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HomeMy WebLinkAbout04-0893 · y COURT OF COMMON PLEAS OF CUMBERLAND COUNT , PENNSYLVANIA ()RPI IANS' COURT DIVISION TRUST UNDER WILL OF BELLE F. NELSON Xo. of ,,H - C'C q PETITION FOR CITATION TO SHOW CAUSE WHY REFORMATION OF CHARITABLE REMAINDER ANNUITY TRUST TO COMPLY WITH I~,EQ, UIREMENI'S OF ~664(d)(1)(A) OF TlfE INTEP, NAI~ REVENUE CODE ' OF 1986. ,AS AMENDED, SHOULD NOT BE GRANTED To the Honorable, the Judges of the Said Court: Your Petitioner. Manufacturers and Traders Trust Company, respectfully represents that: I. Beltc F. Nelson died a resident of Cumberland County on June 6, 2004. Her Will dated .ltd> 9. 1992. and Codicil thereto dated August 2. 1992 (together the "Will"), were duly admitted to probatc by Decree of the Register of Wills of Cumberland County on July 8, 2004 ? (_1-04-06o6). True and correct copies of thc Will and Codicil arc attached hereto, marked Exhibit A and made a part hereof. 2. Belle F. Nelson ctirectcd under Article FIFTH of her Will that Manufacturers and Traders Trtlst (o npany (successor by merger to Dauphin Deposit and Trust Company) serve as Excculor and Trustec under her Wilh .3. Belle F. Nelson was predeceased by her husband, Fritz Nelson. 4. By tt~c tel-ms o1' Subparagraph (2) of Article FOURTIt of her Will, Belle F. Nelson provictcd lbr thc creation of a charitable remainder annuity trust ("Trust") for the balance el'her estate. the trust minus thc six thousand dollar ($63)00) pay~nent to tile three noncharitable beneficiaries set lbrth above. 13. Thc charities listed in the document and each charity's respective share of the annual annuity amount are as follows: (a) Camp Hill I~rcsbyterian Church (50%); (b) Holy Spirit Hospital (7.5%); (c) Pinnacle Health Systcm (successor by merger to Capital Health Systenr) (7.5%): (d) Alzheimcr Association of' South Central Pennsylvania (7.5%); (c) American Biblc Society (7.5%); (1) Bethesda Mission of Harrisburg (4%); (g) Billy Graham Evangelism Association (4%); (h) Robert Shuller Telcvangclism Association (4%); (i) United Way of tine Capital Region of Harrisburg (4%); (j) Salvation Army (2%); and (k) Christian Churcbs United of the Tri-County Area for the HELP Ministry (2%). 14. Subparagraph (2)(d) of Article FOURTH of tile Will provides that it was Belle F. Nelson's intention that the Trust qnalil5= as a charitable remainder annuity trnst under section 664 of the Inlenral Rcvenuc Code and no provisions under thc Will shall operate to disqualiPy the trust. 15. In order ~:br a Trust to be a qualified charitable remainder annnity trust it must exprcss its payment to the life beneficiary as a sum certain. A "sum certain is a stated dollar amount expressed either as an absolute amount or as a lYaction or percentage of the initial fair market value of the propcrt,x placed in the trust." Section 664(d)(1)(A) & IRS Reg. ~1.664- 2(a)(1)(ii), (iii). 16. Under tile currcnl language oP tlne Trnst, thc Trustee is to distribute the income of thc trust to the noncbaritablc beneficiaries and charitable beneficiaries set lorth in subparagraph (2) of Article FOURTH but such distribution shall not be less than fivc percent (5%) of the initial Pair market value of tine trnst. This language does not provide for a sum certain amount. Thus, the trust does not satisfy one of thc requirements oF Scctiort 664(d)(1) and accordingly, no charitable deduction is allowablc by reason of Section 2055(e)(2)(A) of the Code. 17. In addition to the requirement that the annoity payment bc expressed in a sum certain, Code Section 664(d)(1)(D) provides that the value of the remainder interest of a charitable remainder trust be at least ten percent (10%) o£ the initial fair market value of all property placed inlo the trust. Further, Revenue Ruling 77-374, 1977-2 C.B. 329, provides that a trust will not qualify as a cbaritablc remainder annuity trost if there is a greater than fivc percent (5%,) cbancc that the trust fimd will be exhausted belbre tile trust ends. 18. Under the terms of Belle Nelson's Will. the Trustee is to distribute each year an annuity amount equal to the greater of the income or five percent (5%) of thc initial fXair market value of the Trust until the death of the final remaining noncharitable beneficiary. The youngest noncharitablc beneficiary was thirty-nine >ears old (39) at Belle Nelson's death. 19. Because of the very young age of such beneficiary (an additional life expectancy of approximately 43 years), the remainder interest will not be greater than ten percent (10%) at the death of the last living noncharitable beneficiary and there is a greater than five percent (5%) chance that the trust fund will bo exhausted before tile trust ends based on the Internal Revenue Service's tables. To extent that thc Trust docs not satisl}' those two tests, it will not satisfy the requiremcnls of' Scction 664(d)(1) and accordingly, no charitable deduction is allowable by reason of Section 2055(e)(2)(A) o£the Code. 20. Further, a general statement itl Belle Nelson's Will that the Trust shall comply with the requirements of the federal estate tax laws is not sufficient for the Trust to qualify under Codc Section 664 as a charitable remainder annuity trust. The Trust document lacks provisions regarding (a) thc deferral of payment; (b) proration of the annuity amount; (c) distributions to -4- qualified charities; (d) additional contributions; (c) prohibited transactions; and (t) taxable year; and (g) investment of trust assets. To extent that the Trust docs not have these provisions, it will not satisI}~ the requirements of Section 664(d)(1) and. accordingly, no charitable deduction is allowable by reason of' Section 2055(e)(2)(A) el'the Code. 21. it is proposed that this trust created under Section (2) of Article FOURTH be rctbrmed and amended to correct the dcficiencies set fortln herein above except for those set fortb in paragraph 18 (i.e. 10% test under Code Section 664(d)(l)(D) and 5% test under Revenue Ruling 77-374). The rctbrmed Trust is attacbcd as Exhibit "B" and made a part hcrcof. 22. Concurrently with the filing of' this Petition, your Petitioner is filing a Private Lettcr Ruling request with lhe hatcrnal Revenue Service requesting approval of this proposed reformation. A true and correct copy of tbe Private Letter Ruling is attached hereto, marked as Exhibit "C" and made part hereof. 23. If thc internal Re,~enue Serxice accepts the proposed relbmaation, such re£onnation will leave thc parties in interest in essentially the same economic position they would have been before relbrnaation. 