RANGE OF PAYOUTS* 25THYEAR Charitable Remainder Trust (CRUT) - Unitrust Payout (Real - After-tax) Probability 5% Value ($Thousand) 10% 50% 90% 95% B: 5% Payout 70% Equities 30% Bonds C: 10% Payout 70% Equities 30% Bonds D: 14.6% Payout 70% Equities 30% Bonds *Based on Bernstein's estimates of the range of long-term returns for the applicable capital markets. Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.

50 Appendix

51 CAPITAL MARKETS PROJECTIONS Median 30-Year Mean Mean 30-Year Annual 1-Year Volatility Growth Rate Annual Return Annual Income Equivalent Volatility Cash Equivalents Int.-Term In-State Munis U.S. Value U.S. Growth Developed International Emerging Markets Inflation n/a Based on 10,000 simulated trials each consisting of 30-year periods. Reflects Bernstein's estimates, and the capital market conditions of December 31, Does not represent any past performance and is not a guarantee of any future specific risk-levels or returns, or any specific range of risk-levels or returns.

52 PROJECTED CORRELATIONS Cash Equivalents Int.-Term In- State Munis U.S. Value U.S. Growth Developed International Emerging Markets Cash Equivalents 1.0 (0.4) (0.1) (0.1) Int.-Term In-State Munis (0.4) (0.2) U.S. Value (0.1) (0.1) U.S. Growth (0.1) (0.1) Developed International (0.1) Emerging Markets (0.1) Inflation 0.4 (0.2) (0.1) (0.1) (0.1) (0.1) 1.0 Inflation Based on the first year of each of 10,000 simulated trials. Reflects Bernstein's estimates, and the capital market conditions of December 31, Does not represent any past performance and is not a guarantee of any future specific risk-levels or returns, or any specific range of risk-levels or returns.

53 NOTES ON WEALTH F ORECASTING SYSTEM 1. Purpose and Description of Wealth Forecasting Analysis Bernstein s Wealth Forecasting Analysis is designed to assist investors in making their long-term investment decisions as to their allocation of investments among categories of financial assets. Our new planning tool consists of a four-step process: (1) Client-Profile Input: the client s asset allocation, income, expenses, cash withdrawals, tax rate, risk-tolerance level, goals and other factors; (2) Client Scenarios: in effect, questions the client would like our guidance on, which may touch on issues such as when to retire, what his cash-flow stream is likely to be, whether his portfolio can beat inflation long-term, and how different asset allocations might impact his long-term security; (3) The Capital-Markets Engine: our proprietary model that uses our research and historical data to create a vast range of market returns, which takes into account the linkages within and among the capital markets, as well as their unpredictability; and finally (4) A Probability Distribution of Outcomes: based on the assets invested pursuant to the stated asset allocation, 90% of the estimated ranges of returns and asset values the client could expect to experience are represented within the range established by the 5th and 95th percentiles on box- and- whiskers graphs. However, outcomes outside this range are expected to occur 10% of the time; thus, the range does not establish the boundaries for all outcomes. Expected market returns on bonds are derived taking into account yield and other criteria. An important assumption is that stocks will, over time, outperform long bonds by a reasonable amount, although this is in no way a certainty. Moreover, actual future results may not meet Bernstein s estimates of the range of market returns, as these results are subject to a variety of economic, market and other variables. Accordingly, the analysis should not be construed as a promise of actual future results, the actual range of future results or the actual probability that these results will be realized. The information provided here is not intended for public use or distribution beyond our private meeting. 2. Retirement Vehicles Each retirement plan is modeled as one of the following vehicles: IRA, 401(k), 403(b) or Keogh. One of the significant differences among these vehicle types is the date at which mandatory distributions commence. For IRA vehicles, mandatory distributions are assumed to commence during the year in which the investor reaches the age of For 401(k), 403(b), and Keogh vehicles, mandatory distributions are assumed to commence at the later of (i) the year in which the investor reaches the age of 70.5 and (ii) the year in which the investor retires. In the case of a married couple, these dates are based on the date of birth of the older spouse. The minimum mandatory withdrawal is estimated using the Minimum Distribution Incidental Benefit tables as published on 3. Rebalancing Another important planning assumption is how the asset allocation varies over time. We attempt to model how the portfolio would actually be managed. Cash flows and cash generated from portfolio turnover are used to maintain the selected asset allocation between cash, bonds, stocks, REITs, and hedge funds over the period of the analysis. Where this is not sufficient, an optimization program is run to trade off the mismatch between the actual allocation and targets against the cost of trading to rebalance. In general, the portfolio will be maintained reasonably close to the target allocation. In addition, in later years, there may be contention between the total relationship s allocation and those of the separate portfolios. For example, suppose an investor (in the top marginal federal tax bracket) begins with an asset mix consisting entirely of municipal bonds in his personal portfolio and entirely of stocks in his retirement portfolio. If personal assets are spent, the mix between stocks and bonds will be pulled away from targets. We put primary weight on maintaining the overall allocation near target, which may result in an allocation to taxable bonds in the retirement portfolio as the personal assets decrease in value relative to the retirement portfolio s value.

