Trusts - Annual Exclusion (Gift) Trusts

Client Letter -

What this idea is about

Purpose

Who This Applies to

When to Perform

Special Circumstances

Why This Is Important

General Benefits & Objectives

All the trusts formed to qualify for the annual exclusions must be drafted to allow the beneficiary to draw at a minimum, the income from the trust when the beneficiary becomes 21.  The trust will be formed to be a "simple trust" when the beneficiary becomes 21.  That means the beneficiary must include the income from the trust on the beneficiary's personal tax return starting at the 21st birthday.

Furthermore, the beneficiary must agree in writing to forego the distribution of the gift or receive the gift as a distribution from the trust.  Any other drafting may cause the IRS to challenge the validity of the gift.

Taking advantage of the annual gift tax exclusion can be a simple and effective method to help reduce a taxpayer's gross estate during his or her life -- and thus subsequently lower the taxable estate and estate taxes due upon the taxpayer's death. <2> Although the exclusion is legally available to any donor, it is more likely to be used by (and probably most useful for) those fitting the following description: taxpayers who are relatively well-off, very well-off, even wealthy, but not generally, "super-millionaires." 

Certain categories of persons will not be interested in taking advantage of the exclusion. First, those individuals whose net assets are less than the amount sheltered by the unified credit will not be interested. <3>

Although married couples will need to do some tax planning to take full advantage of the amount to be sheltered by the unified credit, in general, persons with total assets below the unified credit amounts have no need to lower their estates for tax purposes because their estates will not be subject to tax. Indeed, for most estates of U.S. citizens and resident aliens below these taxable thresholds, there is no estate tax filing requirement. <4>

The second category of persons for whom the exclusion is not particularly useful is the super-rich. Especially wealthy persons are not prohibited from making $10,000 donations to family and friends, however, as a practical matter, unless the super-rich taxpayer has a legion of beneficiaries, he or she simply will not be able to substantially reduce his or her estate by increments measured in the mere ten-thousands.

EXAMPLE: Donald, Malcolm, and Bill are very wealthy individuals.  Donald's net worth is approximately $20 million, Malcolm's is $100 million, and Bill's is an even $1 billion. If their investment portfolios are merely earning seven percent annually (not an unreasonable return), Donald is accruing additional wealth (before income taxes) of $1,400,000 each year, Malcolm is adding another $7 million each year to his net worth, and Bill is adding an astounding $70 million annually to his capital. In order to keep even with this income, Donald must give away the exclusion amount of $10,000 to 140 different individuals. Next year -- and every year until his death, he must continue to give away 140 such gifts. Malcolm, to keep pace with his income, must give $10,000 to 700 individuals and Bill must find 7,000 lucky friends every year. Note that in this example no reduction to the value of the estate has taken place. Donald, Malcolm, and Bill have only kept pace with their returns on capital.

It can readily be seen that for those taxpayers in the rarefied atmosphere of extra high wealth, the annual gift tax exclusion is too small and too clumsy a manner in which to dispose of substantial wealth. These persons need far more aggressive and expeditious means to plan their estates.  Accordingly, having eliminated the top and the bottom strata, the estate tax planner is left with those taxpayers whose wealth is in the approximate $1 to $10 million net worth category. For these persons, the annual exclusion can be a very useful planning tool. It has been said -- without undue irony -- that the annual gift tax exclusion is the "poor" rich-person's most useful tax planning device.

Special considerations are necessary where the intended beneficiaries are minor children, or if the donor does not wish to make an outright, "no-strings attached" gift.  Because the gift tax exclusion does not apply to "gifts of future interests in property," most gifts made in trust are not eligible for the exclusion. <10> In general, to qualify for the gift tax exclusion, a gift must be of a present vested interest. For these purposes, a present interest is an unrestricted right to the immediate use, possession, or enjoyment of property or the income from property (such as a life estate or term certain). A future interest is defined as including reversions, remainders, and all other interests in property that are limited to commence in use, possession, or enjoyment at some future date or time.  <11>

EXAMPLE: Bill has established a trust in the amount of $100,000, for the benefit of Bill Jr., his son. Under the terms of the governing instrument, it is a complex trust. The trustee has discretion to accumulate the principal and interest. The trustee, in his  discretion, gives Bill Jr. $10,000 each year. No part of Bill's original donation and no part of each year's distribution qualifies under the gift tax exclusion. Bill Jr. has no present right to anything. <12>

If, on the other hand, Bill Jr. has a mandatory right to the income from the trust, his right will qualify for the gift tax annual exclusion. A transfer to a trust is considered a transfer to the beneficiary of that trust. <13> However, any postponement of the income right will cause contributions to the trust to be ineligible for the gift tax exclusion. And, if the trustee has discretion to distribute principal to anyone other than the beneficiary, the income interest will not qualify for the exclusion because its value will be considered unascertainable at the time of the trust's creation. <14>

There is, however, an exception to the rule that gifts of future interest do not qualify for the gift tax exclusion. A gift of a future interest can qualify for the gift tax exclusion if the recipient is under 21 years of age. In the case of a trust for the benefit of a minor, a gift will not be considered a gift of a future interest if the trust principal and  income may be expended by or for the minor's benefit; if the accumulated income and principal will pass to the beneficiary at age 21; and, should the minor die before reaching age 21, any existing principal and income is paid to his estate or to his appointee pursuant to a general testamentary power of appointment. <15>

EXAMPLE: Bill and Melissa establish a trust for the benefit of their little baby girl, Mary. They plan on contributing $20,000 every year from now until she is 21. It is a Section 2503(c) trust and under its terms, Mary will have the right to withdraw the trust funds at age 21. Bill and Melissa's split-gift of $20,000 per year qualifies for the annual gift tax exclusion. In twenty years of annual contributions of $20,000, Mary will have $400,000 plus the earnings thereon. It is easily conceivable that she will have a trust worth over a million dollars at that time -- and that entire sum will have passed to her free of all estate and gift taxes.  Similar arrangements (and contributions) can be made to minors under the various states' Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). However, some caution is appropriate here. State law varies; some states terminate the age of minority at 18, others permit UGMA/UTMA gifts to remain in custodianship until the minor's reaching age 21.