24. if the Internal Revenue Service does not acccpt the proposed reformation and determines that the Trust must be modified in order to meet the 10% test under Code Section 664(d)(i)(D) and the 5% test under Revenue Ruling 77-374, we expect that the Internal Revenue Servicc ~ill require that the length of the Trust tcrm be changed to a term of years rather than based on thc lives of the noncharitable bencficiaries. 25. To the extent that a term of years is required to be used in the refornacd trust, the Internal Revenue Service will cap thc annuity lrust period at twenty years because that is tiao Iongesl period allowable under tine internal Rexenue Code for a charitable remainder annuity trust and such tenn will not cause the trast to fail tile 10% test under Code Section 664(d)(i)(D) and tile 5% test under Re; cnue Ruling 77-374. 26. If tile Trust term is capped at twenty years, the economic interests of the noncharitable beneficiaries may be changed However, based on the language set £orlh in subparagraph (2)(d) of Article FOURTH of Belle F. Nelson's Will. it was Belle F. Nelson's intent to create a qualified cbaritable remainder trust and no provision contained in bet Will shall operate to disqualit'y lbe Trust for qualil}'ing as such entity. 27. It is believed, and therefore avert-cd, lhat the modification of thc term of thc Trust in order to qualil}~, the Trust as a charitable remainder annuity trust is dictated by the Will and consistent with Belle F. Nelson's inteut as set ~brtb under her Will. However. this modification will only be made it`required by the Internal Revenue Service. 28. It is therefore proposed that if the h~tcrnal Revenue Service determines that the Trust term should be capped al twenty years, this trust created under Section (2) of' Article FOURTH be re£onned and amended to correct the dcficieacies set forth hereto above inclading those set forth in paragraph 15 (i.e. 10% test under Code Section 664(d)(i)(D) and the 5% test under Revenue Ruling 77-374). The alternate relbrmed Trust is attached as Exhibit "D" and made a part hereot~ 29. Finally, it is believed, and tberc£ore averred, that the original interests created under the Decedcnt's Will are reIbrmable interests as defined in ,~2055(e)(3)(C) of thc Code and that this Petition tbr Retbnnation, it' granted, will result in a "qualilied rcl'ormation" of tile trust as detined in ¢2055(e)(3)(B) of the Code. It is further believcd, and therefore averred, that the proposed refomlation will result in thc creation of deductible interests under §2055(a) of the Code. Absent such re£ormation, thc Internal Revenue Service could deny a charitable deduction 5- under ~2055(a) of thc Code Ibc the entire value of the principal of` this trust, thereby rendering it taxable in Belle F. Nelson's estate. THEREFORE, your Pctitioner prays this Honorable Court to issue a Decree, in the £orm annexed hereto, granting the issuancc of`a Citation, directed to Patti Nelson, Nancy Rudolph, Karen Schatz, Holy Spirit Hospital of the Sisters of' Christian Charity, Pinnacle Health System (successor by merger to Capital Health System), Alzheimer Association (South Ccntral Pennsylvania Chaptcr), American Biblc Society, Bethcsda Mission of Hamsburg, Billy Graham Evangelism Association, Robea H. Schuller Tclcvangelism Association, United Way of the Capital Region of Harrisburg, Salvation Army, Christian Churchs Unitcd of the Tri-County Area for the HELP Ministry, and lhe Office of the Attorney Gcncral of Pennsylvania, to show caasc why the refbrmation of the charitable remainder annuity trust created under subparagraph (2) of Article FOURTIf of thc Will and Codicil oFBcllc F. Nclson, should not bo granted. And your Petitioner will ever pray, etc .... Manufacturers and Traders Trust Company, Executor Kevin M. Scott I.D.~ 70322 Saul Ewing LLP 2 No~h Second Strect, 7t~ Floor H m~-isburg, PA 17101 Counsel For Petitioner -7- COURT OF COMMON PLEAS OF PHILADELPHIA COUNTY, PENNSYI,VANIA ORPHANS' COURT DIVISION TRUST UNDER WII,L OF BELLE F. NELSON No. of VERIFICATION Manufilcturers and Traders Trust Company, by' Thomas E. Morkin, verifies that it is thc Petitioner in the ;~ithin Petition, and verifies that tile statements of fhct made in this Petition are true and correct to tile best of its inlbrmation and belief; and they are made subject to tile penalties of 18 Pa. C.S. 04904 relating to unsworn Glsification to authorities. Manufacturers and Tradcrs Trust Company, Executor By: .~'":~'*~.'~ ~" 't"'~-'~;~: ,' Date: FIRST CODICIL TO LAST WILL AND TESTAMENT OF ~ELLE F. NELSON I, BELLE F. NELSON, of the Borough of Camp Hill, County of Cumberland and Commonwealth of Pennsylvania, declare this to be the First Codicil to my Last Will and Testament dated the 9th day of July, 1992. 1. Paragraph FOURTH of said Last Will and Testament is amended to include the following subparagraph in paragraph (2): (d) It is intended that this Trust shall qualify as a Charitable Remainder Annuity Trust under Section 664 of the Internal Revenue Code of 1986, as amended. No provisions as stated herein, or 0mitte~ · hereof, shall operate to disqualify t ht ~- Trust. Additionally, under no conditio~% shall the annual distribution be less tha~.' _. five (5%) percent of the initial fair market value of all property placed in the Trust. Should this minimum distribution be in excess of the net income in any period, my Trustee may invade the principal as necessary. 2. In all other respects, my said Last Will and Testament dated July 9, 1992 shall remain in full force and effect. IN WITNESS WHEREOF, I have hereunto set my hand and seal this ~h day of A~g,,~t , 1992, at the end hereof, composed in all of three pages, including the self-proving attestation clause and signatures of witnesses. BELLE F. NELSON WITNESSES: ? 2 COMMONWEALTH OF PENNSYLVANIA: : SS: COUNTY OF CUMBERLAND: We, Belle F. Nelson, the Testatrix, Mark R. Parthemer , and Donn L. Snyder , the witnesses, whose names are Signed to the attached foregoing instrument, being first duly sworn, do hereby declare to the undersigned authority that the Testatrix signed, sealed, published, acknowledged, and declared the instrument as her First Codicil to her Last Will and Testament; and that she signed willingly and that she executed it as her free and voluntary act for the purposes therein expressed; and that each of the witnesses in the joint presence of each other and in the presence and hearing of the Testatrix, signed the instrument as witness to her First Codicil to her Last Will and Testament; and that to the best of their knowledge the Testatrix was at the time eighteen years of age or older, was of sound and disposing mind, memory and understanding, and was under no constraint or undue influence. MA~K ~ ~itness Subscribed, sworn to and acknowledged before me, the undersigned officer, by BELLE F. NELSON, Testatrix, and subscribed and sworn to before me by ~onn L. Snyder and Mark R. Parthemer , witnesses, in the presence of each other, this 8th day of Auqust , 1992. Notary'P~blic " ~ NOTAR;AL SEAL I SARAH E. AP?LEBY No ary Pub!it m My Commission Expires ?c. 13. 