EFTA01175280.pdf

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Pehtibnera ••• ;46 illAigthi#4 0; 046i*O0'i'"fi* - . ttISA mi:ighilf0**104;.L110434DR. • -; 21: • A.F.,JANDFOtAPIW.ONI; T4DAZAkAR*11!1szaais* as • 28 ;;.•:; .•• 1 -‘ •:': EFTA01175280 Mar-Z -Z012 11:33 AM Academic Affairs 9728836764 2/11 • 1 Guardian Ad Litem for the issue of ELISA ZAFFARONI who may later be born or adopted 2 by her; David Packard appeared on behalf of VERA SPRINKEL, the Conservator of the 3 Estate of ELISA ZAFFARONI; and Michael Ennuiein appeared on Kehalf of 4 ALEJANDRO PETER ZAFFARONI and CHARLES ALEJANDRO ZAFFARONI. Them 5 were no objections to the petition. 6 Through their verified petition, the Trustees seek the following orders: (1) the 7 division of the Trust into separate On Fxrmpt and GST Non-Exempt Trusts; (2) the 8 clarification and modification of the distribution standard during ELISA ZAFFARONPs 9 lifetime; (3) the ratification of the one-time principal distribution of the Tiburon house 10 purchase price to ELISA ZAFFARONI; (4) a determination of the identity of the remainder 11 beneficiaries of the Trust; (5) the modification of the Trust to require that a corporate 12 Trustee serve at all times as a Co-Trustee, to appoint J.P. MORGAN TRUST COMPANY, 13 N.A. as the initial corporate and third Co-Trustee to serve with Petitioners,'and to clarify 14 the procedure for appointing future successor Trustees; (6) the modification of the Trust to 15 permit retention of a limited partnership interest without liability; (7) the confirmation of 16 the waiver of accounting by the Trustees, if filed by the beneficiaries; and (8) the release of 17 the current Co-Trustees from liability in connection with the Trust, if approved by the 18 beneficiaries. Having considered the papers and evidence submitted by the parties and the 19 arguments of counsel, and for good cause appearing, the Petition is GRANTED, as set forth 20 below. 21 FINDINGS 22 1. Jurisdiction and Venue. The Court has jurisdiction over this matter 23 pursuant to California Probate Code §§15409, 15412, 16464, 16465 and 17000, 24 17200(b)(1), (b)(10), (bX13), and (bX14), providing for the Court's jurisdiction over the 25 internal affairs of the Trust, determining questions of construction of the Trust, approving 26 the modification of the Trust and dividing the Trust, and approving waivers of accounting 27 and releases of Trustee liability. Venue is proper in this Court under California Probate 28 70116123Sv3 - 2- ORDER AFFROU1NO MODIFICATION OF TRUST EFTA01175281 Mar-22-2012 11:33 AM Academic Affairs 9728836764 3/11 I Code section 17005(a)(2) because San Mateo County is the principal place of the Trust's 2 administration. 3 2. Notice•. The Court finds that Notice has been given in the manner prescdbed 4 by law. 5 3. Allegations are True and Correct. All allegations in the Petition are true 6 and correct 4. Specific Findinkre Trustees' Intent with Respect to Distributions. The 8 Court specifically finds as follows with respect to the Trustees' intent to determine the 9 amount of the income beneficiary's distributions: 10 Because the Trust is an ideal candidate for adjusting principal and income, the 11 Trustees intend to determine the amount of annual distributions to ELISA using the 12 following procedure: 13 a. Each year, Petitioners and the institutional Trustee (e.g., J.P. 14 MORGAN TRUST COMPANY, N.A.) shall determine the amount of "aggregate income 15 of the Trusts" available to fund discretionary distributions to ELISA from either the GST 16 Exempt Trust or the .CIST Non-Exempt Trust They intend to do so by multiplying the 17 mean average of the fair market.value of aggregate assets of the Trusts (as determined in 18 accordance with general standards used for gift and estate tax valuation purposes without 19 regard for any possible discotmts that, may be allowed for fractional interests or lack of 20 marketability) as of December 31 for each of the three preceding calendar years by the 21 percentage of annual asset value that J.P. MORGAN CHASE HANK (the corporate parent 22 of J.P. MORGAN TRUST COMPANY, NA), or other institutional Trustee then serving, 23 determines that it should use under principal and income adjustment powers available when 24 acting as trustee of taxable trusts subject to the Uniform Principal and Income Act or 25 comparable statues (the "Adjustment Percentage"). Pi 26 27 PI For example, to determine the Adjusted Distribution Ceiling for distributions to be made to PISA ur calendar year 2009, before March I, 2009 the Trustees will determine the 28 mean average of the fair market value of the combined. Trust estate as of December 31, (continued...) 