EFTA02697289.pdf

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Dn . • :• • EFTA_R1_02054663 EFTA02697289 Mar-ZZ-ZU1Z 11:33 AM Academic Affairs 9728836764 2/11 1 Guardian Ad Litem for the issue of Fr ISA ZAFFARONI who may later be born or adopted 2 by her; David Packardappeared on behalf of VERA SPRINKEL, the Conservator of the 3 Estate of ELISA ZAFFARONI; and Michael Bumstein appeared on behalf of 4 ALEJANDRO PETER ZAFFARONI and CHARLES ALEJANDRO ZAFFARONI. There 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 GST Exempt and GST Non-Exempt Trusts; (2) the 8 clarification and modification of the distribution standard during ELISA ZAFFARONI's 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(bX1), (b)(10), (b)(13), 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 701161215.3 -2- ORDER APPROVING MODIFICATION OF TRUST EPTA_R1_02054664 EFTA02697290 Mar-22-2012 11:33 AM Academic Affairs 9728836764 3/11 1 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 prescribed 4 by law. 5. 3. Allegations are True and Correct. All allegations in the Petition are true 6 and correct. 7 4. Specific Finding re Trustees' Intent with Respect to Distributions. The 8 Court specifically fmds 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.GST 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 discounts 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 BANK (the corporate parent 22 of J.P. MORGAN TRUST COMPANY, N.A.), 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 mists subject to the Uniform Principal and Income Act or 25 comparable statues (the "Adjustment Percentage"). Pi 26 27 M For example, to determine the Adjusted Distribution Ceiling for distributions to be made to ELISA in calendar year 2009, before March 1, 2009 the Trustees will determine the 28 mean average of the fair market value of the combined Trust estate as of December 31, (continued...) 70u612363 7 3- • ORDER APPROVING MODIFICATION OF TRUST EFTA_R1_02054665 EFTA02697291 Mar-Z2-2012 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 fluids the Trustees 4 may distribute to ELISA that calendar year from both Trusts. The parties 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 Trust; and in those situations, J.P. MORGAN 13 CHASE BANK charged trustee's fees entirely toprincipal, 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 will 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 ralifomia 25 (...continued) 26 2006, 2007 and 2008. They will then multiply that average dollar value by the percentage of annual asset value that J.P. MORGAN CHASE BANK (or other institutional Trustee 27 then serving) 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. 70N6a3itv3 -4 - ORDER APPROVINO MODIFICATION OF TRUST EFTA_R1_02054666 EFTA02697292 MDC-ZZ-ZO1Z 11:34 AM Academic Affairs 9728836764 5/11 1 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. 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 . S 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, taking into consideration the factors described 12 in Article 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 Trust 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 N ORDERS 25 FOR GOOD CAUSE APPEARING, IT IS HEREBY ORDERED THAT: 26 1. Modifications to Trost Probate Code Section 15409 empowers the Court 27 to modify the administrative or dispositive provisions of a fruit on petition by the trustee if 28. 70! ORDER APPROVING MODIFICATION OF TRUST EFTA_R1_02054667 EFTA02697293 nui - cercuic 11:JD AM Academic Affairs 9728836764 6 / 11 r. not anticipated by the senior, the 1 "owing to circumstances not known to the senior and ntially impair the • 2 continuation of the trust under its terms would defeat or substa increase in the value of the 3 accomplishment of the purposes of the trust" The enormous 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 e of ELISA ZAFFARONL For 6 primary goal of providing significant benefits for the lifetim n of the Trustees, the . 7 good cause appearing for the reasons set forth in the verified petitio ELISA ZAFFARONI 8 Irrevocable Trust Agreement dated April 15, 1989 for the benefit of 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 IRC Sectio ng trust will have terms identical 13 original trust asit is finally determined. Each such resulti Order. 