1994 / Harrisburg. PA Da~hin 3 LAST WILL AND TESTAMENT OF B~T,T.~. F. NELSON I, BELLE F. NELSON, of the Borough of Camp Hill, County of Cumberland and Commonwealth of Pennsylvania, being of sound and disposing mind and memory, and not acting under undue influence of any person whomsoever, do make, publish and declare this instrument to be my Last Will and Testament, in manner and form following: PRIOR WILLS FIRST: I hereby expressly revoke all Wills, Codicils and testamentary writings of whatsoever kind and nature heretofore made by me. DEBTS AND EXPENSES SECOND: I hereby direct my Executor, hereinafter named, to pay all my just debts, expenses of administration and funeral expenses out of my estate as soon as is practicable after my decease. TAXES THIRD: I direct that all estate, inheritance, transfer, legacy or succession taxes, or death duties, which may be assessed or imposed of, wheresoever situate, whether or not passing under this my Last Will and Testament, including the taxable value of all policies of insurance on my life and all transfers, powers, rights or interests includible in my estate for the purpose of such taxes and duties, shall be paid out of my general estate as an expense of administration, and without apportionment, and shall not be prorated or charged against any of the gifts in this Will or against any property not passing under this Will. In the absolute discretion of my Executor, hereinafter named, it may pay such taxes immediatel, y or _may postpone the payment of the taxes on future or~ remaiHder interests until the time possession accrues to the beneficiar~ or beneficiaries named herein. My Executor may, in its discretion, arrange for extension of time for the payment of said estate and inheritance taxes, and any interest and/or penalty incurred on any such taxes, whether or not resulting from such extensions or postponements, shall be borne by my estate as an expense of administration. RESIDUARY DISPOSITION FOURTH: All of the rest, residue and remainder of my estate including real, personal and mixed property, I give for the uses and purposes herein set forth: (1) Surviving Spouse. In the event my husband, FRITZ C. NELSON, survives me by thirty (30) days, I give the remainder of my estate as follows: Recognizing the value of minimizing Federal estate taxes by utilizing my unified credit, I hereby give all of my residuary estate to my husband FRITZ C. NELSON subject to the following limitation. My Executor is empowered to fund up to the maximum of my remaining unified credit a unified credit shelter trust. In such event, my residuary estate shall be divided into two parts: (a) Marital Deduction Qualified Terminable Interest Property Trust (i) My Executor shall dis- tribute to my husband, FRITZ C. NELSON, in trust, an amount from the assets of my estate which will at most equal the minimum amount necessary to reduce to the least possible amount the aggregate federal estate tax payable as a result of my death, including any -2- generation skipping transfers. My Executor may take into account as credits against such taxes all credits including any charitable credit, unified credit, and state death tax credit. Such assets shall be distributed on the basis of their fair market value on the date of such distribution or their value as finally determined for federal estate tax purposes, whichever is less. (ii) I hereby direct my Trustee to distribute all of the income to my husband, FRITZ C. NELSON at least quarter annually, unless he directs otherwise. Further, my Trustee shall distribute as much of the principal and accumulated income, if any, to my husband as my Trustee, in its sole discretion, determines to be necessary and desirable to permit him to maintain his usual standard of living, including the costs of any illness or accident which may afflict him. (ii) Upon the death of my husband, my Trustee shall distribute the then remaining principal, and any accumulated income as follows: (A) To the Executor of my husband's estate, an amount equal to the estate, inheri- tance, transfer, succession or other death taxes, payable by reason of the inclusion of part or all of the trust property in his estate. (B) The balance, if any, -3- after the payment required by subparagraph (A) has been made, shall be added to any amount then remaining in the Unified Credit Shelter Trust, established hereinafter, and distributed under the terms and provisions of this Will as though my said husband predeceased me. (b) Unified Credit Shelter Trust - (i) Any and all assets remaining after the Marital Deduction Trust outlined in subparagraph (1)(a) of Article FOURTH above shall be held in this, the Unified Credit Shelter Trust. All of the income from said Trust shall be made available to my husband to be used as he may wish. The principal of said Trust shall be held for the benefit of the beneficiaries as provided in subparagraph (2) below. However, my husband shall have the following limited powers to invade the principal. Specifically, he may invade the Trust principal for his maintenance, education, support and health care. (2) Predeceased Spouse. Should my husband predecease me, or not survive me by thirty (30) days, or survive me and subsequently die, then and in that event, my estate shall be distributed, IN TRUST, as set forth below: (a) This Trust shall be known as the FRITZ C. and BELLE F. NELSON Endowment Fund. (b) The following shall receive life estate income interests: (i) To my husband's brother, Floyd -4- Nelson, of Kane, Pennsylvania, monthly income of two hundred-fifty dollars or an amount equal to that which was given to him immediately prior to my death, whichever is greater; (ii) To my sister-in-law, Leona Nelson, of Jamestown, New York, monthly income of two hundred-fifty dollars or an amount equal to that which was given to her immediately prior to my death, whichever is greater; (iii) Upon the death of either or both of the above-named beneficiaries, their income share shall be divided equally and distributed per capita to three of my nieces and nephews. They are NANCY RUDOLPH of Kane, Pennsylvania, KAREN SCHATZ, of Emporium, Pennsylvania and PAUL NELSON, of Kane, Pennsylvania. (iv) To my friends, Florence Hasenkamp and Hilliard Hasenkamp, or the survivor of them, the sum of five hundred ($500.00) dollars per month. (v) Upon the death of the last survivor of all of the above-named beneficiaries, all such income gifts shall cease and all income