Naturally, many donors are hesitant to contribute hundreds of thousands of dollars to a child or grandchild who may be able to withdraw that money when he or she reaches 21. There are several ways to accommodate this concern. The trust fund need not be distributed outright to the beneficiary -- nor need the trust terminate -- at the moment the beneficiary turns 21.  Contributions to a minor's trust will qualify for the git tax exclusion if the beneficiary has either (1) an unencumbered right upon reaching age 21 to withdraw the trust property; or (2) upon reaching age 21, a right to compel distribution of the trust property by giving written notice to the trustee during a limited period of time, which, if not exercised, will permit the trust to continue for the period provided in the trust instrument. <16> If a young beneficiary may be counseled to accept the benefits and security of trust administration, he or she may allow the "window of opportunity" to lapse, and thus permit the trust to continue under its terms. <17>

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Engagement Letter

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Learning Objectives

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What is does, Why it works - Plain English Analysis

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What It does, Why it works - Technical Analysis & Citations

Law (commentary and citation)

Regs (commentary and citation)

Cases (commentary and citation)

"'Future interests' is a legal term, and includes reversions, remainder, and other interests or estates, whether vested or contingent, and whether or not supported by a particular interest or estate, which are limited to commence in use, possession or enjoyment at some future date or time."  Treasury Regulations of Gift Tax, section 25.2503-3.

Under the provisions of this trust the income is to be accumulated and added to the corpus until each minor reaches the age of 21, unless the trustee feels in his discretion that distributions should be made to a needy beneficiary. From 21 to 35 all income is distributed to the beneficiary. After 35 the trustee again has discretion as to both income and corpus, and may distribute whatever is necessary up to the whole thereof. Aside from the actions of the trustee, the only way any beneficiary may get at the property is through the "demand" provision, quoted above.

§§§ Law §§§

§2503

§§§ Regs §§§

§§§ Cases §§§

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Tax Killers

This is about Activity Based Taxplanning - maximizing deductions, minimizing cash outlay and maximizing the amount of cash retained and the net worth.

Tax is a subject that many view in order to cut costs.  Taxes are a cost just as any other cost.  It happens this cost is somewhat intangible and is defined by legislation without a tangible item to view and control.  The money is spent and the control of the expenditure is more appropriately administered by someone trained in the law.

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Cost Killers

This is about Activity Based Costing  - methods to cut costs, management accounting, management information systems, decision support systems - in general about being a manager.

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What to gather - preparing for your CPA, your attorney, or preparing to start the job on your own

• From Banking Records

See list below

• From Customer Records

See list below

• From Signed Documents

See list below

• From Your Other Business, or Financial Records

  • TRUST INFORMATION SHEET

    Have client complete Letters of Instruction form:

    Date: __________

    Testator's name on birth certificate: __________

    Usual Name: __________

    Alias, nicknames, or other names testator has been known by: __________

    Name: __________

    Address: __________

    Phone No.: __________

    Age: __________

    Birth Date: __________

    Social Security No.: __________

    Identity of Testator's Family:

    Spouse:

    Name: __________

    Address: __________

    Phone No.: __________

    Age: __________

    Birth Date: __________

    Social Security No.: __________

    Previous spouse:

    Name: __________

    Address: __________

    Phone No.: __________

    Age: __________

    Birth Date: __________

    Social Security No.: __________

    Children and stepchildren:

    Name: __________

    Address: __________

    Birth date: __________

    Identity of Deceased Children:

    Name: __________

    Birth date: __________

    Disposition of Property:

    Specific Bequests: __________ [list]

    Property to Spouse: __________ [list]

    Property to go to Children if Spouse is Deceased: __________

    Per Stirpes: __________ or Per Capita: __________

    Other Beneficiaries:

    Name: __________

    Address: __________

    Independent Executor/Executrix:

    First Choice:

    Name: __________

    Address: __________

    Phone No.: __________

    Second Choice:

    Name: __________

    Address: __________

    Phone No.: __________

    Third Choice:

    Name: __________

    Address: __________

    Phone No.: __________

    Guardian:

    First Choice:

    Name: __________

    Address: __________

    Phone No.: __________

    Second Choice:

    Name: __________

    Address: __________

    Phone No.: __________

    Third Choice:

    Name: __________

    Address: __________

    Phone No.: __________

    Date Trust Instrument Executed: __________

    Place of Execution: __________

    Location of Original Trust Instrument: __________

    Date Client given letters of instruction: __________

    Trust Tax and Trust Terms:

    Name of Notary: __________

    Date Notary's commission expires: __________

    Other: __________

• From Corporation or Organization Records (meetings, etc.)

Not Applicable - unless common stock is being transferred

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Assistance - What To Do - Forms - checklists, time-line to do, etc.

• Assistance - What to do

Annual Exclusion Trust with no distribution before age of majority (usually 21) Relevant to the minor's right to demand a distribution:

At all times all the minor children must live with the parents or guardian and no other legal guardian should be appointed for them. In addition, it was agreed that all the children were supported by  the parents and all of them should have the right to make a demand against the trust funds or receive any distribution from them.  The beneficiaries must have this right for the reason the tax code will not consider this a gift otherwise.  If the IRS were to successfully challenge the gift trust with the argument the gift was not a current gift, instead a future gift, the transfer is not considered to qualify as an annual gift and will be included in the estate of the person making the gift to the trust.  IF the minors do not live with the parents, or for some other reason the parents are not the guardians, then the minors MUST have guardians to represent them AND the guardian must have the authority to make a demand for distributions as required in the sample clause.