7011612.1iv3 -3- ORDER APPROVING MODIFICATION OF MUST EFTA01175282 Mar-22-2012 11:34 AM Academic Affairs 9728836764 4/11 1 The resulting product (which may be pure income only, or may be income 2 augmented by principal which is "adjusted" into income). which may also be referred to as 3 the "Adjusted Distribution Ceiling," shall be the maximum amount of funds the Trustees 4 may distribute to ELISA that calendar year from both Trusts. The patties have agreed that 5 in no event shall the Adjusted Distribution Ceiling drop below 3.0 percent. The product 6 shall be pro-rated for the initial year of this procedure. For the information of the Court, 7 J.P. MORGAN CHASE BANK set the Adjustment Percentage at 3.0% for 2008, with no 8 trustee's fees being charged against that 3.0% payout. In other words, for taxable trusts 9 invested under the Prudent Investor Rule and CUPIA for total maximum return, in selected 10 circumstances J.P. MORGAN CHASE BANK as trustee adjusted principal and income so 11 that "income" beneficiaries would receive 3.0% of the aggregate fair market value of the 12 GST Exempt Trust and the GST Non-Exempt That; and in those situations, J.P. MORGAN 13 CHASE BANK charged trustee's fees entirely to principal, so the 3% payout to the • 14 beneficiary was not reduced by trustee's fees. 15 It is anticipated that the funding of discretionary distributions of aggregate net 16 income of the Trusts pursuant to the standard set forth above win be made first from the 17 GST Non-Exempt Trust to the extent practical and then from the GST Exempt Trust In no 18 event will aggregate discretionary distributions from the Trusts exceed the Adjusted 19 Distribution Ceiling. 20 J.P. MORGAN CHASE BANK determines the Adjustment Percentage early each 21 calendar year for which an adjustment is to be made. The Trustees therefore intend to give 22 notice to the trust beneficiaries of the amount of the Adjusted Distribution Ceiling by 23 March 1 of each calendar year for which an income and principal adjustment is to be made, 24 under the procedure described for giving Notice of Proposed Action under California 25 (...continued) 26 2006, 2007 and 2008. They will then multi y that average dollar value by the percentage of annual asset value that J.P. MORGAN C BANK (or other institutional Trustee 27 then saving) determines that it should use for calendar year 2009 under principal and income adjustment powers available when acting as trustee of taxable trusts subject to the 28 Uniform Principal and Income Act or comparable statutes. 701I6123tv3 -4- ORDER APPROVING MODIFICATION OF TRUST EFTA01175283 Plar-22-Z012 11:34 AM Academic Affairs 9728836764 5/11 I Probate Code Section 16337. Until the time for objecting to such Notice has lapsed, the 2 Trustees will use the Adjusted Distribution Ceiling from the prior calendar year, and 3 subsequently credit (or charge) the beneficiary for any underpayments (or overpayments) 4 made that year before the new Adjusted Distribution Ceiling is determined. 5 b. Prior to January 1st of each year, ELISA's conservator will submit to 6 the Co-Trustees an annual estimate of her anticipated general maintenance, support, health 7 and educational needs, detailed on a monthly basis. If no conservator is then serving, the 8 estimate will be submitted by ELISA. 