distributed pursuant to subparagraph (c) hereof. (vi) The amounts of income payments established in this sub-paragraph (b) are considered by my spouse and me to be appropriate sums to be received by each beneficiary. Consequently these payments represent maximums and shall not be duplicated or otherwise increased whether paid from the trust established pursuant to the Will of either my spouse or me or a merger of the trusts. -5- (c) Income not required to satisfy sub-paragraph (b) above from the principal of the Trust shall only be distributed to organizations exempt from tax and charitable in nature in accordance with and having the status of designation under section 501(c)(3) of the Internal Revenue Code of 1986, as amended. Such income shall be distributed, for as long as the named beneficiaries so qualify, in the following manner. (i) One half to the Camp Hill Presbyterian Church, of Camp Hill, Pennsylvania, and (ii) One half in the following amounts: A. Fifteen (15%) percent thereof each to aid the Holy Spirit Hospital of the Sisters of Christian Charity, Camp Hill, Pennsylvania, Capital Health Systems, Harrisburg, Pennsylvania, Alzheimer Association, South Central Pennsylvania Chapter, Harrisburg, Pennsylvania and the American Bible Society, New York, New York. B. Eight (8%) percent thereof to each the Bethesda Mission of Harrisburg, Pennsylvania, Billy Graham Evangelism Association, Minneapolis, Minnesota, Robert H. Schuller Televangelism Association, Inc., Orange, California and the United Way of the Capital Region of Harrisburg, Pennsylvania. C. Four (4%) percent thereof to each the Salvation Army for use in the Harrisburg, Pennsylvania metropolitan area and Christian Churchs United of the Tri-County Area for the HELP Ministry. (iii) Should any of the entities cease to qualify as a beneficiary of this Trust, its share shall be allocated to the remaining beneficiaries within its class. Failing that, its share shall be added to the class set forth in the subparagraph immediately preceding it. EXECUTOR AND TRUSTEE FIFTH: I hereby nominate, constitute and appoint DAUPHIN DEPOSIT BANK & TRUST COMPANY to be Executor of this my Last Will and Testament. I further hereby nominate, constitute and appoint DAUPHIN DEPOSIT BANK & TRUST COMPANY to be Trustee under this my Last Will and Testament. POSTING OF BOND SIXTH: I hereby direct that my Executor or my Trustee, as named by me herein, shall not be required to give bond or other security required by law or otherwise, for the faithful performance of their duties. TRUSTEE COMPENSATION SEVENTH: I direct that my Trustee is entitled to reasonable compensation and/or fees for services provided at the customary rates or charges then in effect. TRUSTEE POWERS EIGHTH: I give and grant unto my Trustee, for all trusts herein created the following powers, which shall be construed broadly and in addition to, and not in limitation of, their common law and statutory powers: (1) To allot, assign, care for, collect, contract with respect to, convey, convert, deal with, dispose of, enter into, exchange, hold, improve, invest, lease, manage, mortgage, grant and exercise options with respect to, take possession of, pledge, -7- receive, release, repair, sell, sue for and in general to do any and every act and thing and to enter into and carry out any and every agreement with respect to the property included in any trust created in this Will, which they could if they were the absolute owners thereof, without being limited in any way by the specific grants of power hereinafter made. (2) To retain for such time as in their judgment may seem advisable all or any part of my property as assets which at any time shall constitute a part of the trusts herein provided for. (3) To sell or exchange, either privately or at public sale and without prior approval of any court, at such time or times and at such price or prices, and on such terms and conditions as the Trustee may consider advisable, all or any part of the trust property, real, personal or mixed, and to execute, verify, acknowledge and deliver all deeds, bills of sale, or other documents which may be necessary or proper in the exercise of such powers without liability on the purchaser or purchasers to look to the application of the purchase price. (4) To manage any real property held by them in such manner as they may determine, including authority to alter, repair, maintain or improve such property as hereinafter set forth, to mortgage such property on such amount, on such conditions and at such rates of interest as they shall deem advisable; to abandon such property, to adjust boundaries, to erect or demolish buildings thereon, to convert for a different use, to dedicate for public use without compensation, to grant easements and rights-of-way, to waive payment for property taken by right of eminent domain and to claim and negotiate for payment for property, to enter into party-wall contracts, to protect out of the general funds of the trusts herein created, to insure or perfect title, and to charge the cost of any action taken with regard to any such property to principal or income as they may determine. To make all ordinary repairs, alterations or improvements against the principal of the trust herein created of which the property being repaired, altered or improved forms a part. (5) To lease any real estate subject to the trust herein created for such term or terms, and for such rental or rentals and under such covenants and agreements as may, in the discretion of the Trustee, be considered for the best interest of the trust estates. The Trustee shall recognize existing leases, but still -8- have the power to agree to modification of, or amendment to, the terms of existing leases or to extensions or renewal thereof. The Trustee shall have the authority to acquire by purchase, gift or otherwise, and to resell, receive, hold, manage and control real estate and other interest therein, subject to the Trusts, and do all things necessary or proper in the performance of such functions. (6) To invest, and from time to time to reinvest, to acquire and to retain temporarily or permanently the trust estates received or held by them in cash or in kind of real or personal property, foreign or domestic, including by way of illustration, but not by way of limitation, common or preferred stocks, investment trusts, mutual funds, common trust funds, voting trust certificates, bonds, mortgages, debentures, notes, unsecured obligations, wasting assets, or investments which are unproductive, overproductive or underproductive as in their discretion they may deem advisable, and without regard as to the proportion that any such investment may bear to the total trust funds or