• Forms - Checklists - Etc.

• Checklist

  • Write in the important information on the Trust Information Sheet

  • Decide what and how much you want to gift and write that on the Identification of gifts form

  • Decide when the gifts are to be made, write this on the Identification of gifts form

  • Decide what ages the trust fund will distribute the assets to the beneficiary Article 5.02

  • Decide what the funds are to be used for Article 4

  • Prepare the Letter Explaining Affadavit by beneficiary to refuse the election to withdraw trust funds

  • Prepare the Non-election of Right to Withdraw

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Spreadsheets & Computations

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Contracts, Trusts, etc.

Example of a clause if the trust sample in 2503(c) is not used (Crummey trust):

Clause Number ___

Additions To The Trust Funds

The Trustee may receive any other real or personal property from the Trustors (or either of them) or from any other person or persons, by lifetime gift, under a Will or Trust or from any other source.   Such property will be held by the Trustee subject to the terms of this Agreement. A donor may designate or allocate all of his gift to one or more Trusts, or in stated amounts to different Trusts. If the donor does not specifically designate what amount of his gift is to augment each  Trust, the Trustee shall divide such gift equally between the Trusts then   existing, established by this Agreement. The Trustee agrees, if he accepts such additions, to hold and manage such additions in trust for the uses and in the manner set forth herein. WITH RESPECT TO SUCH ADDITIONS, EACH MINOR MAY DEMAND AT ANY TIME (UP TO AND INCLUDING DECEMBER 31 OF THE YEAR IN WHICH A TRANSFER TO HIS OR HER TRUST HAS BEEN MADE) THE SUM OF ANNUAL EXCLUSION AS PROVIDED FOR IN THE CODE AS AMENDED FROM TIME TO TIME,   OR THE AMOUNT OF THE TRANSFER FROM EACH DONOR, WHICHEVER IS LESS, PAYABLE IN CASH IMMEDIATELY UPON RECEIPT BY THE TRUSTEE OF THE DEMAND IN WRITING AND IN ANY EVENT, NOT LATER THAN DECEMBER 31 IN THE YEAR IN WHICH SUCH TRANSFER WAS MADE. SUCH PAYMENT SHALL BE MADE FROM THE GIFT OF THAT DONOR FOR THAT YEAR. IF A CHILD IS A MINOR AT THE TIME OF SUCH GIFT OF THAT DONOR FOR THAT YEAR, OR FAILS IN LEGAL CAPACITY FOR ANY REASON, THE CHILD'S GUARDIAN MAY MAKE SUCH DEMAND ON BEHALF OF THE CHILD. THE PROPERTY RECEIVED PURSUANT TO THE DEMAND SHALL BE HELD BY THE GUARDIAN FOR THE BENEFIT AND USE OF THE CHILD.  The Demand must be in writing and must be delivered to the trustee on or before the expiration of the demand date.

Clause Number ___

Distribution Of The Trust Funds

Under the provisions of this trust the income is to be accumulated and added to the corpus until each minor reaches the age of 21, unless the trustee feels in his discretion that distributions should be made to a needy beneficiary for health care or education. From 21 to 35 all income is distributed to the beneficiary, however no corpus shall be distributed in this time period.  After age 35 the trustee again has discretion as to both income and corpus, and may distribute whatever is necessary up to the whole thereof. Aside from the actions of the trustee, the only method for any beneficiary to receive the distribution of corpus is through the "demand" provision, in the Additions To The Trust Funds clause.

Example of Limited Time Period for the beneficiary to demand distribution of the trust funds:

Clause Number ___

Distribution Of The Trust Funds

Notwithstanding any other provision of this Trust Agreement, any Beneficiary shall have the right, by written and signed notice delivered to the Trustee during any calendar year in which any subsequent gift (as defined in Section 2512 of the Internal Revenue Code) is made to this Trust, from the date of the gift until the expiration of thirty (30) days after receipt by that Beneficiary of a Notice to Beneficiaries, as described in Paragraph __________ [5.05], to withdraw from the Trust an amount not exceeding the lesser of his or her proportionate share of the fair market value of the gift on the date of the gift or the amount then specified in Section 2503(b) of the Internal Revenue Code (or twice that amount if the gift is made by both Grantors). In no event may the amount withdrawn by any Beneficiary in any calendar year exceed the amount then specified in Section 2503(b) of the Internal Revenue Code (or twice that amount of the gift is made by both Grantors). This right shall not be cumulative, and any amounts not withdrawn in any year may not be withdrawn in any subsequent year. In the event any Beneficiary is declared incompetent by any court, his or her legal guardian may exercise this right on his or her behalf.

The following are the forms requried: (Remember to left click on the water droplets to collapse or expand the list)

• Declaration of irrevocable gifts

  • DECLARATION OF IRREVOCABLE GIFTS TO CHILDREN AND GRANDCHILDREN

    WHEREAS, the undersigned __________ [names of donors], reside at __________ [address], __________ [city], ______(state); and

    WHEREAS, the undersigned have __________ [number of adult children] named __________ [names], each of whom is __________ [describe status, such as: currently married]; and

    __________ [Insert paragraph if applicable: WHEREAS, the undersigned also have a deceased child, __________ (name), who was married at the time of __________ (his or her) death to __________ (name of surviving spouse); and]

    WHEREAS, the undersigned have been blessed with material abundance and wish to share their material blessings with their children and grandchildren; and

    WHEREAS, the undersigned are the grandparents of __________ [number of grandchildren]__________, __________ [specify number of grandchildren born to each child, identifying the child(ren) by name]; and

    WHEREAS, in the interest of fairness to all family members, the undersigned have elected to give gifts of __________ [Ten Thousand and no/100 Dollars ($10,000.00)] each, to __________ [names of children], and their respective spouses, and gifts of up to __________ [$10,000.00] each to their grandchildren, the specific amounts to each child being set forth below in this Agreement; and

    WHEREAS it is the interest of the undersigned that each of these gifts shall qualify for the Annual Gift Tax Exclusion as provided for by Section 2503 of the Internal Revenue Code; and

    WHEREAS it is the desire of the undersigned that their combined gifts to the grandchildren of each family be placed in separate Trusts and be administered according to the specific terms of the legal documents setting up those Trusts;

    NOW, THEREFORE, __________ [names of donors] each give irrevocable gifts of __________ [Ten Thousand Dollars] ($10,000.00)] each to the following persons to use as each recipient desires: __________ [names of children].

