Evan H. Farr's Irrevocable Income-Only Trust Form 57 Irrevocable Income-Only Trust This sample irrevocable Trust form is designed for an unmarried Settlor, over age 65, whose assets are not likely to be subject to the Federal estate tax. Type of Trust: Transfers to Trust Are: Income Tax Ramifications: Estate Tax Ramifications: Irrevocable, income-only trust Incomplete Gifts, So No Gift Tax Return Need Be Filed Trust Income Taxed To Settlor Trust Assets Included in Settlor s Estate This is a self-settled, self-trusteed, irrevocable, income-only trust, with a retained limited testamentary power to change beneficiaries and a lifetime right to remove and replace trustees. The trust is designed to pay income, and only income, to the Settlor for the Settlor's lifetime. The Trustee may distribute to or for the benefit of Settlor some or all of the net ordinary income of this Trust, in the Trustee's sole and absolute discretion. The Trustee may distribute principal to or for the benefit of one or more remainder beneficiaries. This Trust is designed for use in states whose statutes, common law, and Medicaid rules recognize the validity of self-settled, income-only Trusts to protect the Trust principal from the claims of creditors. Rule. The Settlor explicitly consents to the Trustee's noncompliance with the Prudent Investor This Trust contains a contingent testamentary Special Needs Trust for potentially disabled beneficiaries. This Trust splits into dynasty-like sub-trusts for the remainder beneficiaries upon the death of the Settlor, to provide ongoing asset protection to the remainder beneficiaries.
58 Trusts for Senior Citizens TRUST AGREEMENT ESTABLISHING THE JOHN DOE TRUST THIS TRUST AGREEMENT is made as of this day, February 23, 2009, by and between John Q. Doe as settlor (hereinafter the Settlor ), and John Q. Doe as trustee (hereinafter the Trustee ). RECITALS: The Settlor is a widower, has not remarried and has two children whose names are Jill Doe and Jack Doe; and The Settlor desires to create an irrevocable trust to hold, IN TRUST, certain assets to provide for the management of those assets, both presently and during any future period of incapacity, and to provide for a simplified means of accomplishing both lifetime and post-death transfers of those assets. Therefore, in consideration of the covenants herein contained and other valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Settlor hereby establishes the John Doe Trust upon the terms and conditions hereinafter set forth: Article 1 Formation of Trust Section 1.1 Name of Trust. 1.1.1 Trust Name. 1.1.1.1 This Trust and the trusts created hereunder may be referred to, in any other instrument, by any descriptive name including, but not limited to: John Doe Trust, or John Doe Trust dated February 23, 2009 or John Doe Trust UDT dated February 23, 2009 or John Doe Trust UA dated February 23, 2009, where UDT stands for Under Declaration of Trust and UA stands for Under Agreement. 1.1.1.2 Any transfers to this Trust or any trust created hereunder may refer to one of the aforesaid names or to the name(s) of the Trustee(s) as Trustee(s) under one of the aforesaid names, with or without specifying the date of the Trust, any change in Trustee, or any amendment to this trust instrument. Section 1.2 Trust Property. 1.2.1 Type of Property This Trust May Hold. 1.2.1.1 The Trustee may hold or acquire any and all types of assets including, without limitation, insurance policies, monies, securities, real property and tangible personal property. 1.2.1.2 The Trustee may be named as beneficiary of any life insurance policy, employee benefit plan, retirement plan, or any other plan or asset, and the Trustee may elect the mode of payment which appears to be the most advantageous to this Trust and its beneficiaries, if not previously elected. 1.2.1.3 The Trustee may receive assets pursuant to Settlor s Last Will and Testament. 1.2.2 Definition of Trust Estate. 1.2.2.1 All such assets shall be referred to as the trust estate. 1.2.2.2 Assets received by the Trustee may be listed, for convenience, on the attached Schedule of Trust Estate Property.
Evan H. Farr's Irrevocable Income-Only Trust Form 59 1.2.3 How Trust Estate Is Held. All assets transferred to the Trustee shall initially be held in a single trust for the benefit of the Beneficiaries set forth in Section 3.1, regardless of how such property was acquired or how previously titled (sole ownership, joint with survivorship, tenants by the entirety, community property, or otherwise), including policies of insurance, all property transferred to the Trustee, and all principal, receipts, reinvestments, refunds and replacements of such property. Section 1.3 Appointment of Trustee. 1.3.1 Original Trustee. The Settlor appoints himself as original trustee. 1.3.2 Successor Trustees. Upon the death or incapacity (as defined in Article 7) of the Trustee, the Settlor hereby appoints the Settlor s daughter, Jill Doe, as Successor Trustee for all trusts created hereunder. If Jill Doe for any reason fails or ceases to act as Trustee, the Settlor hereby appoints the Settlor s son, Jack Doe, as Successor Trustee for all trusts created hereunder. If Jack Doe for any reason fails or ceases to act as Trustee, the Settlor hereby appoints the Settlor s sister, Susan Doe, as Successor Trustee for all trusts created hereunder. 1.3.3 Signature Requirements. When two Co-Trustees are serving hereunder, the signatures and/or agreement of both Co-Trustees shall be required to transact business on behalf of the Trust. When more than two Co-Trustees are serving hereunder, the signatures and/or agreement of a majority of the Co-Trustees shall be required to transact business on behalf of the Trust. Section 1.4 Appointment of Trust Protector. 1.4.1 Designation of Trust Protector. 1.4.1.1 Settlor hereby names John Q. Smith as the Trust Protector for this Trust and any trusts created hereunder. 1.4.1.2 All action taken by the Trust Protector shall be taken in the sole and absolute discretion of the Trust Protector and shall require notice to each Qualified Beneficiary. 1.4.2 Settlor s Powers. 1.4.2.1 Power To Remove Trust Protector. During Settlor s lifetime, Settlor may remove a Trust Protector at any time. Any Trust Protector so removed shall not be entitled to receive any reason, cause, or ground for such removal. Notice of removal shall be effective when made in writing and delivered to the Trust Protector at the Trust Protector s last known address. 1.4.2.2 Power to Replace Trust Protector. 1.4.2.2.1 If a Trust Protector is terminated, resigns, becomes disabled, dies, or cannot serve for any other reason, the Settlor may appoint an individual or corporate successor Trust Protector other than the Settlor. 1.4.2.2.2 At no time may the Settlor serve as Trust Protector. 1.4.3 Administrative Powers of Trust Protector. 1.4.3.1 The Trust Protector shall have the power to: 1.4.3.1.1 Remove any Trustee or Co-Trustee at any time and for any reason, and to appoint a replacement Trustee or Co-Trustee;