14 tathe original Trust, as modified pursuant to the terms of this 15 b. Modificatioa of Distribution Standatd During ELISA as follows: 16 ZAFFARONI's Lifetime. Article SECOND is hereby modified pay to 17 "During the lifetime of ELISA ZAFFARONI, the Trustees shall or apply for the benefit of ELISA ZAFFARONI and any of her issue "aggregate 18 (as defined in the following paragraph) so much of the ary or income of the Trusts" as the Trustees shall determine nre•Rc ing 19 rt, health or educa tion, includ advisable for the maintenance, suppo tion, of ELISA ZAFF ARON I 20 college, graduate and professional educa ing paragr aph), provid ed and any of her issue (as defined in the follow 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 e of used in the preceding sentence shall mean combined trust incom 23 the GST Exem pt Trust determ ined on the GST Non-Exempt Trust and an aggregate basis by the corporate Truste e after applyi ng the CUPI A 24 ns 16335 -1633 9. The adjustment powers under Probate Code Sectio 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 interes ts of the of the 27 beneficiaries and all of the circumstances existing at the time assets of each 28 determination, including the size and composition of the 701161231.3 ORDER APPROVING MODIFICATION OF TRUST EFTA R1 02054668 EFTA02697294 nui - cc.- CU1C 11:JD AM Academic Affairs 9728836764 7/1 1 1 trust estate, the probable future needs of the beneficiaries, other resources available to the beneficiaries as actually known to the 2 Trustees 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 general pal 4 provisions and fiduciary duties under the California Uniform Princi and Income Act (Probate Code Sections 16335-16339 , inclus ive and 5 such provisions are incorporated herein by reference). Implicit in the foregoing, and intended by the Trustors, is the authority of the 6 Trustees to vary the amount of income to be paid to or for the benefit of any of the beneficiaries, and to withhold payments from all of them 7 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 exceed Aggregate Income of the Trusts (as 10 defined above) for such year. or iht 3°10 t 6i 6WV claYkthAni a / 0 hCoMll ter lc %ter. 14 11 For purposes of this Agreement, references to a person's "child" or (2) 12 "children" shall include only (I) such person's natural children and children adopted by such person where all of the follow ing condit ions 13 are satisfied: (a) the adoption occurred under the laws of the State of California; (b) the child was under eighteen (18) years of age at the 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 to a 15 member of the household of such adoptive parent. References 16 person's "grandchild" or "grandchildren" shall refer only to children nces to of a child of suchperson as defined in this paragraph and refere a person's great-grandchild or great-grandc hildre n shall refer only to 17 aph. Refere nces to a children ofa grandchild as defined in this paragr 18 person's "issue" shall include only persons who qualify as such d in person's children, grandchildren or great-grandchildren as define 19 this paragraph, and more remote descen dants. " 20 c. Order Ratifying Trustees' One-Time Principal Distribution to I. For good cause appearing, the Trustees' one-time distribution in 21 ELISA ZAFFARON 22 ZAFFARONI to purchase a December, 2000, of $4.1 million in principal to enable ELISA 23 approved. R is further residence in Tiburon, California, is hereby ratified; allowed and 24 Paragraph A, prior to the ordered that Article Third of the trust is modified so that 25 enumerated sub-paragraphs 1.3, reads as follows: 26 to the "A. The Trustees shall first distribute in trust, collectively ARON I's brothe r ALEI ANDR O A. 27 surviving issue of FLISA ZAFF n, the lesser of (1) the ZAFFARONI, if any, by right of representatio 28 sum of $4,100,000.00 as adjusted for the cost of living (using the 70I16123100 - 7, Own APPROVING MODIFICATION OF TRUST EFTA R1 02054669 EFTA02697295 Mar-ZZ-Z01Z 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 appears, the name of ALEJANDRO A. 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 the remaining trust estate (or all of the trust estate if there are then no 7 surviving issue of ALEJANDRO A. ZAFFARONI) into as many equal 8 shams as there are children of ELISA ZAFFARONI then living and children of ELISA ZAFFARONI then deceased who have leR 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-Trustee. 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 distretionary 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 Article NINTH of the Trust is hereby amended in full 17 as follows: 18 "NINTH: 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 (including 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 701161232v3 ORDER APPROVING MODIFICATION OF TRUST