the relation it may bear to the type or character of other investments in the trust estates, or to the effect such investments may have upon the diversification of the investments in the trust estates and they shall not be restricted in their choice or investments to such investments as are permissible for fiduciaries under any present or future applicable law, it being my intention to give my Trustee power to act in such manner as they will believe to be for the best interest of the trust created herein. I hereby direct that my Trustee may, in addition to all the powers of investment herein given, maintain in my trust estate securities of the corporate fiduciary in any amount which the said Trustee within their discretion deem proper. (7) To pay income tax on gains from the sale or other conversion of capital assets out of the proceeds thereof. (8) To amortize, accelerate payment of, reduce, extend, modify, settle or liquidate any lien, encumbrance, mortgage or other charge against any real estate or other property which may be subject to these trusts. The Trustee shall specifically keep and perform all of the covenants, terms and conditions of any existing mortgage or mortgages upon said real estate, on the part of the mortgagor required to be kept and performed and shall have full power and authority, with the consent of the mortgagee or mortgagees, to refund, replace, extend or otherwise amend the -9- same, and to anticipate and accelerate any periodical payments therein required. (9) To subscribe for stock allotments and exercise all rights and privileges pertaining to securities which are available to the owner thereof. (10) To receive or make distribution of any trust herein created, either in money or in kind, or partly in money and partly in kind. The judgment of the Trustee as to what shall constitute an equitable distribution or apportionment shall be binding and conclusive upon the beneficiaries hereof. Nothing herein contained, however, shall empower the Trustees to make distribution before the time or times specified herein. (11) To pay, collect, compromise, sue for or contest any claim or other matter, directly or indirectly affecting the trusts. (12) To use income and/or principal to maintain in force any policies of life insurance which I may own on the life or lives of other persons or to receive in gift or purchase or maintain previously existing insurance or annuity contracts for the benefit of any beneficiary, primary or contingent, if the Trustees determine that the best interest of my family would be served by purchasing said contracts or by continuing such insurance in force, and to exercise all the powers given to the owner of such policies. (13) To employ counsel, auditors, accountants, appraisers, engineers, and other persons, professional or otherwise, as may be necessary for the proper administration of the trusts, and to pay their compensation from trust funds. (14) To borrow money and security therefore, to execute bonds and mortgages containing warrants of attorney, to confess judgment and to pledge personal property. (15) To incorporate any unincorporated business received from my estate. (16) To carry on and conduct any business enterprise in which I may be engaged at my death. -10- (17) As to each trust created herein, to exercise all the powers granted and all the duties imposed herein until such time after the termination of that trust as the property included in that trust has been fully distributed, and to do all other acts which in its judgment may be necessary or appropriate for the proper or advantageous management, investment or disposition of any property included in any trust created herein. EXECUTOR POWERS NINTH: I hereby give unto my Executor, hereinbefore named, and to my Trustee, hereinbefore named, the fullest power and authority in all matters or questions pertaining to the administration of my estate and trust, executing the provisions of this my Last Will and Testament, including, but not by way of limitation, the power and authority to determine all doubtful questions which may arise in the construction of this my Last Will and Testament, and the trust hereunder; I further hereby authorize and empower my Executor, pending settlement of my estate, to sell, convey, mortgage, lease, exchange, encumber or otherwise dispose of any and all of the property, real, personal or mixed at any time belonging to my estate, either at public or private sale, without prior approval of any court, and at such times and for such price or prices and in any such case upon such terms as it may determine to be best in its discretion, and I authorize and empower my said Executor to execute, acknowledge and deliver to the purchasers, grantees, mortgagees, vendees, assignees or other persons, such contracts, deeds, mortgages, bills of sale, and all other instruments of writing necessary or proper without obligation upon the latter to see to the proper application of the proceeds. It shall also have the power to compromise or otherwise settle or adjust any and all claims, charges, debts and demands whatsoever against, or in favor of my estate as fully as I could do if living. It shall further be empowered to carry on and conduct any business enterprise which I may be engaged in at my death, to retain any assets, including stocks or securities which I may own at the time of my death, pending settlement of my estate, without regard as to whether or not such assets or securities are legal investments for fiduciar- ies, and may make distribution in kind to my Trustee. Pending settlement of my estate, its shall also have the authority in its discretion to convert, sell, exchange or dispose of such assets and securities either for cash or for terms satisfactory to them and to acquire other assets without limitation to securities or -11- investments as may be declared legal for investment of trust funds. It shall further be empowered to borrow money, and to pledge assets of my estate as security therefor, for the purpose of paying taxes which may be levied upon or payable by my estate in accordance with this Will and in the event that funds in the hands of my Executor, shall be insufficient to pay such taxes, and if, in the opinion of my Executor, it appears that conversion of securities and other assets, real and personal, would then be made at a sacrifice. Should my husband, FRITZ C. NELSON survive me, my Executor shall be authorized, in its sole, exclusive and unrestricted discretion, to determine whether to elect Section 2056(b)(7) of the Internal Revenue Code of 1986, as amended, or any corresponding provision of state law, to qualify all or a specific portion of the trust created in Article FOURTH, paragraph