60 Trusts for Senior Citizens 1.4.3.1.2 Appoint a successor Trustee or Trustees, or a Co-Trustee; 1.4.3.1.3 Appoint one or more special Trustees to act for any general, special, or limited purposes permitted under the Trust; 1.4.3.1.4 Act as a mediator and/or arbitrator (and/or to hire on behalf of the Trust an independent mediator and/or arbitrator) to mediate and/or arbitrate disputes between beneficiaries, disputes between trustees, and disputes between trustees and beneficiaries. 1.4.3.2 Any Trustee appointed by the Trust Protector pursuant to this Section shall be either: 1.4.3.2.1 A professional Trustee or Trust Company; or 1.4.3.2.2 An individual or individuals not subject to the control of the Settlor, not subject to the control of Trust Protector, and not subject to the control of any Beneficiary of this Trust, either directly or by attribution, as set forth in the relevant sections of the Code. 1.4.4 Power Over Trust Property. If the Trustee is not the Settlor, the Trust Protector shall have the power to approve the Trustee's distribution of principal, in any amount, during the life of the Settlor, to one or more Trust Beneficiaries; in this regard, the Trustee (if the Trustee is not the Settlor) shall not distribute any principal of the Trust during the life of the Settlor without the written approval of the Trust Protector. 1.4.5 When Beneficiaries May Appoint Successor Trust Protector. 1.4.5.1 If no named Trust Protector or named Successor Trust Protector shall be willing and able to serve, the Trust Beneficiaries may appoint a Successor Trust Protector or Successor Trust Protector Committee. The votes allowed to each Beneficiary shall be in proportion to the size of his or her individual Trust share in relation to the size of the Trust assets as a whole, counting all Trust shares together. 1.4.5.2 If no named Trust Protector or named Successor Trust Protector shall be willing and able to serve, and if Trust shares shall have already been divided, then regardless of the preceding sentence, each Beneficiary who is of majority age and competent to manage his or her own affairs (or the guardian of each Beneficiary who shall not have reached majority age or who shall be disabled) shall be empowered to name a separate Trust Protector or Trust Protector Committee for that Beneficiary s share if he or she so chooses, in his or her unfettered discretion. 1.4.5.3 The Trust Protector so selected may not be subject to the control of any Trust Beneficiary, either directly or by attribution as set forth in the relevant sections of the Internal Revenue Code. 1.4.6 No Fiduciary Duty. No Trust Protector or member of the Trust Protector Committee shall have a fiduciary duty to act or to withhold actions based on his or her status as a member of the Trust Protector Committee. 1.4.7 Fees and Expenses. 1.4.7.1 The Trust Protector, or the members of the Trust Protector Committee, shall be entitled to a reasonable fee for serving as a Trust Protector. 1.4.7.2 If the Trust Protector is an accountant, attorney, or financial professional, and is
Evan H. Farr's Irrevocable Income-Only Trust Form 61 Section 1.5 hired by the Trustee or the Trust Protector to render such professional services, then said Trust Protector may earn additional fees for rendering such professional services. 1.4.7.3 The Trustee shall reimburse the Trust Protector and/or members of the Trust Protector Committee for all reasonable expenses incurred on behalf of the Trust, including reviews by or consultations with accountants, attorneys, and financial professionals. Purpose of Trust. 1.5.1 Estate Planning. Settlor is the parent of the Trust Beneficiaries, and desires to transfer certain assets out of Settlor s name and into this Trust to: 1.5.1.1 Consolidate the assets for investment purposes; 1.5.1.2 Protect the assets from probate upon Settlor s death; and 1.5.1.3 Establish the respective rights and responsibilities of the Beneficiaries in the assets, after Settlor s death. 1.5.2 Income Tax Planning. It is Settlor s intention that this Trust be construed as a Grantor Trust under Internal Revenue Code Section 671 et seq., and that all trust income (whether or not such income is distributed to Settlor), deductions, and credits incurred by this Trust are thereby reported on the Settlor s income tax returns. 1.5.3 Estate Tax Planning. It is Settlor s intention that upon Settlor s death the assets remaining in this Trust be included as part of Settlor s gross taxable estate pursuant to Code Section 2036(a)(2). Article 2 Section 2.1 2.1.1 Management. During Settlor s Lifetime Management and Distribution. 2.1.1.1 The Trustee shall hold, manage, invest, and reinvest the assets of the trust estate, and shall collect any income therefrom. 2.1.1.2 As stated in Section 1.5.2, all trust income shall be taxable to Settlor during Settlor s lifetime. 2.1.2 Income. 2.1.2.1 After deducting the expenses of administration of this trust, the Trustee may distribute to or for the benefit of Settlor some or all of the net ordinary income of this Trust, in the Trustee s sole and absolute discretion. Such distributions of income may be made monthly, quarterly, or annually, in the Trustee s sole and absolute discretion. 2.1.2.2 The term ordinary income means taxable income that does not qualify for capital gains treatment, such as interest, dividends, and rental income. 2.1.3 Principal (Including Gain on Principal). 2.1.3.1 The principal of this trust shall be at all times unavailable to the Settlor. The Settlor shall not have any right to compel the Trustee to distribute any principal or any gain (realized or unrealized) on principal to the Settlor or to any future spouse of Settlor; and the Trustee shall not, at any time, distribute any principal