    FURTHERMORE, __________ [names of donors] each give irrevocable gifts as set forth below to each of their grandchildren named below and direct that the money shall be placed in separate family Trust Funds to be administered and distributed according to the terms of each Trust: __________ [list each trust and each donee and the amount];

    The__________ [name of trust] TRUST

     

    Description	Fair Market Value at Date of Gift
    Husband Donor:
    [name of donee]; Description of gift	$
    [name of donee]; Description of gift	$
    Wife Donor:
    [name of donee]; Description of gift	$
    [name of donee]; Description of gift	$
    Total fair market value of gifts	$

    We desire to fund the gifts out of our money market accounts at __________ [name of institution], and certificate of deposits at __________ [name of bank], number __________, in the amount of $__________. This document shall authorize the assignment and transfer of the monies necessary to establish and fund the gifts and trusts referred to in this Agreement.

    SIGNED on __________ [date].

    ____________________[Husband]

    ____________________[Wife]

    ____________________

    WITNESS

    ____________________

     

    State of ____________

    County of __________ [Name of County]

    This instrument was acknowledged before me on __________, 19__ by __________[Name of person giving the acknowledgment].

    Notary Public's Signature:

    _____________________

     

    [Notary's typed or printed name]

    NOTARY PUBLIC FOR THE STATE OF ________

    (Seal) My commission expires: __________

    [or Notary's Stamp]

    ---

• Identification of the gift(s)
  • Schedule to the Trust Agreement - Identification of the Gift(s) For ________ (date)

  Description	Fair Market Value at Date of Gift
  Husband Donor:
  [name of donee]; Description of gift	$
  [name of donee]; Description of gift	$
  Wife Donor:
  [name of donee]; Description of gift	$
  [name of donee]; Description of gift	$
  Total fair market value of gifts	$

• Letter to beneficiary or beneficiary's guardian explaining gift and the minor's right to withdraw
  • Letter Explaining Affadavit by beneficiary to refuse the election to withdraw trust funds

    __________ [Date]

    __________ [Name of addressee]

    __________ [Address]

    Dear __________:

    As you know, we represent __________ [name of donors], who have recently made cash gifts to each of you and, in addition, set up a trust for the benefit of your __________ [child or children]: __________ [names of child or children]. Enclosed is a copy of the Trust set up for your __________ [child or children], each of whom we note, is __________ [over eighteen (18) years of age or is under the age of eighteen (18) years for as the case may be].

    Compliance with Internal Revenue Service regulations require that each of your children who is over the age of twenty-one (21) years of age, be given the right to withdraw the 19__________ contribution to be made to him or her by the donors. My clients would prefer that each of the children elect to forego that right and allow the money to be distributed pursuant to the terms of the Trust Agreement.

    We have, therefore, prepared and enclosed a Non-Election of Right to Withdraw forms for signature by each of your children. Please note that the signatures must be notarized. We ask that you distribute these to your children and oversee their signing and return the forms to my office. If any your children desires further information or have any questions, please feel free to contact me.

    Very truly yours,

    __________ [Name]

    BY: ________________________

    __________ [Signature]

    Enclosures

     

    ---

• Formal election not to exercise the right to withdraw

  • NONELECTION OF RIGHT TO WITHDRAW

    The undersigned is a named Beneficiary of the __________ [name of trust] Trust and is aware of __________ [his or her] right to withdraw the initial __________ [specify date of contribution] contribution to be made to __________ [him or her] by __________ [name of donor] from the Trust.

    The undersigned elects not to exercise the above-described right and requests that the initial __________ [date] contribution to __________ [him or her] of __________ [$10,000.00] by __________ [name of donor] be put into the Trust and distributed to __________ [him or her] according to the written terms of the Trust document.

    SIGNED on __________ [date], but effective as of the execution date of the Trust document referred to above.

    ____________________

    _____________ Beneficiary

    State of __________

    County of __________ [Name of County]

    This instrument was acknowledged before me on __________, 19__ by __________ [Name of person giving the acknowledgment].

    Notary Public's Signature:

    _____________________

    [Notary's typed or printed name]

    NOTARY PUBLIC FOR THE STATE OF ____________

    (Seal) My commission expires: __________

    [or Notary's Stamp]

    ---

     

• Trust Agreement

  • IRREVOCABLE INTER VIVOS TRUST

    Article 1 states the creation of the trust.

    Article 2 provides for the division of trust property into separate funds and division of income from the trust.

    Article 3 states the intervals at which net income should be payable to beneficiaries.

    Article 4 allows the trustee to distribute the principal or corpus of the trust.

    Article 5 states the provisions applicable to termination of the trust.

    Article 5.02 requires the beneficiaries to attain the age of 21 prior to dissolving the trust.

    Article 6 contains a spendthrift clause which prohibits the beneficiaries from assigning, pledging or encumbering their interest in the trust property.

    Article 7 states that the trust shall comply with the rule against perpetuities.

    Article 8 states the powers and duties of the trustee. The trustee is given broad powers over and above those specified in the   Trust Code.

    Article 9 appoints the trustee.