54 NOTES ON WEALTH F ORECASTING SYSTEM 4. Expenses and Spending Plans (Withdrawals) All results are generally shown after applicable taxes and after anticipated withdrawals and/or additions, unless otherwise noted. Liquidations may result in realized gains or losses which will have capital gains tax implications. See details on withdrawals in Cash-Flow Summary, if any. 5. Modeled Asset Classes The following assets or indexes were used in this analysis to represent the various model classes: Asset Class Modeled As... Annual Turnover Rate Cash Equivalents 3-month Treasury bills 100% Intermediate-Term In-State Municipals AA-rated in-state municipal bonds of 7-year maturity 30% U.S. Value S & P / Barra Value Index 15% U.S. Growth S & P / Barra Growth Index 15% Developed International MSCI EAFE Unhedged 15% Emerging Markets MSCI Emerging Markets Index 20%

55 NOTES ON WEALTH F ORECASTING SYSTEM 6. Volatility Volatility is a measure of dispersion of expected returns around the average. The greater the volatility, the more likely it is that returns in any one period will be substantially above or below the expected result. The volatility for each asset class used in this analysis is listed on the Assumptions page. In general two-thirds of the returns will be within one standard deviation. For example, assuming that stocks are expected to return 8.0% on a compounded basis and the volatility of returns on stocks is 17.0%, in any one year it is likely that two-thirds of the projected returns will be between (8.9)% and 28.0%. But with intermediate government bonds, if the expected compound return is assumed to be 5.0% and the volatility is assumed to be 6.0%, two-thirds of the outcomes will typically be between (1.1)% and 11.5%. Bernstein s forecast of volatility is based on historical data and incorporates Bernstein s judgment that volatility of fixed-income assets is different for different time periods. 7. Technical Assumptions Bernstein's Wealth Forecasting Analysis is based on a number of technical assumptions regarding the future behavior of financial markets. Bernstein's Capital Markets Engine is the module responsible for creating simulations of returns in the capital markets. These simulations are based on inputs which summarize the current condition of the capital markets as of December 31, Therefore, the first 12-month period of simulated returns represents the period from December 31, 2008 through December 31, 2009, and not necessarily the calendar year of A description of these technical assumptions is available on request. 8. Tax Implications Before making any asset allocation decisions, an investor should review with his/her tax advisor the tax liabilities incurred by the different investment alternatives presented herein including any capital gains that would be incurred as a result of liquidating all or part of his/her portfolio, retirement-plan distributions, investments in municipal or taxable bonds, etc. Bernstein does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.

56 NOTES ON WEALTH F ORECASTING SYSTEM 9. Tax Rates Bernstein s Wealth Forecasting Analysis has used the following tax rates for this analysis: Tax Payer Scenario Start Year End Year Federal Income Tax Rate Federal Capital Gains Tax Rate State Income Tax Rate State Capital Gains Tax Rate Tax Method Type Mr. and Mrs. Client Mr. and Mrs. Client A B see below see below 10.30% 10.30% see below see below 10.30% 10.30% Top Marginal Rates Top Marginal Rates Mr. and Mrs. Client Mr. and Mrs. Client C D see below see below 10.30% 10.30% see below see below 10.30% 10.30% Top Marginal Rates Top Marginal Rates The federal income tax rate represents Bernstein's estimate of either the top marginal tax bracket or an "average" rate calculated based upon the marginal rate schedule. The federal capital gains tax rate is represented by the lesser of the top marginal income tax bracket or the current cap on capital gains for an individual or corporation, as applicable. Federal tax rates are blended with applicable state tax rates by including, among other things, federal deductions for state income and capital gains taxes. The state tax rate generally represents Bernstein's estimate of the top marginal rate, if applicable. The Wealth Forecasting System uses the following top marginal tax rates: From now until 2010, federal income tax rate is 35%, and federal capital gains tax rate is 15%. For 2011 and beyond, federal income tax rate becomes 39.6%, and federal capital gains tax rate becomes 20%. The system uses the following AMT rates: From now until 2010, federal income tax rate is 28%, and federal capital gains tax rate is 15%. For 2011 and beyond, federal income tax rate becomes 28%, and federal capital gains tax rate becomes 20%. 10. Charitable Remainder Trust The Charitable Remainder Trust (CRT) is modeled as a tax-planning or estate-planning vehicle, which makes an annual payout to the recipient(s) specified by the grantor, and at the end of its term (which may be the recipient's lifetime), transfers any remaining assets, as a tax-free gift, to a charitable organization. Depending on the payout's structure, the CRT can be modeled as either a Charitable Remainder Unitrust (CRUT) or a Charitable Remainder Annuity Trust (CRAT). The CRUT's payout is equal to a fixed percentage of the portfolio's beginning-year value, whereas the CRAT's payout consists of a fixed dollar amount. In the inception year of the CRT, its grantor receives an income tax deduction typically equal to the present value of the charitable donation, subject to the applicable Adjusted Gross Income (AGI) limits on charitable deductions and phaseout of itemized deductions, as well as the rules regarding reduction to basis of gifts to private foundations. Unused charitable deductions are carried forward up to five years. Although the CRT does not pay taxes on its income or capital gains, its payouts are included in the recipient's Adjusted Gross Income (AGI) using the following four accounting tiers: Tier 1-Ordinary Income (Taxable Interest/Dividends); Tier 2-Realized Long-term Capital Gains; Tier 3-Other Income (Tax-exempt Interest); and Tier 4-Principal. CRTs are required to pay out all current and previously retained Tier 1 income first, all current and previously retained Tier 2 income next, all current and previously retained Tier 3 next, and Tier 4 income last.

57 EXHIBIT C

58 Chomping Your Taxes in Half with Shark Fin CLATs * March 2009 Paul S. Lee, J.D., LL.M. National Managing Director *Turney Berry of Wyatt, Tarant & Combs, LLP of Louisville, KY, and Martin Hall of Ropes & Gray, LLP of Boston, MA. This presentation booklet has been provided to you for use in a private and confidential meeting to discuss a potential or existing investment advisory relationship. This presentation is not an advertisement and is not intended for public use or distribution beyond our private meeting. Bernstein does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.