EFTA02697289

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Fish o., . • :• • ..• • 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_R 1_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 26 27 28. FOR GOOD CAUSE APPEARING, IT IS HEREBY ORDERED THAT: 1. Modifications to Trost Probate Code Section 15409 empowers the Court to modify the administrative or dispositive provisions of a fruit on petition by the trustee if 70! ORDER APPROVING MODIFICATION OF TRUST EFTA_R 1_02054667 EFTA02697293 nui - cercuic 11:JD AM Academic Affairs 9728836764 6/11 r. 1 "owing to circumstances not known to the senior and not anticipated by the senior, the • 2 continuation of the trust under its terms would defeat or substantially impair the 3 accomplishment of the purposes of the trust" The enormous increase in the value of the 4 Trust since its inception, coupled with intervening changes in the tax and trust law, justify 5 modifying the terms of the Trust without jeopardizing the Trust's ability to accomplish its 6 primary goal of providing significant benefits for the lifetime of ELISA ZAFFARONL For . 7 good cause appearing for the reasons set forth in the verified petition of the Trustees, the 8 Irrevocable Trust Agreement dated April 15, 1989 for the benefit of ELISA ZAFFARONI 9 is hereby modified as follows: 10 a. Division into GST Exempt and GST Non-Exempt Trusts. The 11 Trustees shall divide the Trust into a GST Exempt Trust and a GST Non-Exempt Trust in 12 accordance with the applicable fraction (as defined in IRC Section 2642(aX2)) of the 13 original trust as it is finally determined. Each such resulting trust will have terms identical 14 tathe original Trust, as modified pursuant to the terms of this Order. 15 b. Modificatioa of Distribution Standatd During ELISA 16 ZAFFARONI's Lifetime. Article SECOND is hereby modified as follows: 17 "During the lifetime of ELISA ZAFFARONI, the Trustees shall pay to or apply for the benefit of ELISA ZAFFARONI and any of her issue 18 (as defined in the following paragraph) so much of the "aggregate income of the Trusts" as the Trustees shall determine nre•Rcary or 19 advisable for the maintenance, support, health or education, including 20 college, graduate and professional education, of ELISA ZAFFARONI and any of her issue (as defined in the following paragraph), provided 21 that no payments shall be made so as to relieve anyone of the legal obligation to support a beneficiary of either the GST Exempt Trust or 22 the GST Non-Exempt Trust "Aggregate income of the Trusts" as used in the preceding sentence shall mean combined trust income of 23 the GST Non-Exempt Trust and the GST Exempt Trust determined on 24 an aggregate basis by the corporate Trustee after applying the CUPIA adjustment powers under Probate Code Sections 16335-16339. The 25 determination as to the necessity and amount of any payment under the foregoing standard, and the GST Exempt or GST Non-Exempt.source 26 of such payment shall be made in the sole and absolute discretion of 27 the Trustees and in light of the needs and best interests of the beneficiaries and all of the circumstances existing at the time of the 28 determination, including the size and composition of the assets of each 701161231.3 ORDER APPROVING MODIFICATION OF TRUST EFTA R1 02054668 EFTA02697294 nui - cc.- CU1C 11:JD AM Academic Affairs 9728836764 7/1 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 trust estate, the probable future needs of the beneficiaries, other resources available to the beneficiaries as actually known to the Trustees and the immediate and long-term tax impact of any distribution. The corporate Trustee's adjustment power shall continue in the event California law changes as it relates to the general provisions and fiduciary duties under the California Uniform Principal and Income Act (Probate Code Sections 16335-16339, inclusive and such provisions are incorporated herein by reference). Implicit in the foregoing, and intended by the Trustors, is the authority of the 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 or from one or more of them. Any income not distributed may be accumulated and from time to time added to the principal of each Trust, in the Trustees' sole and absolute discretion. In no event shall total distributions from the GST Exempt Trust and the GST Non- Exempt Trust in any year exceed Aggregate Income of the Trusts (as defined above) for such year. or iht 3°10 t 6i 6WV claYkthAni 1/40 hCoMll ter lc %ter. For purposes of this Agreement, references to a person's "child" or "children" shall include only (I) such person's natural children and (2) children adopted by such person where all of the following conditions 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 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 member of the household of such adoptive parent. References to a person's "grandchild" or "grandchildren" shall refer only to children of a child of suchperson as defined in this paragraph and references to a person's great-grandchild or great-grandchildren shall refer only to children ofa grandchild as defined in this paragraph. References to a person's "issue" shall include only persons who qualify as such person's children, grandchildren or great-grandchildren as defined in this paragraph, and more remote descendants." a c. Order Ratifying Trustees' One-Time Principal Distribution to ELISA ZAFFARONI. For good cause appearing, the Trustees' one-time distribution in December, 2000, of $4.1 million