62 Trusts for Senior Citizens or any gain on principal of this Trust to the Settlor or to any future spouse of Settlor. 2.1.3.2 The Trustee shall not, at any time, have the right adjust between principal and income, convert principal to income, or convert principal or income to a unitrust amount. 2.1.3.3 If the sale of a trust asset causes a taxable capital gain, the Trustee shall pay the resulting taxes from such gain and, in connection therewith, may cause some or all of said taxes to be withheld from the sales proceeds and distributed to the Internal Revenue Service. 2.1.3.4 During any time that the Settlor is acting as Trustee, then in the Trustee s sole and unfettered discretion, the Trustee may distribute principal and/or gain on principal to the one or more of the Beneficiaries. 2.1.3.5 During Settlor s lifetime, if the Settlor is not acting as the Trustee, the Trustee may distribute principal and/or gain on principal to one or more of the Beneficiaries upon the written request of all Beneficiaries along with the written approval of the Trust Protector. 2.1.3.6 If the Trustee shall distribute all of the principal, this Trust shall terminate. 2.1.4 Real Estate. 2.1.4.1 Fee Simple Ownership. If this Trust holds fee simple ownership in real property (including a cooperative apartment) during Settlor s lifetime, then the Settlor shall have the right to use and occupy said real property and the right to receive all rental income from the real property, and Settlor shall be responsible for payment of all expenses of maintaining any real property that Settlor uses and occupies, including taxes, insurance, utilities, normal costs of maintenance and upkeep of the property, and regular payments on any outstanding mortgage, deed of trust, and any other encumbrances on the property; if there are no mortgage encumbrances on the property, the Settlor shall be required to pay fair market rent for the property. 2.1.4.2 Remainder Interest Ownership. If this Trust holds a remainder interest in real property (including a cooperative apartment) during Settlor s lifetime, and the Settlor retains a life estate in said property, then the Settlor shall retain the right to use and occupy said real property and the right to receive all rental income from the real property, and Settlor shall be responsible for payment of all expenses of maintaining any real property that Settlor uses and occupies, including taxes, insurance, utilities, normal costs of maintenance and upkeep of the property, and regular payments on any outstanding mortgage, deed of trust, and any other encumbrances on the property. 2.1.4.3 Replacement Property. Upon a request by the Settlor, the Trustee shall sell trust-owned real estate and acquire replacement real estate. The replacement real estate acquired shall be part of the principal of this trust. The term acquire replacement real estate may include payment of a one-time refundable entrance fee deposit (or similar fee) required for the Settlor to become a resident in a Continuing Care Retirement Community. 2.1.5 Motor Vehicles. If this Trust acquires ownership in any motor vehicle during Settlor s lifetime, Settlor shall have the right to the use of said motor vehicle for Settlor s own purposes and the Settlor shall be responsible for payment of all of the expenses of
Evan H. Farr's Irrevocable Income-Only Trust Form 63 Section 2.2 maintaining said motor vehicle, including taxes, insurance, normal costs of maintenance and upkeep of the motor vehicle, and regular payments on any outstanding loan on the motor vehicle. 2.1.5.1 Replacement Vehicles. Upon a request by the Settlor, the Trustee shall purchase replacement motor vehicles to be used by Settlor. Any replacement vehicles purchased shall be part of the principal of this trust. 2.2.1 Irrevocability. Section 2.3 No Right to Revoke or Terminate. 2.2.1.1 This Trust is, and all trusts created hereunder are, and shall be, irrevocable. 2.2.1.2 Settlor shall have no right to revoke or terminate this Trust or any trusts created hereunder. 2.2.1.3 Settlor shall have no right or title in any trust assets, and shall have no power, privilege, or incident of ownership, as defined in Code Section 20.2042-1(c)(2), over any trust assets. Settlor s Powers. 2.3.1 Power To Remove Trustee. During Settlor s lifetime, Settlor may remove a trustee at any time. Any Trustee so removed shall not be entitled to receive any reason, cause, or ground for such removal. Notice of removal shall be effective when made in writing by notice delivered to the Trustee at the Trustee s last known address. 2.3.2 Power to Replace Trustee. If a Trustee is terminated, resigns, becomes incapacitated, dies, or cannot serve for any other reason, the Settlor may appoint an individual or professional successor Trustee. 2.3.3 Substitution of Trust Property. The Settlor may substitute any asset owned by the trust for any other asset of equal value. Article 3 Section 3.1 Upon Settlor s Death Beneficiaries. 3.1.1 Power to Appoint. Settlor reserves a limited testamentary power to appoint the remaining assets of this Trust, upon Settlor s death, among Settlor s descendants in percentages and with restrictions chosen by the Settlor, by specific reference to and exercise of this power of appointment in Settlor s Last Will and Testament; the Settlor may not exercise this limited power of appointment in favor of any one or more of the Settlor s creditors, the Settlor s estate, or creditors of the Settlor s estate. 3.1.2 Beneficiaries. If Settlor has not exercised the above-referenced power of appointment via Settlor s Last Will and Testament, then the Beneficiaries of this Trust shall be Settlor s children, Jill Doe and Jack Doe, in equal shares per stirpes. Actual distributions to the Beneficiaries shall be governed by the remaining provisions of Article 3 and, if applicable, by the provisions of Article 4. 3.1.3 Successor Beneficiaries. If Settlor has not exercised the above-referenced power of appointment via Settlor s Last Will and Testament, and if Settlor has no surviving issue, then the Successor Beneficiaries of this Trust shall be one or more charitable organizations chosen by the Trustee, keeping in mind, if possible, the charities and types of charities supported by the Settlor during the Settlor s lifetime. Section 3.2 Distribution of Residuary Trust Assets.