9 The Trustees will review ELISA's budget to determine the amount of cash 10 necessary or advisable for her general maintenance, support, health or education, including 11 college, graduate and professional education, taldng into consideration the factors described 12 inArticle SECOND as modified by this Court and also retaining an appropriate reserve for 13 extraordinary medical or other unanticipated expenses falling within the standard for 14 distributions set forth above. The Trustees shall then distribute to ELISA's conservator or 15 expend directly. for her benefit the amount so determined in monthly or other convenient 16 installments from the GST Non-Exempt That and then the GST Exempt Trust as described 17 above. If such distributions are less than net accounting income, the Trustees shall add the 18 excess to principal of the Trust no less than annually. If the amount determined to be 19 necessary or advisable for the maintenance, support, health or education of ELISA and her 20 unanticipated expenses exceeds the Adjusted Distribution Ceiling established by the 21 Trustees for that calendar year, then the Trustees shall distribute no more than the Adjusted 22 Distribution Ceiling, with ELISA making up any shortfall from her personal assets. 23 24 ORDERS 25 FOR GOOD CAUSE APPEARING, IT IS HEREBY ORDERED THAT: 26 1. Modifications to Trust. Probate Code Section 15409 empowers the Court 27 to modify the administrative or dispositive provisions of a Milt on petition by the trustee if 28 70116123M ORDER APPROVING MODIFICATION OFTROST EFTA01175284 nur- cc-cUIC 11:JD AM Academic Affairs 9728836764 6/11 C I • ated by the settler, the 1 "owing to circumstances not known to the senior and not anticip impair the 2 continuation of the trust raider its terms would defeat or substantially se in the value of the 3 accomplishment of the purposes of the trust" The enormous increa in the tax and trust law, justify 4 Trust since its inception, coupled with intervening changes the Trust's ability to accomplish its 5 modifying the terms of the Trust without jeopardizing ELISA ZAFFARONL For 6 primary goal of providing significant benefits for the lifetime of n of the Trustees, the 7 good cause appearing for the reasons set forth in the verified petitio t of ELISA ZAFFARONI 8 Irrevocable Trust Agreement dated April 15, 1989 for the benefi 9 is hereby modified as follows: . 10 a. Division into GST Exempt and GST Non-Exempt Trusts, The a GST Non-Exempt Trust in 11 Trustees shall divide the Trust into a GST Exempt Trust and n 2642(aX2)) of the 12 accordance with the applicable fraction (as defined in 1RC Sectio ng trust will have terms identical 13 original trust alit is finally determined. Each such resulti Order. 14 to. the original Trust, as modified pursuant to the terms of this 15 b. Modification of Distributloppandayd During ELISA, as follows: 16 ZAFFARONI's Lifeete. Article SECOND is hereby modified to 17 "During the lifetime of ELISA ZAFFARONI, the Trustees shall pay or apply for the benefit of ELISA ZAFFARONI and any of her issue "aggregate la (as defined in the following paragraph) so much of the ary or income of the Trusts" as the Trustees shall determine necess 19 advisable for the maintenance, support health or educa tion, including of ELISA ZAFF ARONI Y0 college, graduate and professional education, paragr aph), provid ed and any of her issue (as defined in the following the legal 21 that no payments shall be made so as to relieve anyone of pt Trust or obligation to support a beneficiary of either the GST Exem " as 22 the GST Non-Exempt Trust "Aggregate income of the Trusts mean combi ned trust incom e of used in the preceding sentence shall 23 GST Exem pt Trust determ ined on the GST Non-Exempt Trust and the e after applyi ng the CUPI A 24 an aggregate basis by the corporate Truste 16335 -1633 9. The adjustment powers under Probate Code Sections nt under the 25 determination as to the necessity and amount of any payme .source foregoing standard, and the GST Exempt or GST Non-Exempt tion of 26 of such payment shall be made in the sole and absolute discre the Trustees and in light of the needs and best intere sts of the the 27 beneficiaries and all of the circumstances existing at the time of of each 28 determination, including the size and composition of the assets 