l(a) of this Will for the federal estate tax marital deduction and any marital deduction available under law of the applicable state., I suggest, but do not direct, that in exercising such discretion, my Executor attempt to minimize or eliminate the federal and state taxes payable by my estate at the time of my death. However, my Executor should also consider the effect of its election upon the taxes payable by my wife's estate at her death. The decision of my Executor shall be final and conclusive upon all persons whose interests in my estate are directly or indirectly affected hereby. SIMULTANEOUS DEATH TENTH: Any person, other than my husband, who shall have died within thirty (30) days of my death, shall be deemed to have predeceased me. If my husband and I die simultaneously, or under such circumstances that the order of our deaths cannot be established by proof, my I shall be deemed to have survived me. In any case, if my husband and I have established identical trusts, such trusts may be merged, combined and administered as one. Any person (other than myself) who shall have died at the same time as any then recipient of income or in a common disaster with such beneficiary, or under such circumstances that it is difficult or impossible to determine who died first, shall be deemed to have predeceased such beneficiary. -12- S~PENDTH~IFT PROVISION ELEVENTH: The rights, titles, benefits, interests and estates of any beneficiary hereunder, including beneficiaries under the trusts herein created shall not be subject to the rights or claims of his or her creditors nor subject nor liable to any process of law or COurt, and all of the income, principal or other benefits from or under any trust herein created, shall be payable, and deliverable only, wholly, exclusively and person- ally to the designated beneficiaries hereunder at the time the designated beneficiaries are entitled to take the same under the terms of this instrument. IN WITNESs WHEREOF, I have hereunto set my hand and seal this _ ~ day of July, 1992. BELLE F. NELSON SIGNED, SEALED, PUBLISHED AND DECLARED by the above-named Testator, BELLE F. NELSON, as and for her Last Will and Testament, consisting of fourteen (14) pages, in the presence of us, who at her request, in her presence and in the presence of each other, all being present at the same time, hereunto set uune have °UMands a~i~sses: F~TM Ad~ress~/ & _ .~ - -13- COMMONWEALTH OF PENNSYLVANIA: : SS: COUNTY OF DAUPHIN : We, BELLE F. NELSON, the Testatrix and Dorm L ~nyder , and Mark R Parthemer the witnesses, whose names are signed to the attached foregoing instrument, being first duly Sworn, do hereby declare to the undersigned authority that the Testatrix signed, sealed, published, acknowledged, and declared the instrument as her Last Will and Testament; and that she signed willingly and that she executed it as her free and voluntary act for the purposes therein expressed; and that each of the witnesses in the joint presence of each other and in the presence and hearing of the Testatrix, Signed the instrument as witness to her Last Will and Testament; and that to the best of their knowledge the Testatrix was at the time eighteen years of age or older, was of Sound and disposing mind, memory and understanding, and was under no constraint or undue influence. D nn~2~r' WitnesSes  rk R. Parthemer Witness Subscribed, Sworn to and acknowledged before me, the undersigned officer, by BELLE F. NELSON, the Testatrix, and subscribed and Sworn to before me by Dorm L Snyder Mark R Parthemer and the'~witnesses, in the"presence of each other, this 9th day-of July, 1992. 2 Notary P~blic- I harrisburg, PA ~a~¥ ~uo~icl I 51,¢ Comm~ ~ ~ upn~n LOunty~ [ -~ ~SSlOn cxplres Nov. 2~, 19~5J (2) p-, i edeceased Spouse. (a) Should mybusband predecease me, or not survive me by thirty (30) days, or survive mc and subsequently die, then and i12 that event, 111y estate shall be distributed to my Trustee in trust to bo administered under this provision. I intend this bequest to establish a char/table remainder annuity trust within thc lneaning of Rev. Proc. 2003-60 and ~664(a)(1) the latemal Revenue Code. The a'usl shall be known as the FRITZ C. and BELLE F. NELSON Charitable Remainder Annuity Trust. (b) PaJ,llteltt ofJltlll~io, JmOltllt. The annuity alllOtlll[ is equal to five percent (5%) of the initial net Git market xalue of ail properts passing to/his trust as finally deterlnined tbderal estate tax purposes. In each taxable year oFtbe lrus~ during the annuity period, the Trustee shall pay S6,000 of thc annuity amount in equal shares to NANCY RUDOLPH, KAREN SCHATZ and PAUL NELSON (hcrdnaf~er, "the Noncharitable Recipients") during thdrjomt lives, and upon the death of one (hereinafter "lhe Predeceasing Noncharitable Recipient"). the Trustee shall pay the entire $6,000 (subject to proration in paragraph e) m equal shares to the survivors or survivor (hereinafter '%e Survivor Recipient"). In each taxable year of the trust during the annuity period, the Trustee shall pay an amount eqaal Io annuity amount mhms $6,000 to the ~bllo~xing charitable organizations in thc lbllox~ing manner: (J) One halfto thc CAMP ItlLL PRESBYTERIAN CHURCH of Camp Hill, Pennsylvania, and (ii) One balFin the N41owing amounts: A. Eificen perccnt(15%) thereof'each to aid thc HOLY SPIRIT HOSPITAL OE THE SISTERS OF CHRISTIAN CHARITY, Camp Pennsylvania, CAPITAL HEALTH SYSTEMS. }lan'isbur~, Peansylvania, ALZHE[MER , SSOC[ATION. SOUTH CENT~4L PENNSYLVAN · IA CHAPTER, Harrisburg, Pennsylxania, and thc AMERICAN BIBLE SOCIETY, New York, Ncw York. a. Eight percent (8%) thereof to each the BETHESDA MISSION OF HARRISBURG, Harrisburg, Pennsyh'ania, BILLY G~HAM EVANGELISM ASSOCIATION, Minneapolis, Minnesota, ROBERT H. SCHULLER TELEVANGELISM ASSOCIATION, INC., Orange, Calilbrnia, mad the UNITED WAY OF THE CAPITAL REGION ol'Harrisburg, Pennsylvania. C. Fotll' percent (4%) thereol? to each the SALVATION A~MY use in the Hart sburg, Pennsvkania metropolitan area and CHRISTIAN CHURCHS UNITED OF T~E TRI-COUNTY AREA lbr the HELP MINISTRY. (iii) Should any ol'd~e entities used in Paragraphs (i) and (ii) above not qualil}, as an organization described in ~170(c) and 2055(a) of thc Code ~hen the annuity payn~ent is 1o bo distributed to it, its share shall be allocated to the remaining cnet~c ar es xx~th n ~ts c ass that qua/il? as an organization described in ¢170(c) and 2055(a) o£tbe Code. Failing that, thc Trustee shall distribute its share to one or more organizations described in ~170(c) and 2055(a) of the Code as the Trustee shall select. and in the proportions as the Trustee shall decide, in the Trustec's sole discretion. (ca /lllllttiO' Period. The first day of tile annuity period shall be