64 Trusts for Senior Citizens 3.2.1 Real Estate. 3.2.1.1 The Trustee shall have sole discretion as to whether to hold in trust, sell, or distribute in kind any and all real estate owned by the Trust. 3.2.1.2 If the Trustee retains in trust any real estate owned by the Trust, all expenses for maintaining said real estate (including, without limitation, mortgage payments, taxes, insurance, and utilities) shall be paid as expenses of administering this Trust. 3.2.1.3 If the Trustee sells (or distributes in kind) any real estate owned by the Trust, the Trustee shall distribute the net proceeds from sale (or the real estate itself in kind, with monetary offsets if necessary) to Settlor s Beneficiaries set forth in Section 3.1, pursuant to Section 3.2.2, unless otherwise provided by Article 4. All expenses in connection with any sale (including without limitation advertising expenses, real estate broker commission, and repairs or improvements deemed necessary or desirable by the Trustee), and all expenses for maintaining said real estate prior to such sale (including without limitation mortgage payments, taxes, insurance, and utilities) shall be paid as expenses of administering this Trust. 3.2.2 Residuary Balance of Trust. 3.2.2.1 Creation of Sub-Trusts. The Trustee shall consolidate the remaining assets owned by the Trust, including the net proceeds from the sale of any real estate (together with all other trusts, shares, and sub-trusts established hereunder, if any) and any accumulated income, and shall divide said consolidated balance into trust shares for the Beneficiaries set forth in Section 3.1. 3.2.2.2 Management of Sub-Trusts. Each Beneficiary s share shall continue to be held in a sub-trust; each Beneficiary shall be trustee of that Beneficiary s own subtrust (unless otherwise provided by Article 4) under the terms and conditions of this trust instrument and further subject to the following provisions: 3.2.2.2.1 Name. The name of each Beneficiary s trust shall be the <Name of Beneficiary> Beneficiary Trust. 3.2.2.2.2 Date. The date of creation/formation of each Beneficiary s trust shall be Settlor s date of death. 3.2.2.2.3 Identification Number. The tax identification number of each Beneficiary s sub-trust shall be that Beneficiary s social security number. Alternatively, the Beneficiary may elect to establish a separate tax identification number for the Beneficiary s sub-trust. 3.2.2.2.4 Income Distribution. The Trustee of each Beneficiary s sub-trust shall hold, manage, invest and reinvest the assets of the sub-trust as a separate trust for benefit of the Beneficiary and shall pay so much or all of the net income from each sub-trust to or for the benefit of the Beneficiary of that sub-trust, as the Trustee may determine in the Trustee s sole and absolute discretion. Any net income not so paid shall be accumulated and added to principal of each Beneficiary s sub-trust at least annually and thereafter shall be held, administered and disposed of as a part thereof. 3.2.2.2.5 Principal Distribution. In addition, the Trustee of each sub-trust may pay from the principal of the sub-trust such amounts, including the
Evan H. Farr's Irrevocable Income-Only Trust Form 65 Article 4 Section 4.1 whole thereof, to or for the benefit of the Beneficiary, for the Beneficiary s health, education, maintenance and support, as determined in the sole and absolute discretion of the Trustee. 3.2.2.2.6 Distribution Upon Death. Upon the death of a Beneficiary who is a natural person, the Successor Trustee of that Beneficiary s sub-trust shall further divide the remaining assets of that sub-trust into trust shares for the benefit of that Beneficiary s descendants, in equal shares per stirpes, or if there are no living descendants of that Beneficiary, then for the benefit of Settlor s descendants, in equal shares per stirpes. Such further trust shares shall continue to be held in trust, down through the generations, under the terms and conditions of this trust instrument and subject to the ongoing provisions of this Section. 3.2.2.2.7 Limited Power of Appointment. Alternatively, the Beneficiary may name other specific beneficiaries by exercising this limited power of appointment by means of a reference to this limited power of appointment in his or her Last Will and Testament or in a written and acknowledged trust instrument, with the following limitations: 3.2.2.2.7.1 The Beneficiary may not exercise this limited power of appointment in favor of any one or more of the Beneficiary s creditors, the Beneficiary s estate, or the creditors of the Beneficiary s estate. 3.2.2.2.7.2 If the Beneficiary is a descendant of Settlor, and wishes to exercise the power of appointment in favor of the Beneficiary s spouse, said spouse may receive only the greater of an income interest for life, or a 5% unitrust interest (as defined in Article 7) for life in the portion set aside for such spouse. Any remainder shall be payable only to or for the benefit of Settlor s descendants. 3.2.2.2.7.3 At any time and from time to time during his or her life, by a written, acknowledged instrument delivered to the Trustee, a Beneficiary may release such power of appointment with respect to any or all of the property subject to such power or may further limit the persons or entities in whose favor or the extent to which this power may be exercised. 3.2.2.2.8 Alternate Beneficiaries. If neither the Settlor nor the Beneficiary leave living descendants, and if the power of appointment has not been effectively exercised in whole or in part by the Beneficiary, then upon the Beneficiary s death the principal of that Beneficiary s trust, along with any accumulated income, shall be distributed to one or more charitable organizations chosen by the Trustee, keeping in mind, if possible, the charities and types of charities supported by the Beneficiary during his or her lifetime. Under-Age, Disabled, and Incapacitated Beneficiaries. Under-Age Beneficiaries. 4.1.1 Trust for Under-Age Beneficiary.