701161235v5 ORDER APPROVING MODIFICATE0N OF TRUST EFTA01175285 nur- cc-cUIC 11:JD AM Academic Affairs 9728836764 7/11 C.' 1 trust estate, the probable future needs of the beneficiaries, other resources available to the beneficiaries as actually known to the 2 Trusters and the immediate and long-term tax impact of any ue distribution. The corporate Trustee's adjustment power shall contin .3 in the event California law changes as it relates to the genera l pal 4 provisions and fiduciary duties under the California Uniform Princi and Income Act (Probate Code Sections 16335-16339, inclus ive and S such provisions are incorporated herein by reference). Implicit in the foregoing, and intended by the Trustors, is the authority of the t 6 Trustees to vary the amount of income to be paid to or for the benefi of any of the beneficiaries, and to withhold payments from all of them or from one or more of them. Any income not distributed may be 8 accumulated and from time to time added to the principal of each Trust, in the Trustees' sole and absolute discretion. In no event shall 9 total distributions from the GST Exempt Trust and the GST Non- Exempt Trust in any year emceed Aggregate Income of the Trusts (as 10 defined above) for such year. pc -11‘t t ut ou.4 o.trAok wri AP ...Atonic Yr 1c Vona-, 11 For purposes of this Agreement, references to a person's "child" or and (2) "children" shall include only (1) such person's natural children 12 all of the follow ing condit ions children adopted by such person where are satisfied: (a) the adoption occurred under the laws of the State of 13 years of age at the California; (b) the child was under eighteen (18) 14 time of the adoption; (c) a California court issued an order approving the adoption; and (d) the child lived while a minor as a regular 15 member of the household of such adoptive parent References to a 16 person's "grandchild" or "grandchildren" shall refer only to children to of a child of such person as defined in this paragraph and references n shall refer only to 17 a person's great-grandchild or great-grandchildre nces to a children of a grandchild as defined in this paragraph. Refere 18 person's "issue" shall include only persons who qualify as such person's children, grandchildren or great-grandchildren as defined in 19 this paragraph, and more remote descendants." 20 to c. Order Ratifying Trustees' Ove-Time Principal Distribution 2l ution in ELLSA ZA/P ARONL For good cause appearing, the Trustees' one-time distrib 22 ZAFFARONI to purchase a December, 2000, of $4.1 million in principal to enable ELISA 23 ed. It is further residence in Tiburon, California, is hereby ratified, allowed and approv 24 aph A, prior to the ordered that Article Third of the trust is modified so that Paragr 25 enumerated sub-paragraphs 1-3, reads as follows: 26 to the "A. The Trustees shall fiat distribute in trust collectively brothe r ALEJ ANDR O A. 27 surviving issue of Fl ISA ZAFFARONTs ZAFFARONI, if any, by right of representation, the lesser of (1) the the 28 sum of $4,100,000.00 as adjusted for the cost of living (using "'num.'s -7 ORDER APPROVING MODIFICATION OF TRUST EFTA01175286 Mar-22-2012 11:36 AM Academic Affairs 9728836764 8/11 1 Consumer Price Index, All Urban Consumers (all items) — San Francisco — Oakland — San Jose, California; December, 2000: 184.1) 2 from December 5, 2000 until the date of death of ELISA ZAFFARONI, and (2) the entire trust estate, and shall hold, administer 3 and distribute such in trust according to the terms set forth below in .4 this Article THIRD (A) and following, except that whenever the name of ELISA ZAFFARONI appear; the name of ALEJANDRO A. 5 ZAFFARONI, her brother, shall appears so that, in effect, his issue shall be the beneficiaries of such trusts. If there are no such surviving 6 issue, then this first distribution shall lapse. The Trustees shall divide 7 the remaining trust estate (or all of the trust estate if there are then no surviving issue of ALEJANDRO A. ZAFFARONI) into as many equal 8 shares as there are children of ELISA ZAFFARONI then living and children of ELISA