                        Article 10 DUTIES AND COMPENSATION OF TRUSTEE

                        Article 11 POWERS OF TRUSTEE

                        Article 12 Provisions for minors or incompetent

                        Article 13 Identity of Jurisdiction

                        Article 14 ADMINISTRATIVE PROVISIONS

                        Article 15 TRUST IRREVOCABLE

                        Article 16 AGREEMENT BINDING

    STATE OF __________

    COUNTY OF __________

    This TRUST AGREEMENT is entered into on __________ [date], by and between __________ [names of donors], __________ [husband and wife], who are residents of __________ [name of city], __________ County, _______(state), referred to as "Grantor," and __________ [name of trustee], referred to as "Trustee,’’ in order to create an irrevocable trust which shall be known as the "__________’’[name of trust] "TRUST", which shall be for the benefit of certain specified grandchildren of __________ [names of donors].

    ARTICLE I

    CREATING TRUST

    1.01 For the consideration, purposes, and subject to the terms, provisions, conditions and limitations contained in this Agreement, Grantor has irrevocably conveyed, assigned, transferred and delivered to the Trustee full and complete title to the property described in Exhibit "A" which is attached to this Agreement, and is referred to "Trust Property", the receipt of which is acknowledged by the Trustee.

    1.02 The Grantor reserves the right for themselves and for any other party, from time to time, by deed, will or in any other manner, to add to the principal of this Trust. Any property so added shall be held, administered, paid and delivered as part of the Trust created by this Agreement to which that property has been added.

    1.03 Grantor has conveyed, transferred and assigned to the Trustee and for the benefit of the Beneficiaries, TO HAVE AND TO HOLD, the Trust Property and all other properties, real, personal or mixed, which Grantor or any other person may at any time add to this Trust, together with any and all rights and appurtenances unto the same belonging to or pertaining thereto, unto the Trustee and the Trustee's successors or substitutes in Trust, for the sole use and purpose of the Beneficiaries described below and subject to all of the terms, conditions, privileges, rights and powers, as set forth in this Agreement.

    1.04 The assets listed in Exhibit "A" shall constitute irrevocable gifts given by __________ [name of donor] and by __________ [name of donor] to each of the Donors' grandchildren named below as Beneficiaries.

    Each of these gifts is intended to and shall qualify for the annual gift tax exclusion as provided for by Section 2503 of the Internal Revenue Code.

    ARTICLE II

    BENEFICIARIES

    2.01 The Beneficiaries of the __________ [name of trust] Trust shall be the grandchildren of __________ [donors' names], as follows:

    (a) All children of __________ [names of donors' child] and spouse, __________ [name].

    (b) All children of __________ [name of donors' child] and spouse, __________ [name].

    2.02 The names of the specific Beneficiaries as of the date this Trust is created are as follows: __________ [beneficiaries' names]

    2.03 The term "Beneficiary" shall include any grandchildren of the Grantor's children identified above who may be born subsequent to the creation of this Trust and for whom Grantor gives money or assets to the Trustee intended to qualify for the annual gift tax exclusion as provided for in Section 2503 of the Internal Revenue Code.

    ARTICLE III.

    TRUST ACCOUNT

    3.01 The Trustee shall maintain the Trust Estate in one common Trust Fund which shall be divided into separate accounts for each Beneficiary for the purposes of administration and accounting, referred to as each Beneficiary's "Trust Estate".

    3.02 The Trustee shall provide to each Beneficiary or Guardian of that Beneficiary an annual accounting statement concerning the Trust Account for that Beneficiary's respective Trust Estate. The accounting will include a statement of the Trust's earnings and distributions.

    ARTICLE IV.

    INCOME DISTRIBUTIONS

    4.01 The Trustee shall distribute, at those intervals as the Trustee may determine, to the Beneficiaries so much of the net income of the Trust that will in the sole opinion of the Trustee adequately provide for their (enter the allowed expenses)

        ___________ (education),

        ___________  (health),

        ___________ (support and maintenance in accordance with their station in life.)

    4.02 Any income not distributed shall be accumulated and added to the corpus of the Trust.

    4.03 Any distributions made under this provision need not be equal among Beneficiaries and shall not be charged against their respective Trust Estate.

    4.04 If, in the opinion of the Trustee, one or more Beneficiaries of the Trust shall incur extraordinary expenses due to illness or other misfortunes, the Trustee shall have the right to invade the other Beneficiaries' income accounts to aid that unfortunate Beneficiary.

    ARTICLE V

    CORPUS DISTRIBUTIONS

    5.01 If the Trustee determines that the net income which is distributed under this Agreement to one or more Beneficiaries is inadequate, the Trustee __________ [specify limits on authority, such as:in the Trustee's absolute and sole discretion] may supplement the income distribution out of the corpus of the Trust to the extent and in the manner that will adequately provide for the education, health, support and maintenance of the Beneficiaries in accordance with their station in life. The amount of the supplemental distribution shall not be charged against the Trust Estate of the particular Beneficiary receiving the same.

    5.02 If, in the sole opinion and discretion of the Trustee, one of the Beneficiaries of the trust shall incur extraordinary expenses, due to illness or calamity, the Trustee shall have the right to distribute to that Beneficiary as much of the corpus of the Trust, including principal of the other Beneficiaries' share of Trust Funds, in order to aid that Beneficiary who shall have incurred an extraordinary expense due to illness or calamity.

    5.03 Distribution of the entire corpus of the Trust is authorized if the Trustee shall determine the distribution to be in the best interest of the Beneficiary.