66 Trusts for Senior Citizens 4.1.1.1 Management of Sub-Trusts. If any beneficiary of this Trust is under the age of 25 ( Under-Age Beneficiary ) at the time that a sub-trust is created pursuant to Section 3.2.2, such Under-Age Beneficiary shall not serve as trustee of his or her sub-trust. Instead, the Trustee named in Section 1.3 shall continue to serve as trustee for the sub-trust of such Under-Age Beneficiary, and shall manage, invest, and reinvest such sub-trust pursuant to Section 3.2.2.2. 4.1.1.2 Distribution. When such Under-Age Beneficiary reaches the age of 25, such Under-Age Beneficiary shall automatically become trustee of his or her subtrust and shall thereafter manage, invest, and reinvest the assets of such Sub- Trust pursuant to Section 3.2.2.2. If the Under-Age Beneficiary dies prior to having attained the age of 25 years: 4.1.1.2.1 The Trustee shall distribute any remaining trust income and principal in such sub-trust which is not exempt from generation-skipping tax to such other persons as the Under-Age Beneficiary shall have appointed by exercise of the testamentary power of appointment in the Under-Age Beneficiary s Last Will and Testament or a written trust instrument, or if none, to Settlor s Residuary Beneficiaries allocated pursuant to Section 3.1 and distributed pursuant to the provisions of Section 3.2.2 unless otherwise provided by Section 4.3. 4.1.1.2.2 The Trustee shall distribute any remaining trust income and principal in such sub-trust which is exempt from generation-skipping tax to the Under-Age Beneficiary s then living descendants in equal shares per stirpes, or if none, to the then living descendants of the Under- Age Beneficiary s parents, in equal shares per stirpes; or if none, to Settlor s Residuary Beneficiaries, allocated pursuant to the provisions of Section 3.2.2, unless otherwise provided by Section 4.3. 4.1.2 Distributions to 529 Accounts. In connection with the administration of the any sub-trust hereunder, the Trustee may distribute Trust funds to one or more 529 Accounts pursuant to the provisions of Section 4.2. Section 4.2 529 Accounts. 4.2.1 Distribution to 529 Account. Whenever the Trustee is holding funds for a beneficiary under Article 4, the Trustee is authorized to distribute any portion of the funds, including the whole thereof, to one or more 529 Accounts (defined in Article 7), up to the maximum lifetime contribution allowed by law. 4.2.2 Existing Account. If a 529 Account already exists for such beneficiary, then the Trustee may distribute said funds to said existing 529 Account. 4.2.3 New Account(s). 4.2.3.1 If a 529 Account does not exist, the Trustee, in the Trustee s sole discretion: 4.2.3.1.1 May establish and fund one or more additional 529 Accounts and 4.2.3.1.2 May determine who shall be named as the Owner or Contributor of each 529 Account. The Trustee may act as such, or may appoint another proper and competent adult who is able and willing to act as such.
Evan H. Farr's Irrevocable Income-Only Trust Form 67 4.2.3.2 The creation of a 529 Account shall discharge said funds from trust and from the future responsibility of the Trustee, even though the Trustee may be named as the Owner or Contributor of the 529 Account. 4.2.4 Cancellation and Penalties. Settlor understands that: 4.2.4.1 The person named as Owner / Contributor of a 529 Account may have the legal right, under the rules of the 529 program, to cancel the 529 Account at certain times and for certain reasons. 4.2.4.2 If the account is cancelled for a reason other than a qualified rollover or the plan beneficiary s death, disability or receipt of a scholarship, federal income tax may be due on the earnings portion of the refund. 4.2.4.3 Non-qualified distributions may be subject to a federal tax penalty of 10% of the earnings, reported on the federal tax return of the Owner / Contributor. 4.2.5 Distribution to Beneficiary. Section 4.3 4.2.5.1 Notwithstanding the above, Settlor intends the named beneficiary to be the actual beneficial owner of any 529 Account that has been established hereunder for that beneficiary. Accordingly, if a 529 Account established hereunder is ever cancelled, Settlor directs that all net funds remaining after said cancellation (i.e., after any taxes and penalties) be distributed to such beneficiary. 4.2.5.2 If the beneficiary is deceased, all net funds shall be distributed to said beneficiary s issue, in equal shares per stirpes. 4.2.5.3 If the beneficiary leaves no living issue, then provided it is permitted under the regulations governing that 529 program, the person named as Owner / Contributor of the 529 Account may cancel the 529 Account and redirect the net funds therein to another beneficiary, including himself or herself. Disabled and Incapacitated Beneficiaries. 4.3.1 Continuation of Trust as Special Needs Sub-Trust. If a Beneficiary of this Trust (other than Settlor) is, or at any time becomes, disabled or incapacitated as defined in Article 7 hereof, then said beneficiary ( Disabled Beneficiary ) shall be disqualified from serving as Trustee of this Trust or as Trustee of any sub-trust created pursuant to Section 3.2.2. Said Disabled Beneficiary shall also cease to be a regular beneficiary of this Trust or of any sub-trust created pursuant to Section 3.2.2. Instead, said Disabled Beneficiary s share of Trust assets shall be set aside as a Special Needs Sub-Trust ( SNT ), to be governed by the terms and provisions set forth in this Section 4.3. 4.3.2 Trustee of Special Needs Sub-Trust. 4.3.2.1 The Trustee named in Section 1.3 shall serve as trustee of the SNT for such Disabled Beneficiary ( SNT Trustee ), and shall manage, invest, and reinvest such SNT pursuant to this Section 4.3. 4.3.2.2 The SNT Trustee shall not be personally liable for any loss of public benefits provided the SNT Trustee at all times acts in good faith, reasonably consistent with the terms of this SNT. The SNT Trustee shall not be liable to any Disabled Beneficiary, to any remainder beneficiaries, or to any other party, for acts undertaken by the SNT Trustee in good faith. 4.3.2.3 Additional Assistance.