the date of my death and tile last day of the annuit5 period shall be the date of the last Survivor Rccipient's death. The mmuity amount shall be paid in equal quarterly installments at tile end of each calendar quarter fi'on] income, and to thc extent income is not suflicicnt, fi'om principal. Any income tile trust fbr a taxable year in excess of the annuity amount shail be added to principal. If the initial not fair market vahtc of the trust assets is incorrectly determined, then within a reasonable period ]fief the value is finally detcn~ined for federal estz~te tax purposes, the Trustee shall pay to the Noncharitablc Recipients and Charitable Recipients (in the case of an undetwaluation) or reccive f¥om the Noncharitablc Recipients and the Charitable Recipients (in the case of an overvaluation) an amount equal to thc dil'ference between thc annuity amount properly payable and tine mmuity amount actual paid. (da Dt'Ji, rral Provisio,. The obligation to pay the annuity amount shall commence with thc datc of my death, but paymcut of tho anmlity amount may be deferred fi-om such date until tlne end of the taxable year in which the trust is completely funded. Within a reasonable time alter the end o17 thc taxable year in which tbe complete funding of thc trust occurs, thc Trustee must pay to the Noncharitable Recipients and Charitable Recipients (in the case of an undcrpayment) or receive from tbc Noncbaritable Recipients and Charitable Rccipients (in the case of an overpayment) the difference between: (ia any annuity anaounts actually paid, plus interest, compounded annually, computed for any period at the rate ofintercst that the federal income tax regulations under Section 664 of'the Code prescribe lbr tiao trust for such compulation lbr such period; and (ii) the anmdtv amoants payable, plus interest, compounded annually, computed lbr any period at the rate of:interest that the federal income tax regulations under Section 664 prescribe tbr the trust ~'or such computation for such period. (ca Pt'oratiott of~qttttltit), Amott~t. The Trustee shall prorate the annuity amount oil a daily basis for any short taxable year. Upon the death ora Predeceasing Recipient, the Trustee shall prorate on a daily basis the Predeceasing Rccipient's share of thc next regular annuity payment between tine estate of the Predeceasing Recipient and the Survivor Recipient/Survivor Recipients. In the taxable year of the trust during which tile annuity period ends, the Trustee shall prorate the annuity ]meant on a daily basis f'or the number of days oFthe annuity period in that taxable year. Distribtttiott to Charities at E~d of :4ttttt~it.r, Period. At the termination of tho annuity period, the Trustee shall distribute thc entire annuity amount (other than any amount due the Recipients or their Estates and the Charitable Recipients above) each taxable year to tile Charitable Organizations listed above in the shares set forth above. If any Charitable Organization is not an organization described in ¢170(c) and 2005(a) of the Code at thc time when such distribution is to be made, its share shall be allocated to tile remaining beneficiaries xvithin its class thal quality' as all organization described it] ~170(c) and 2055(a) of the Code. Failing that, the Trustee shall distribute such share to one or more organizations described in JI70(c) and 2055(a) of the Code as the Trustee shall select, aod iu lhe proportions as the Trustee shall decide, in the Trustee's sole discretion. (g) A&litional Contributio~ts. No additional contributions shall be made to the Trust after tile initial contribution. The initial contribution, however, shall be deemed to consist of all property passing to the Trust by reason of my death. (h) Prohibited Transactio~ts. The Trustee shall not engage in any act ofself-dealing xvithin the meaning of Section 4941 (d) of the Code, as modified by Section 4947(a)(2)(A) of the Code, and shall not ~nake any taxable expenditures within tile meaning of Section 4945(d) of the Code, as modified by Section 4947(a)(2)(A) of the Code. The Trastee shall not make any investments that jeopardize the exempt purpose of the trust for pm~poses of Section 4944 of the Code, as modified by Section 4947(a)(2)(A) of the Code, or retain any exccss business holdings for purposes of Section 4943 of the Code, as modified by Section 4947(a)(2)(A) of the Code. After tile eod of the annuity period, the income of each taxable year shall be distributed at such time and in such manoer as not to subject the trust to tax under Code Section 4942. Further, after the end of the anmdty period, it is my intent thai the trust qualify as a private foundation within Code Section 509(a) as modified by Code Section 4947(a)(1) and the Trustee is prohibited from exercising any power or discretion granled under said laws that would be inconsistent with the qualification of the Trnst as a private foundation under Code Section 509(a) as modified by Code Section 4947(a)(1 ) o f the Code and tile con'esponding regulations. (i) Taxable Year. The taxable year of thc Trust shall be the calendar year. O) Governhtg Law. The operation of the Trust shall be governed by the laws o£the Commonwealth of Pennsylvania. The Trustee. however, is prohibited l¥om exercising any power or discretion granted under said laws that would be inconsistent with the qualification of the Trust under Section 664(d)(1) of thc Code and the corresponding regulations. (k) Limited Power of,4mendlnent. The Trustee shall have the power, acting alone, to amend thc Trust in any manner required lbr the sole purpose of ensuring that the Trust qualifies and continues to quali fy as a charitable rcmainder annuity trust within the n~eaning of Section 664(d)(1 ) of the Code. Further, after tile annuity period, the Trustee shall have the po;x er, acting alone, to ameod the Trust itl aoy manner required for the sole pm-pose of ensuring that the Trust qualifies and continues to qualify as a private foundation within tile meaning of Code Section 509(a) as modified by Code Section 4947(a)(1). (I) Investment of Trt[st Assets. Nothing herein shall be construed to restrict tile Trustce fi-om iovesting the Trust assets in a manner that could result in the annual realization ora reasonable amount of raceme or gain fi'om tile sale or disposition of Trust assets. October 4, 2004 VIA CERTIFIED MAIL- RETUR~N RECEIPT REQUESTED Internal Revenue Service Associate Chief Counsel Attn: CC: PA: LPD:DRU P. O. Box 7604 Ben Franklin Station Washington, DC 20044 Re: Estate of Belle F. Nelson - 25-6859975 - Private Letter Ruling Request REOUEST FOR EXPEDITIOUS HANDLING Dear Sir or Madam: On behalf of the Estate of Belle F. Nelson (the "Estate"), we respectfully request a ruling on a proposed refon-nation ora charitable remainder annuity trust pursuant to Section 2055(e)(3) of thc Internal Revenue Code of 1986, as amended (the "Code"). Pursuant to Section 8.02 of Revenue Procedure 2004-i, we are also requesting expeditious handling of this letter ruling request, as v,-e expect to file the Estate's Fom~ 706 on or before its due date March 6, 2005. Statement of Facts Belle F. Nelson died a resident of Camp Hill, Pennsylvania on June 6, 2004. Her taxpayer identification nt~mber was 182-40-9714. Belle F. Nelson was predeceased by her husband, Fritz Nelson. A federal estate tax return for the Estate ofBelle F. Nelson has not been filed as of the date of this ruling request. Internal Revenue Service October 4. 