ZAFFARONI then deceased who have left issue 9 then living, and shall hold, apply and distribute said shares as follows:" 10 d. Order Appointing Corporate Co-Trustee and Modifying Trust to 11 Add Corporate Trustee as Third Co-Trust% For good cause appearing, J.P. MORGAN 12 TRUST COMPANY, N.A. is appointed to serve as Co-Trustee with Petitioners. Petitioners 13 will retain exclusive authority to make discretionary distribution decisions, and J.P. 14 MORGAN TRUST COMPANY, N.A. will have exclusive authority with regard to 15 administrative matters (including the CUPIA adjustment powers) and all investment 16 decisions. It is further ordered that Ankle NINTH of the 'Dust is hereby amended in full 17 as follows: 18 "1411,11H: The Trusteeship shall be subject to the following 19 provisions: 20 A corporate fiduciary and two individuals shall at all times A. 21 serve as Co-Trustees of this Trust. A Court of competent jurisdiction shall initially appoint the corporate fiduciary 22 authorized by law to act as such in the State of California to serve as a third Co-Trustee of the Trust. Any successor 23 corporate fiduciary serving as Co-Trustee of the Trust shall be a company of comparable standing and adequate capitalization 24 and security as the original corporate Co-Trustee. 25 B. Any successor individual Trustee shall have the right to 26 appoint his or her successor (minding a series of alternative successors) with the power to revoke anysuch appointment 27 prior to the qualification of his or her successor and to make a new appointment Thereafter, upon the failure of the 28 appointing individual Trustee to act, the appointed individual /0116123S4 -8- ORDER APPROVNG MODIFICATION OF TRUST EFTA01175287 Mar-ZZ-ZU1Z 11:36 AM Academic Affairs 9728836764 9/11 ( 1 shall become a successor Trustee. Upon the failure of any individual Co-Trustee to act without appointing a successor 2 who agrees to act, a successor Trustee thereto may be appointed by the remaining individual Co-Trustee, or jointly by 3 remaining individual Co-Trustees if more than one Co-Trustee 4 then remains. Upon failure of the individual Co-Trustees to act without a successor Trustee having been appointed pursuant to 5 the foregoing provisions, a majority of the beneficiaries then entitled to receive income from the trust estate (including the 6 guardian(s) or conservators) of any minor or incapacitated beneficiaries) shall have the right to appoint a successor 7 Trustee. Any appointment of a successor trustee by a majority 8 of beneficiaries shall require the approval of the Court. If two successors have been appointed to fill the same vacancy (because, for example, one individual Trustee appoints a first 10 and a second successor to herself, then ceases to serve; her first successor appoints a different person to serve as successor to 11 the first successor; and the first successor ceases to serve, so 12 there is a conflict between the original trustee's "second successor" and the first successor's own successor), then the 13 appointment which is lqter in time shall take precedence over earlier appointments. .14 C. The individual Co-Trustees, acting jointly, shall alone have the i5 right to appoint a successor corporate Co-Trustee should a vacancy in the office of corporate Co-Trustee exist for any 16 reason. At that time, the individual Co-Trustees shall designate 17 a company of comparable standing and adequate capitalization and security as I.P. MORGAN TRUST COMPANY, N.A., 18 now has. ELISA ZAFFARONI shall be given thirty (30) days from the date of such designation to consent to such 19 designation. Should she do so in writing delivered to the 20 individual Co-Trustees, such designated successor corporate Trustee shall serve upon the effective date of removal or 21 resignation of the prior corporate Trustee in office. Should ELISA ZAFFARONI fail for any reason to consent to such 22 designation within thirty (30) days, the individual Co-Trustees shall, within thirty (30) days thereafter, petition the appropriate 23 Court for appointment of a successor corporate Trustee. 