68 Trusts for Senior Citizens 4.3.2.3.1 Settlor directs the SNT Trustee to seek the counsel and assistance of the guardian or conservator of any Disabled Beneficiary, or of any state or local agencies which are established to help disabled or incapacitated persons. The SNT Trustee may also seek professional assistance in identifying programs that may benefit a Disabled Beneficiary, including without limitation enhancement of social, financial, developmental, or educational skills. The SNT Trustee shall not be liable for failure to identify all programs or resources that may be available to a Disabled Beneficiary. 4.3.2.3.2 The SNT Trustee is authorized to solicit the advice and retain the services of any persons or organizations the SNT Trustee deems advisable to protect the integrity of the SNT and/or for the benefit of a Disabled Beneficiary. Such persons or organizations may include, without limitation, attorneys, accountants, investment advisors, daily money managers, care managers, social workers, life care planners, psychologists, psychiatrists, and any other appropriate advocates, agents, or health care professionals. Any expenses of the SNT Trustee in this regard shall be a proper charge to the SNT, and shall not decrease the compensation of the SNT Trustee. 4.3.2.3.3 If the SNT Trustee is not a special needs planning attorney, then at least annually the SNT Trustee should consult with an experienced special needs planning attorney to review changes in state and federal legislation and regulations, and to ensure that a Disabled Beneficiary s public benefits eligibility is not inadvertently jeopardized by actions taken or distributions made by the SNT Trustee. 4.3.3 Purpose of Special Needs Sub-Trust. 4.3.3.1 The SNT s purpose is to supplement, but not supplant, whatever benefits and services the Disabled Beneficiary may be eligible to receive from time to time by reason of age, disability, incapacity, or other factors, from federal, state, and local governmental and charitable sources. It is understood and acknowledged that governmental and charitable programs, in themselves, contain many gaps that, if unaddressed, will greatly reduce the possibility of the Disabled Beneficiary s maintaining himself/herself as independently as possible and having the capacity to meet his/her future needs. 4.3.3.2 Settlor intends that the SNT be used in ways that will best enable the Disabled Beneficiary to lead as normal, comfortable, and fulfilling a life as possible. 4.3.4 Special Needs Defined. As used herein, special needs refers to the requisites for maintaining the Disabled Beneficiary s comfort and happiness when, in the Trustee s discretion, such requisites are not being provided by any public agency, office, or department of the Disabled Beneficiary s state of residence or of any other state, or of the United States. Special needs includes, but is not limited to: 4.3.4.1 Medical and Dental Care. Medical, dental or diagnostic work or other treatment for which funds are not otherwise available, including, but not limited to, cosmetic or plastic surgery or other non-necessary medical procedures, dental braces, dentures, optical care, eyeglasses, non-traditional or experimental medical treatments or procedures, private rehabilitative care, and psychological or psychiatric therapy.
Evan H. Farr's Irrevocable Income-Only Trust Form 69 4.3.4.2 Training. Training, education, treatment, and rehabilitation programs and services. 4.3.4.3 Professional Services. Costs for the services of care managers, geriatric care manager, registered or practical nurses, aides or caregivers, attorneys, and accountants, and other appropriate professional service providers. 4.3.4.4 Personal and Entertainment Services. Costs of recreation, including vacations and attending family gatherings, theatrical performances, films, festivals, athletic contests and similar events; electronic equipment including but not limited to cordless telephones, audio or video equipment of all kinds, video game consoles and software, televisions, computer equipment, and appropriate broadcast, cable, subscription, or wireless services required to use the equipment. 4.3.4.5 Transportation and Mobility Services. Costs of transportation, such as purchase of a new or specially equipped vehicle or other transportation device, modification of an existing vehicle, wheelchairs and other ambulatory aids, ramps, and lifts. 4.3.4.6 Other. Costs of any other non-essential items that may serve to enhance the Disabled Beneficiary s comfort or well-being. 4.3.5 Use of Trust Assets and Income. 4.3.5.1 The Trustee of this SNT may distribute so much income and principal of this SNT for the benefit of the Disabled Beneficiary as the Trustee may, in the Trustee s sole and absolute discretion, determine in order to provide for the special needs of the Disabled Beneficiary as defined above. Sometimes, the Trustee may choose to make no distributions at all. 4.3.5.2 No part of the assets or income of this SNT shall be used to supplant or replace or reimburse public assistance benefits of any county, state, federal or other government agency that has a legal responsibility to serve persons with disabilities which are the same as or similar to those of the Disabled Beneficiary. This includes, but is not limited to, Supplemental Security Income and Medicaid. For purposes of determining the Disabled Beneficiary s eligibility for any such benefits, no part of the principal or income of the SNT shall be considered available to the Disabled Beneficiary. 4.3.5.3 All the terms of this trust, wherever they may appear, shall be interpreted to conform to this primary goal, namely that the Disabled Beneficiary continue to receive the maximum level of governmental assistance for which the Disabled Beneficiary is eligible. 4.3.5.4 If the Trustee is requested to release principal or income of the SNT on behalf of the Disabled Beneficiary to pay for equipment, medication or services which a government agency is authorized to provide (were it not for the existence of this SNT), or if the Trustee is requested to petition the court or any other administrative or judicial agency for the release of SNT principal or income for this purpose, the Trustee is authorized to deny such request and is authorized, in the Trustee s discretion, to take whatever administrative or judicial steps are necessary to continue the Disabled Beneficiary s eligibility for benefits, including obtaining instructions from a court of competent jurisdiction ruling that the SNT corpus is not available to the Disabled Beneficiary for eligibility purposes, and obtaining judicial reformation of the SNT if necessary. Any