    5.04 Notwithstanding any other provision of this Trust Agreement, any Beneficiary shall have the right, by written and signed notice delivered to the Trustee during any calendar year in which any subsequent gift (as defined in Section 2512 of the Internal Revenue Code) is made to this Trust, from the date of the gift until the expiration of thirty (30) days after receipt by that Beneficiary of a Notice to Beneficiaries, as described in Paragraph __________ [5.05], to withdraw from the Trust an amount not exceeding the lesser of his or her proportionate share of the fair market value of the gift on the date of the gift or the amount then specified in Section 2503(b) of the Internal Revenue Code (or twice that amount if the gift is made by both Grantors). In no event may the amount withdrawn by any Beneficiary in any calendar year exceed the amount then specified in Section 2503(b) of the Internal Revenue Code (or twice that amount of the gift is made by both Grantors). This right shall not be cumulative, and any amounts not withdrawn in any year may not be withdrawn in any subsequent year. In the event any Beneficiary is declared incompetent by any court, his or her legal guardian may exercise this right on his or her behalf.

    5.05 Within __________ [seven (7)] days of receipt by the Trustee of a gift to the Trust, the Trustee shall notify each Beneficiary that a gift to the Trust has been made and describe the method by which the Beneficiary may withdrawn, by written request, the portion of the contribution to which the Beneficiary has a withdrawal right. The Trustee shall retain sufficient transferable assets in the Trust to satisfy all such withdrawal rights as are then outstanding. Each Beneficiary, as of the date of the creation of this Trust, has elected not to exercise, by written documents attached to this Trust, his or her right to withdraw the initial __________ [year]contribution to be made to him or her by Grantor.

    ARTICLE VI

    TERMINATION

    6.01 This Trust shall terminate, and all Trust principal and income shall be distributed in fee simple and free of Trust to the Beneficiaries, upon the deaths of both __________ [names of donors].

    6.02 In the event that a Beneficiary predeceases the Grantor, that Beneficiary's Trust Estate shall pass to his or her spouse, if any.

    (a) In the event the predeceased Beneficiary's spouse does not survive, then that share shall be given to the Beneficiary's children, if any.

    (b) In the event the predeceased Beneficiary's children have not yet reached the age of eighteen (18) years of age, then those shares shall remain in this Trust and be distributed in fee simple absolute at the time that each child reaches the age of __________ [twenty-one (21)] years of age.

    6.03 In the event the deceased Beneficiary is not survived by a spouse and/or children, that Beneficiary's Trust Estate shall pour over and enhance the Trust Estate of the remaining Beneficiaries and shall be distributed for and on behalf of the surviving Beneficiaries.

    6.04 Irrespective of any other provisions of this Trust, the Trustee may at any time terminate the Trust if in the Trustee's sole judgment, the continued management of the Trust is no longer economical because of the small size of the Trust, and if that action shall be deemed to be in the best interests of the Beneficiaries.

    a) In the case of the termination of the Trust, the Trustee shall distribute forthwith the Trust estate so terminated to the Beneficiary, or to a custodian named for the Beneficiary under a Uniform Gift to Minor's Act, or to the beneficiary's legal representative.

    b) Upon the distribution and delivery, this Trust shall terminate, and the Trustee shall not be liable or responsible to any person or persons whomsoever for the Trustee's actions.

    c) The Trustee shall not be liable for failing or refusing at any time to terminate the Trust as authorized by this paragraph.

    6.05 If, at the termination of this Trust as provided for in Paragraph 6.01 above, any Beneficiary or his or her issue entitled to distribution of a portion of this Trust shall not have attained the age of __________ [twenty-one (21)], his or her share shall be retained in Trust and distributed to him or her in fee simple and free of Trust when he or she shall attain that age.

    6.06 So long as a share of the Trust is held in trust for a Beneficiary under the provisions of Paragraph __________ [6.05], the Trustee shall distribute to that Beneficiary so much of the Trust income and corpus as the Trustee shall determine to be necessary to provide for the comfort, happiness, health, education, maintenance or support of that Beneficiary.

    Distribution of the entire corpus of the Trust Estate is authorized if the Trustee shall determine that distribution shall be to the best interests of the Beneficiary in accordance with the foregoing standard or because the share is so small that continued administration in trust is no longer desirable.

    ARTICLE VII

    SPENDTHRIFT CLAUSE

    7.01 No Beneficiary of the Trust shall have the right or power to anticipate, by assignment or otherwise, any income or corpus given to the Beneficiary by this Trust, nor in advance of actually receiving the same have the right or power to sell, transfer, encumber or in anywise charge the same; nor shall the income or corpus or any portion of the income or corpus be subject to any execution, garnishment, attachment, insolvency, bankruptcy, or legal proceeding of any character, or legal sequestration, levy or sale, or in any event or manner be applicable or subject, voluntarily or involuntarily, to the payment of the Beneficiary's debts.

    ARTICLE VIII

    MAXIMUM DURATION

    8.01 Notwithstanding anything in this Trust to the contrary, the Trust created under this Agreement shall in all events terminate not later than twenty-one (21) years from and after the death of the survivor of each Beneficiary and all of his or her issue living at the time of the death of Grantor, both husband and wife.

    8.02 If the Trust is terminated due to state or federal legal considerations, upon the termination the corpus and undistributed income of the Trust, or the assets and property as to which the Trust is terminated, shall be delivered and distributed in fee simple and free of Trust to those persons who would be entitled to the assets and property as if the expiration of the term were a termination of the Trust under the preceding provisions of this Trust.

    ARTICLE IX

    APPOINTMENTS AND RESIGNATION OF TRUSTEE

    9.01 Grantor appoints __________ [name of trustee], to act as Trustee of the Trust created by this Agreement.

    (a) If __________ [name of primary trustee] dies, resigns, becomes incapacitated or otherwise ceases to act, Grantor appoints __________ [name of successor trustee] to act in __________ [his or her] place as Trustee of the trust created by this Agreement.

    (b) If __________ [name of successor trustee]dies, resigns, becomes incapacitated or otherwise ceases to act, Grantor designates Grantor's attorney, __________ [name], as Trustee.

    9.02 Any Trustee may resign by giving at least __________ [thirty (30)] days' written notice (unless waived by the person receiving the notice) to the Beneficiaries of this Trust; provided, however, that, if the person entitled to receive notice is a minor or an incompetent, the notice shall be delivered to the minor's parents or guardian or to the incompetent's guardian.