24 D. Any Trustee may at any time resign from any trust hereby 25 established by depositing in the United States mail, postage prepaid, a notice of such resignation addressed to any other 26 Trustee then acting and to the persons or person then entitled to receive payments hereunder at the addresses of suchpersons or 27 person last known to the Trustee. The resignation of an • individual Co-Trustee shall take effect on the first to occur of 28 70116123W ORDER APPROVING MODIFICATION OF TRUST EFTA01175288 Mar-22-2012 11:37 AM Academic Affairs 9728836764 10/11 C. I the following: (i) the acceptance by the remaining Trustees of such resignation; (ii) the appointment and qualification of a 2 successor individual Trustee; or (iii) the expiration of sixty (60) days from the date of mailing such notice. The resignation of 3 the corporate Co-Trustee shall take effect upon the effective 4 appointment of a successor corporate Co-Trustee. 5 E The corporate fiduciary may be removed at any time, with or without nine, by written notice, signed by both non-corporate 6 Trustees, delivered to the corporate fiduciary at least thirty (30) days from the effective date of the removal. At the time of 7 delivering notice of removal, the non-corporate Trustees then 8 in office shall designate a company of comparable standing and adequate capitalization and security as the successor corporate 9 Trustee, using the procedure described in Paragraph C above (including seeking the consent of ELISA ZAFFARONI to the 10 appointment). 11 F My appointment of successor trustee shall be by written instrument executed by the person or persons entitled to make 12 such appointment and delivered at the time of the actual 13. appointment to the person appointed and to the remaining Trustee or Trustees then acting. 14 G. My successor Trustee shall serve without bond unless the . 15 terms of the appointment require bond. 16 H. Any successor Trustee, however appointed, shall be 17 responsible only for those taut assets actually received, and shall have no duty or responsibility to inquire into the acts or • I8 omissions of any predecessor Trustee. All powers exercisable by the Trustees are exercisable by any successor Trustee or 19 Trustees. 20 L In no event shall the Trustors or any beneficiary of a trust established hereunder be appointed to serve as a Trustee of any 21 trust established hereunder. • 22 J. At all times when a corporate Co-Trustee is serving, the 23 corporate Co-Trustee shall account annually, in its usual accounting format, to any person then entitled to distributions 24 of income from the Trust, and to any person who would then be a remainder beneficiary if the income beneficiary were then 25 deceased. 26 K. The corporate Co-Trustee shall be responsible for 27 administrative and investment matters, and shall have exclusive authority with respect to the determination of income under the 28 CUPIA adjustment powers. The individual Co-Trustees shall t I6l23rv3 - 10 - ORDER APPROVING MODIFICATION OF TRUST EFTA01175289 Mar-22-2012 11:37 AM Academic Affairs 9728836764 11/11 1 have responsibility for making discretionary distributions to the beneficiaries Nothing in this paragraph, however, shall allow 2 if the individual Co-Trustees to distribute sums during ELISA ZAFFARONI's lifetime which exceed in any. calendar year, the 3 'Adjusted Distribution Ceiling" for that year. As used here, ?tut, 'Adjusted 4 *4 the "Adjusted Distribution Ceiling" shall mean the amount of "aggregate income of the Trusts" available to fund 5 discretionary distributions to ELISA ZAFFARONI from either the GST Exempt Trust or the GST Non-Exempt Trust, 6 determined by multiplying the mean average of the fair market value of aggregate assets of the Trusts (as determined in 7 accordance with general standards used for gift and estate tax 8 valuation purposes without regard for any possible discounts that may be allowed for fractional interests or lack of 9 marketability) as of December 31 for each of the three preceding calendar years by the percentage of annual asset 10 value that the institutional Trustee then serving determines that