70 Trusts for Senior Citizens expenses of the Trustee in this regard, including reasonable attorney s fees, shall be a proper charge to the SNT. 4.3.5.5 Notwithstanding the foregoing provisions, if the Trustee, in the Trustee s sole and absolute discretion, determines after consultation with a Certified Elder Law Attorney that it is in the best interest of the Disabled Beneficiary to provide some amount of in-kind support and maintenance (i.e., food and/or shelter) to the Disabled Beneficiary, then the Trustee may do so, in the Trustee s sole and absolute discretion. 4.3.5.6 In making any distribution hereunder, the Trustee shall be guided by the following distribution guidelines: 4.3.6 Termination. 4.3.5.6.1 Consideration of all income and resources known to the Trustee and reasonably available to the Disabled Beneficiary; 4.3.5.6.2 Consideration of all available benefits from any government agency, such as Supplemental Social Security Income (SSI), Medicaid, Social Security Disability Income (SSDI), Food Stamps, Medicare, and other special purpose benefits for which the Disabled Beneficiary is eligible; 4.3.5.6.3 Consideration of the resource and income limitations of all applicable assistance programs; 4.3.5.6.4 Striving to make expenditures to provide a comfortable standard of living for the Disabled Beneficiary, though not being obligated or compelled to make such expenditures. 4.3.6.1 The SNT shall terminate upon the Disabled Beneficiary s death. 4.3.6.2 At termination of this SNT, the Trustee shall wind up the affairs of the SNT before making distribution, to include, without limitation, paying for the Disabled Beneficiary s funeral and burial expenses, providing a final written Trustee s report, and completion of other duties and filing of documents associated with normal trust termination, including preparation of the final trust fiduciary income tax return. 4.3.6.3 After winding up the SNT, the Trustee shall allocate the remaining principal and any accrued or collected but undistributed income pursuant to Section 3.1 and shall distribute the same pursuant to the provisions of Section 3.2.2 hereof. 4.3.7 Early Termination or Non-Formation. Article 5 4.3.7.1 If at any time the principal of any SNT created hereunder is less than $100,000.00, in the Trustee s sole discretion the Trustee may distribute the entire principal of the SNT and all accrued and undistributed income to a thirdparty pooled special needs trust, whereupon the SNT created hereunder shall thereupon terminate. 4.3.7.2 If, at the time of the initial anticipated funding of any SNT to be created hereunder, the principal to be funded is less than $100,000.00, then in the Trustee s sole discretion the Trustee may, instead of creating the SNT hereunder, distribute said amount to a third-party pooled special needs trust. Powers and Duties of Trustee
Evan H. Farr's Irrevocable Income-Only Trust Form 71 Section 5.1 Appointment and Resignation. 5.1.1 Appointment of Successor Trustee. 5.1.1.1 Appointment by Surviving Trustee. 5.1.1.1.1 If only one Trustee of this Trust, or of any Sub-Trust or Trust Share created under this trust instrument, is alive ( Sole Surviving Trustee ), said Sole Surviving Trustee may name a new Successor Trustee, which new Successor Trustee, when acting as Trustee, shall have all powers, immunities, and discretions given to the initial Trustees and any Successor Trustees named in the trust instrument, specifically including this right to name additional Successor Trustees. 5.1.1.1.2 Upon the death or resignation of the Sole Surviving Trustee, the appointed Successor Trustee shall be deemed to be in office and entitled to act as Successor Trustee with all powers, immunities, and discretions given to all Trustees named in the trust instrument. 5.1.1.2 Appointment by Beneficiaries. If at any time no Trustee or Successor Trustee named in this trust instrument is willing and able to serve, the Beneficiaries may appoint a Successor Trustee. The Trustee so selected may be a corporate Trustee, not subject to the control of any Trust Beneficiary, either directly or by attribution as set forth in the relevant sections of the Code. 5.1.1.2.1 If Trust shares have not been divided, then the votes allowed to each Beneficiary shall be in proportion to the size of such Beneficiary s individual Trust share in relation to the size of the Trust assets as a whole, counting all Trust shares together. 5.1.1.2.2 If Trust shares have been divided, then each Beneficiary who is not subject to the restrictions in Article 4 (or the guardian or custodian of each Beneficiary who is subject to the restrictions in Article 4) shall be empowered to name a Successor Trustee for that Beneficiary s share if he or she so chooses, in his or her sole discretion. 5.1.2 Appointment of Independent Trustee. 5.1.2.1 Notwithstanding any other provision in this Trust Agreement, no individual Trustee who is also a Beneficiary hereunder ( Trustee-beneficiary ) shall have any right, power, duty or discretion concerning the Trust Estate if such right, power, duty or discretion conferred upon such Trustee-beneficiary under this Trust Agreement would constitute a general power of appointment under Code Section 2041 or 2514 that would cause any assets of this Trust to be included in the estate of such Trustee-beneficiary. Any such right, power, duty or discretion with such effect shall be null and void with respect to such Trustee-beneficiary. No Trustee who is under a legal obligation to any Trust Beneficiary or other person shall under any circumstances partake in any decisions relating to any discretionary distributions of income or principal of the Trust that can be used to discharge any such legal obligation of such Trustee. 5.1.2.2 If however, such powers may be possessed without violating the restrictions imposed by this Section by either the Trustee jointly with an Independent Trustee, or by an Independent Trustee alone, then the Trustee may appoint an