    ARTICLE X

    DUTIES AND COMPENSATION OF TRUSTEE

    10.01 The Trustee shall determine what is income and what is corpus of the Trust created by this Agreement, and what expenses, costs, taxes, and charges of any kind whatsoever shall be charged against income and what shall be charged against the corpus in accordance with the applicable statutes of the State of ____________ as they now exist and may from time to time be enacted, amended, or repealed.

    10.02 No Trustee appointed under this Trust Agreement shall at any time be held liable for any action or default of the Trustee or the Trustee's agent or of any other person in connection with the administration of the Trust Property, unless caused by the Trustee's own gross negligence or by willful commission by the Trustee of an act in breach of the Trustee's fiduciary duty.

    10.03 No bond shall be required of the Trustees under this Agreement; if any bond is required by law, no surety shall be required on the bond.

    10.04 Any Trustee who is not related by blood, adoption or marriage to the Grantor, and who does not waive compensation, shall receive fair and reasonable compensation for services rendered in an amount not exceeding the customary and prevailing charges for services of a similar character at the time and at the place the services are performed, and all Trustees shall be reimbursed for their reasonable costs and expenses incurred in connection with their fiduciary duties.

    ARTICLE XI

    POWERS OF TRUSTEE

    11.01 In order to carry out the purposes of this Trust Agreement, the Trustee, in addition to all other powers granted by law and under the ____________ Trust Code, shall have the following powers and discretions:

    A. Retain Assets:

    To continue to hold any and all property received by the Trustee or subsequently added to the Trust Estate or acquired pursuant to proper authority if and as long as the Trustee, in exercising reasonable prudence, discretion, and intelligence, considers that the retention is in the best interests of the trust.

    B. Investments:

    To invest and reinvest in every kind of property, real, personal or mixed, and every kind of investment, specifically including, but no by way of limitation, corporate obligations of every kind, and stocks, preferred or common, which persons of prudence, discretion, and intelligence might acquire for their own accounts.

    C. Management of Securities:

    To exercise, respecting securities held in the trust estate, all the rights, powers, and privileges of an owner, including, but not limited to, the power to vote, give proxies, and to pay assessments and other sums deemed by the Trustee necessary for the protection of the trust estate; to participate in voting trusts, pooling agreements, foreclosures, reorganizations, consolidations, mergers, and liquidations, and in connection with those actions to deposit securities with and transfer title to any protective or other committee under those terms as the Trustee may deem advisable; to exercise or sell stock subscription or conversion rights; to accept and retain as an investment any securities or other property received through the exercise of any of the foregoing powers regardless of any limitations elsewhere in this instrument relative to investments by the Trustee.

    D. Form of Ownership of Trust Property:

    To hold securities or other Trust property in the name of the Trustee as Trustee under this Trust Agreement or in the name of a nominee under those conditions where ownership will pass by delivery.

    E. Business Interests:

    To continue and operate, to sell or to liquidate, as the Trustee deems advisable at the risk of the Trust Property, any business or partnership interests received by the Trust Property.

    F. Sell and Exchange:

    To sell for cash or on deferred payments and on those terms and conditions as are deemed appropriate by the Trustee, whether at public or private sale, to exchange, and to convey any property owned by the Trust.

    G. Division of Trust Property:

    On any division of the Trust property into separate shares or trusts, to apportion and allocate the assets of the Trust in cash or in kind, or partly in cash and partly in kind, or in undivided interests in the manner best deemed advisable in the discretion of the Trustee; after any division of the trust, the Trustee may make joint investments with funds from some or all of the several Trust Estates, but the Trustee shall keep separate accounts for each Beneficiary.

    H. Abandonment of Trust Assets:

    To abandon any Trust asset or interest in an asset in the discretion of the Trustee.

    I. Option:

    To grant an option involving disposition of a Trust asset and to take an option for the acquisition of any asset by the Trust.

    J. Lease:

    To lease any real or personal property of the Trust for any purpose for terms within or extending beyond the duration of the Trust.

    K. Property Management:

    To manage, control, improve, and repair real and personal property belonging to the Trust.

    L. Development of Property:

    To partition, divide, subdivide, assign, develop, and improve any Trust property; adjust boundaries or differences in valuation on exchange or partition by giving or receiving consideration; and to dedicate land or easements to public use with or without consideration.

    M. Repair, Alter, Demolish and Erect:

    To make ordinary and extraordinary repairs, improvements and alterations on or in buildings or other Trust property, to demolish any improvements, to raise party walls or buildings, and to erect new party walls or buildings as the Trustee deems advisable.

    N. Borrowing and Encumbering:

    To borrow money for any Trust purpose from any person, firm, or corporation, on the terms and conditions deemed appropriate by the Trustee and to obligate the Trust for repayment; to encumber the Trust or any of its property by mortgage, deed of trust, pledge, or otherwise, using whatever procedures to consummate the transaction are deemed advisable by the Trustee; to replace, renew, and extend any encumbrance and to pay loans or other obligations of the Trust deemed advisable by the Trustee.

    O. Natural Resources:

    To enter into oil, gas, liquid or gaseous hydrocarbon, sulphur, metal and any and all other natural resource leases on terms deemed advisable by the Trustee, and to enter into any pooling, unitization, repressurization, community, and other types of agreements relating to the exploration, development, operation and conservation of properties containing minerals or other natural resources; to drill, mine, and otherwise operate for the development of oil, gas and other minerals; to contract for the installation and operation of absorption and repressuring plants; and to install and maintain pipelines.

    P. Insurance:

    To procure and carry, at the expense of the Trust, insurance of the kinds, forms, and amounts deemed advisable by the Trustee to protect the Trust and the Trustee against any hazard.