in principal to enable ELISA ZAFFARONI to purchase a residence in Tiburon, California, is hereby ratified; allowed and approved. R is further ordered that Article Third of the trust is modified so that Paragraph A, prior to the enumerated sub-paragraphs 1.3, reads as follows: "A. The Trustees shall first distribute in trust, collectively to the surviving issue of FLISA ZAFFARONI's brother ALEIANDRO A. ZAFFARONI, if any, by right of representation, the lesser of (1) the 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 2 3 4 6 7 8 9 10 11 12 - 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Consumer Price Index, All Urban Consumers (all items) — San Francisco — Oakland — San Jose, California; December, 2000: 184.1) from December 5, 2000 until the date of death of ELISA ZAFFARONI, and (2) the entire trust estate, and shall hold, administer and distribute such in trust according to the terms set forth below in 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 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 surviving issue of ALEJANDRO A. ZAFFARONI) into as many equal shams as there are children of ELISA ZAFFARONI then living and children of ELISA ZAFFARONI then deceased who have leR issue then living, and shall hold, apply and distribute said shares as follows:" d. Order Appointing Corporate Co-Trustee and Modifying Trust to Add Corporate Trustee as Third Co-Trustee. For good cause appearing, J.P. MORGAN TRUST COMPANY, N.A. is appointed to serve as Co-Trustee with Petitioners. Petitioners will retain exclusive authority to make distretionary distribution decisions, and J.P. MORGAN TRUST COMPANY, N.A. will have exclusive authority with regard to administrative matters (including the CUPIA adjustment powers) and all investment decisions. It is further ordered that Article NINTH of the Trust is hereby amended in full as follows: "NINTH: The Trusteeship shall be subject to the following provisions: A. A corporate fiduciary and two individuals shall at all times serve as Co-Trustees of this Trust. A Court of competent jurisdiction shall initially appoint the corporate fiduciary authorized by law to act as such in the State of California to serve as a third Co-Trustee of the Trust. Any successor corporate fiduciary serving as Co-Trustee of the Trust shall be a company of comparable standing and adequate capitalization and security as the original corporate Co-Trustee. B. Any successor individual Trustee shall have the right to appoint his or her successor (including a series of alternative successors) with the power to revoke any such appointment prior to the qualification of his or her successor and to make a new appointment' Thereafter, upon the failure of the appointing individual Trustee to act, the appointed individual 701161232v3 ORDER APPROVING MODIFICATION OF TRUST EFTA_R1_02054670 EFTA02697296 Mar-ZZ-Z01Z 11:36 AM Academic Affairs 9728836764 9/11 1 2 4 5 6 7 8 9 10 11 12 13 44 45 16 17 18 19 20 21 22 23 24 25 26 27 28 701161238v3 p shall become a successor Trustee. Upon the failure of any individual Co-Trustee to act without appointing a successor who agrees to act, a successor Trustee thereto may be appointed by the remaining individual Co -Trustee, or jointly by remaining individual Co-Trustees if more than one Co-Trustee then remains. Upon failure of the individual Co-Trustees to act without a successor Trustee having been appointed pursuant to the foregoing provisions, a majority of the beneficiaries then entitled to receive income from the trust estate (including the guardian(s) or conservator(s) of any minor or incapacitated beneficiaries) shall have the right to appoint a successor Trustee. Any appointment of a successor trustee by a majority 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 and a second successor to herself; then ceases to serve; her first successor appoints a different person to serve as successor to the first successor; and the first successor ceases to serve, so there is a conflict between the original trustee's "second successor" and the first successor's own successor), then the appointment which is later in time shall take precedence over earlier appointments. C. The individual Co-Trustees, acting jointly, shall alone have the right to appoint a successor corporate Co-Trustee should a vacancy in the office of corporate Co-Trustee exist fix any reason. At that time, the individual Co-Trustees shall designate a company of comparable standing and adequate capitalization and security as J.P. MORGAN TRUST COMPANY, N.A., now has. ELISA ZAFFARONI shall be given thirty (30) days from the date of such designation to consent to such designation. Should she do so in writing delivered to the individual Co-Trustees, such designated successor corporate Trustee shall serve upon the effective date of removal or resignation of the prior corporate Trustee in office. Should ELISA ZAFFARONI fail for any reason to consent to such designation within thirty (30) days, the individual Co-Trustees shall, within thirty (30) days thereafter, petition the appropriate Court for appointment of a successor corporate Trustee. D. Any Trusts may at any time resign from any trust hereby established by depositing in the United States mail, postage prepaid, a notice of such resignation addressed to any other Trustee then acting and to the persons or person then entitled to receive payments hereunder at the addresses of such persons or person last known to the Trustee. The resignation of an individual Co-Trustee shall take effect on the first to occur of ORM APPROVING MODIFICATION OF TRUST EFTA_R1_02054671 EFTA02697297 Mar-22-2012 11:37 AM Academic Affairs 9728836764 10/11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 . 