72 Trusts for Senior Citizens Independent Trustee who may possess those powers and authorities without violating this Section. Such an Independent Trustee may act jointly with the Trustee whenever the joint possession of a power or authority would not violate the restrictions imposed by this Section. Such an Independent Trustee shall act alone whenever only sole possession of a power or authority would not violate the restrictions imposed by this Section. 5.1.2.3 If the appointment of an Independent Trustee is necessary (for example to provide for a fiduciary to exercise powers which would otherwise cause the inclusion of a portion or all of this Trust in the estate of a named or appointed Trustee), and no named Co-Trustee or Successor Trustee is available to serve in that capacity, then the appointment of the Independent Trustee shall proceed as follows: 5.1.2.3.1 A matter for decision by an Independent Trustee shall be presented to the Independent Trustee in writing by another Trustee, stating the decision to be made and the provision of this trust instrument which prevents the existing Trustee from acting in the existing Trustee s own right. 5.1.2.3.2 The Independent Trustee shall not be responsible for any decision made hereunder by any other Trustee, but shall only be responsible for decisions made by said Independent Trustee. 5.1.2.3.3 If the Independent Trustee is appointed to prevent the inclusion of all or a portion of the Trust estate in the estate of a named or appointed fiduciary, that fiduciary shall not participate in the appointment of the Independent Trustee. 5.1.2.3.4 If no Trustee is available to appoint an Independent Trustee, the Trust Beneficiaries shall select an Independent Trustee by majority vote. If no majority vote can be achieved, or if no Beneficiaries may vote for the selection of an Independent Trustee without causing the inclusion of all or a portion of the Trust estate in such Beneficiary s estate, or if a majority of the Beneficiaries agree, the Trustee shall make application to a court of competent jurisdiction for the appointment of an Independent Trustee. 5.1.2.4 It is not Settlor s intent to subject the Trust to the oversight of any court or other entity, and the mere appointment of an Independent Trustee to determine a specific issue shall not subject the Trust or the appointed Independent Trustee to the temporary or permanent jurisdiction of that court or any other governmental or other entity. 5.1.3 Merger or Acquisition of Corporate Trustee. If any bank, trust company or similar institution serving as Trustee merges with or is acquired by another entity, the corporate successor entity shall automatically be substituted as Trustee hereunder. 5.1.4 Resignation of Trustee. Any Trustee may resign at any time by giving at least thirty (30) days advance written notice of said Trustee s intention to do so, such notice to be delivered in person, by certified mail, or by overnight delivery service to the remaining Trustee or, if none, then to the Successor Trustee and at least one Qualified Beneficiary. 5.1.5 Successor Trustee Not Responsible for Actions of Prior Trustee. No Successor Trustee named herein shall be responsible for, or shall be required to inquire into, any fiduciary actions occurring prior to said Successor Trustee s appointment as Trustee hereunder. No
Evan H. Farr's Irrevocable Income-Only Trust Form 73 Section 5.2 Successor Trustee shall incur any liability for the acts or omissions of any predecessor Trustee by reason of qualifying as a Trustee hereunder. Administrative Matters. 5.2.1 Disclaimer of Powers. A Trustee may disclaim, release, or restrict the scope of any power held in connection with the Trust or any sub-trust, including any administrative power, whether such power is expressly granted by this trust instrument or granted or implied by law. Such a disclaimer, release, or restriction shall be accomplished by written instrument specifying the power to be disclaimed, released, or restricted, and the nature of any such restriction. The Trustee may then appoint an Independent Trustee or Co-Trustee who may exercise any such power that the Trustee has disclaimed, released, or restricted. 5.2.2 Disqualification in Certain Circumstances. 5.2.2.1 Notwithstanding anything to the contrary contained herein, if any current or possible future beneficiary of any trust created hereunder is acting as Trustee hereunder, such person shall be disqualified from: 5.2.2.1.1 Exercising any power to make any discretionary distributions of income or principal to himself or herself (unless the discretion to make such distributions is limited by an ascertainable standard within the meaning of Code Section 2041(b)(1)(A)), or to satisfy any of his or her legal obligations, or 5.2.2.1.2 Making discretionary allocations of receipts or disbursements as between income and principal. 5.2.2.2 No Trustee who is a current or possible future beneficiary of any trust hereunder shall participate in the exercise of any powers of the Trustee which would cause such beneficiary to be treated as the owner of trust assets for tax purposes. 5.2.3 No Bond Required. No bond, surety, or other security shall be required of any Trustee specifically named herein for the faithful performance of the duties of Trustee, notwithstanding any law of any State or other jurisdiction to the contrary. 5.2.4 Liability. No Trustee shall be liable for acts or omissions in administering the Trust or any sub-trust created by this trust instrument, nor for the acts or omissions of any agent appointed hereunder with due care, except for that Trustee s own actual fraud, gross negligence or willful misconduct. If any Trustee, as Trustee, becomes liable to any other person who is not a beneficiary in connection with any matter not within the Trustee s control and not due to the Trustee s actual fraud, gross negligence or willful misconduct, such Trustee shall be fully indemnified and held harmless by the Trust and any sub-trust created hereunder giving rise to such liability, as the case may be, against and in respect of any damages that such Trustee may sustain, including, without limitation, attorneys fees. No Trustee shall be liable for tax elections made under Code Sections 2032A, 2033A, and 2031(c), and the agreements relative thereto, if such elections were made in good faith, in the Trustee s determination of the best interests of the Trust and the Beneficiaries. 5.2.5 Compensation. 5.2.5.1 Expenses. All Trustees are entitled to reimbursement for expenses incurred on behalf of the Trust and any sub-trust or trust share established under this trust instrument. 5.2.5.2 Individual. Any individual serving as Trustee shall be entitled to, but may