    Q. Enforcement of Hypothecations:

    To enforce any deed of trust, mortgage, or pledge held by the Trust and to purchase at any sale under any of those instruments any property subject to any such hypothecation.

    R. Extending Time of Payment of Obligations:

    To extend the time of payment of any note or other obligation held in the Trust, including accrued or future interests, in the discretion of the Trustee.

    S. Adjustment of Claim:

    To compromise, submit to arbitration, release, with or without consideration, or otherwise adjust claims in favor of or against the Trust.

    T. Litigation:

    To commence or defend at the expense of the Trust any litigation affecting the Trust or any property owned by the Trust deemed advisable by the Trustee.

    U. Administration Expenses:

    To pay all taxes, assessments, and all other expenses incurred in the collection, care, administration, and protection of the Trust.

    V. Employment of Attorneys, Advisors, and Other Agents:

    To employ any attorney, investment advisor, accountant, broker, tax specialist, or any other agent deemed necessary in the discretion of the Trustee; and to pay from the Trust reasonable compensation for all services performed by any of those persons.

    W. Termination by Trustee of Small Trust:

    To terminate the Trust, in the discretion of the Trustee, as previously set forth.

    X. Distribution:

    On any partial or final distribution of the Trust, to apportion and allocate the assets of the Trust in cash or in kind, or partly in cash and partly in kind, or in undivided interests in the manner deemed advisable at the discretion of the Trustee and to sell any property deemed necessary by the Trustee to make the distribution.

    Y. Complete Authority:

    To do all the acts, to take all proceedings, and to exercise all the rights, powers, and privileges which an absolute owner of the property would have, subject always to the discharge of the Trustee's fiduciary obligations; the enumeration of certain powers in this Trust Agreement shall not limit the general or implied powers of the Trustee; the Trustee shall have all additional powers that may now or hereafter be conferred on the Trustee by law or that may be necessary to enable the Trustee to administer the Trust in accordance with the provisions of this Trust Agreement, subject to any limitations specified in this Trust Agreement.

    Z. Fiduciary Capacity:

    All powers given to the Trustee by this Trust Agreement are exercisable by the Trustee only in a fiduciary capacity. No power given to the Trustee under this Agreement shall be construed to enable the Trustee or any other person to purchase, exchange, or otherwise deal with or dispose of the principal or income from the Trust unless an adequate consideration is received. The Trustee shall not use the income or principal of the Trust to pay premiums of insurance on the life of the Grantor. No person, other than the Trustee, shall have or exercise the power to vote or direct the voting of any corporate shares or other securities of this Trust, to control the investment of this Trust either by directing investments or reinvestments, or to reacquire or exchange any property of this trust by substituting other property of equivalent value.

    ARTICLE XII

    WARD TRUST

    12.01 If the share of the Trust Property is scheduled to be distributed to a Beneficiary who has not yet attained the age of __________ [twenty-one (21)] years or to a person who, in the absolute judgment of the Trustee, is incapacitated by reason of legal incapacity or physical or mental illness or infirmity, referred to as the "Ward", the Trustee shall continue to hold that share in this Trust for the benefit of that Ward.

    When any minor Ward attains the age of __________ [twenty-one (21)] years or when any Ward, in the absolute and uncontrolled judgment of the Trustee, becomes legally, mentally and physically capable of receiving __________ [his or her] share, all remaining income and principal of that share of the Trust shall be distributed to that Ward.

    ARTICLE XIII

    GOVERNING LAW

    13.01 This Trust Agreement shall be construed in accordance with the laws of the State of _______.

    ARTICLE XIV

    ADMINISTRATIVE PROVISIONS

    Severability

    14.01 If any part, clause, provision, or condition of this Trust Agreement is held to be void, invalid, or inoperative, that voidness, invalidity, or inoperativeness shall not affect any other clause, provision, or condition of this Agreement; but the remainder of this Trust Agreement shall be effective as though that clause, provision, or condition had not been contained in this Agreement.

    Interpretative Clause

    14.02 As used in this Trust Agreement, the masculine, feminine or neuter gender, and the singular or plural number shall each be deemed to include the others whenever the context so indicates.

    Copies

    14.03 To the same extent as if it were the original, anyone may rely on a copy of this Trust Agreement certified by a Notary Public to be a true copy of this Trust Agreement.

    ARTICLE XV

    TRUST IRREVOCABLE

    15.01 The Trust is irrevocable. Neither Grantor, the Trustee, nor the Beneficiary shall have any right to alter or amend the Trust in any respect. Grantor shall have no further right, title or interest in the Trust Property or any income derived from it.

    ARTICLE XVI

    AGREEMENT BINDING

    16.01 The Trustee, by executing this Agreement, accepts this Trust and agrees to hold any property acceptable to the Trustee added in accordance with the terms and conditions of this Agreement. This Agreement shall extend to and be binding upon the heirs, executors, administrators, legal representatives and successors, respectively, of the parties to this Agreement.

    IN WITNESS WHEREOF, this Agreement has been signed by the Grantor and Trustee on __________ [date].

    ____________________ ____________________

    WITNESS __________ [Name], GRANTOR

    ____________________ ____________________

    WITNESS __________ [Name], GRANTOR

    ___________________

    __________ [Name], TRUSTEE

    STATE OF _________

    COUNTY OF __________

    Before me, the undersigned authority, on this day personally appeared __________ [names of donors], __________ [name of trustee], __________, [name of witness], and __________ [name of witness], known to me to be the persons whose names are subscribed to the foregoing instrument, and who acknowledged to me that they executed the same for the purposes and consideration expressed in the instrument.

    This instrument was acknowledged before me on __________, 19__ by __________[Name of person giving the acknowledgment].

     

    Notary Public's Signature:

    _____________________

    [Notary's typed or printed name]

    NOTARY PUBLIC FOR THE STATE OF ________

    (Seal) My commission expires: __________

    [or Notary's Stamp]

    ---

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