15 I6 17 18 19 20 21 22 23 24 25 26 27 28 f the following: (1) the acceptance by the remaining Trustees of such resignation; (ii) the appointment and qualification of a successor individual Trustee; or (iii) the expiration of sixty (60) days from the date of mailing such notice. The resignation of the corporate Co-Trustee shall take effect upon the effective appointment of a successor corporate Co-Trustee. E The corporate fiduciary may be removed at any time, with or without cause, by written notice, signed by both non-corporate Trustees, delivered to the corporate fiduciary at least thirty (30) days from the effective date of the removal. At the time of delivering notice of removal, the non-corporate Trustees then in office shall designate a company of comparable standing and adequate capitalization and security as the successor corporate Trustee, using the procedure described in Paragraph C above (including seeking the consent of ELISA ZAFFARONI to the appointment). F Any appointment of successor trustee shall be by written instrument executed by the person or persons entitled to make such appointment and delivered at the time of the actual appointment to the person appointed and to the remaining Trustee or Trustees then acting. G. Any successor Trustee shall serve without bond unless the terms of the appointment require bond. • IL Any successor Trustee, however appointed, shall be responsible only for those trust assets actually received, and shall have no duty or responsibility to inquire into the acts or omissions of any predecessor Trustee. All powers exercisable by the Trustees are exercisable by any successor Trustee or Trustees. I. In no event shall the Trustors or any beneficiary of a trust established hereunder be appointed to serve as a Trustee of any trust established hereunder. At all times when a corporate Co-Trustee is serving, the corporate Co-Trustee shall account annually, in its usual accounting format, to any person then entitled to distributions of income from the Trust, and to any person who would then be a remainder beneficiary if the income beneficiary were then deceased. K. The corporate Co-Trustee shall be responsible for administrative and investment matters, and shall have exclusive authority with respect to the determination of income under the CUPIA adjustment powers. The individual Co-Trustees shall MU6UM4 - 10 - ORDER APPROVING MODIFICATION OF TRUST EFTA_R1_02054672 EFTA02697298 Mar-22-2012 11:37 AM Academic Affairs 9728836764 11/11 • 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 • 25 26 27 28 314*.tio, have responsibility for making discretionary distributions to the beneficiaries. Nothing in this paragraph, however, shall allow the individual Co-Trustees to distribute sums during ELISA ZAFFARONI's lifetime which exceed in any. calendar year, the "Adjusted Distribution Ceiling" for that year. As used here, the "Adjusted Distribution Ceiling" shall mean the amount of "aggregate income of the Trusts" available to fluid discretionary distributions to ELISA ZAFFARONI from either the GST Exempt Trust or the GST Non-Exempt Trust, determined by mtfitiplying the mean average of the fair market value of aggregate assets of the Trusts (as determined in accordance with general standards used for gift and estate tax valuation purposes without regard for any possible discounts that may be allowed for fractional interests or lack of ' marketability) as of December 31 fix each of the three preceding calendar years by the percentage of annual asset value that the institutional Trustee then serving determines that it should use under principal and income adjustment powers available when acting as trustee of taxable trusts subject to the Uniform Principal and Income Act or comparable statutes. L. The Co-Trustees may invest without regard to any generally- applicable restriction on self-dealing or violation of any rule against divided loyalty or other conflict of interest. M. Notwithstanding anything to the contrary herein, upon the death of ELISA ZAFFARONI, the majority of the legally competent beneficiaries then entitled to receive income front the trust estate, or the guardian or guardians of the beneficiaries, if they be minors, or the conservator or conservators of the estate of the beneficiaries if they be incapacitated, shall have the right to remove and appoint the Trustee." e. Order Modifying Trust to Permit Retention of Family Javestments Without Liability. For good cause appearing, Article TENTH of the Trust is hereby modified to add a new Paragraph L (setting forth trustee powers) as follows: "L. The Trustees shall have no liability for implementing the Trustors' intent by retaining any interests in the Family Investments (as hereinafter defined) regardless of the investment performance, productivity, distribution policy or history, or investment policy or history. Furthermore, the Trustees shall have no liability for retaining any one or more of the Family Investments regardless of the lack of diversification resulting from such retention or whether any one or more of the Family Investments constitutes a prudent investment for the Trust There shall be no duty to diversify, nor any duty of making 701162Z1v3 - 11 - ORDER APPROVING MODIFICATION OF TRUST E FTA_R 1_02654673 EFTA02697299