2004 Page 2 Belle F. Nelson through her Will and her first and only Codicil created a testamentary trust upon her death. Copies of her Will and Codicil are attached as Exhibit "1 ." By tt~e temls of'Article FOURTH of her Will and Codicil, the Trustee was to hold the funds from the residue of her estate in a charitable remainder annuity trust ("Trust"). With respect to the creation of the Trust, Subparagraph (2) of Article FOURTH of the Will and Codicil provides as follows: (2) Predeceased Spouse. Should my husband predecease me, or not survive me by thirty (30) days, or survive me and subsequently die, then and in that event, my estate shall be distributed, 1N TRUST, as set forth below: (a) This TRUST shall be known as the FRITZ C. and BELLE F. NELSON Endowment Fund. (b) The l~llowing shall receive life estate income interests: (i) To my husband's brother, FLOYD NELSON, of Kane, Pennsylvania, monthly income of two hundred fifty dollars ($250.00) or an amount equal to that which was given to him immediately prior to my death, whichever is greater; (ii) To my sister-in-law, LEONA NELSON, of Jamestown, New York, monthly income of two hundred fifty dollars ($250.00) or an amount equal to that which was given to her immediately prior to my death, whichever is greater; (iii) Upon the death of either or both of the above-named beneficiaries, their income share shall be divided equally and distributed per capita to three of my nieces and nephews. They are NANCY RUDOLPH of Kane, Pennsylvania, IC,~REN SCHATZ of Emporium, Pennsylvania, and PAUL NELSON of Kane, Pennsylvania. (iv) To my friends, FLORENCE HASENKAMP and HILLIARD HASENKAMP, or the survivor of them, the sum of five hundred dollars ($500.00) per month. Internal Revenue Service October 4, 2004 Page 3 (v) Upon the death of the last survivor of all of the above-named beueficiaries, all such income gifts shall cease and all income distributed pursuant to subparagraph (c) hereof. (vi) The amounts of income payments established in this sub- paragraph (b) are considered by my spouse and me to be appropriate sums to be received by each beneficiary. Consequently, these payments represent maximums and shall not be duplicated or other~vise increased whether paid from the trust established pursuant to the Will of either my spouse or me or a merger of the trusts. (c) Income not required to satisfy sub-paragraph (b) above from the principal of the Trust shall only be distributed to organizations exempt from tax and charitable in nature in accordance with and having the status of designation under section 501(c)(3) of the Internal Revenue Code of 1986, as amended. Such income shall be distributed, for as long as the named beneficiaries so qualify, in the fOllowing manner. (i) One half to the CAMP HILL PRESBYTERIAN CHURCH of Camp Hill, Pennsylvania, and (ii) One half in the following amounts: A. Fifteen percent (15%) thereof each to aid the HOLY SPIRIT HOSPITAL OF THE SISTERS OF CHRISTIAN CHARITY, Camp Hill, Pennsylvania, CAPITAL HEALTH SYSTEMS, Harrisburg, Pennsylvania, ALZHEIMER ASSOCIATION, SOUTH CENTRAL PENNSYLVANIA CHAPTER, Harrisburg, Pennsylvania, and the AMERICAN BIBLE SOCIETY, New York, New York. B. Eight percent (8%) thereof to each the BETHESDA MISSION OF HARRISBURG, Harrisburg, Pennsylvania, BILLY GRAHAM EVANGELISM ASSOCIATION, Minneapolis, Minnesota, ROBERT H. SCHULLER TELEVANGELISM ASSOCIATION, INC., Orange, California, and the UNITED $VAY OF THE CAPITAL REGION of Harrisburg, Pennsylvania. C. Four percent (4%) thereof to each the SALVATION ARMY for use in the Harrisburg, Pennsylvania metropolitan area aud CHRISTIAN CHURCHS UNITED OF THE TRI-COUNTY AREA for the HELP MINISTRY. Internal Revenue Service October 4, 2004 Page 4 (iii) Should any of the entities cease to qualify as a beneficiary of this Trust, its share shall be allocated to the remaining beneficiaries within its class. Failing that, its share shall be added to the class set forth in tbe subparagraph immediately preceding it. (d) It is intended that this Trust shall qualify as a Charitable Remainder Annuity Trust under Section 664 of the Internal Revenue Code of 1986, as amended. No provisions as stated herein, or omitted hereof, shall operate to disqualify this Trust. Additionally, under no condition shall the annual distribution be less than five percent (5%) of the initial fair market value of all property placed in the Trust. Should this minimum distribution be in excess of the net income in any period, my Trustee may invade the principal as necessary. In order for a trust to be a qualified charitable remainder annuity trust it must express its payment to the life beneficiary as a sum certain. A "sum certain is a stated dollar amount expressed either as an absolute amonnt or as a fraction or percentage of the initial fair market value of the property placed in the trust." Section 664(d)(1)(A) & IRS Reg. §1.664-2(a)(1)(ii), (iii). Under the current language of the Trust, the Trustee is to distribute the income of the trust to the noncharitable beneficiaries and charitable beneficiaries set forth in subparagraph (2) of Article FOURTH but such distribution shall not be less than five percent (5%) of the initial fair market value of the trust. It is not clear xvhether this is a sum certain. Thus, the trust may not satisfy one of the requirements of Section 664(d)(1) and accordingly, no charitable deduction is allowable by reason of Section 2055(e)(2)(A) of the Code. In addition to the reqnirement that the payout be expressed in a sum certain, Code Section 664(d)(1)(D) provides that the value of the remainder interest of a charitable remainder trust be at Least ten percent (10%) of the initial fair market value of all property placed into the trust. Further, Revenue Ruling 77-374 provides that a trust ~vill not qualify as a charitable remainder annuity trust if there is a greater than five percent (5%) chance that the trust fund will be exhaasted before the trust ends. Under the terms of Belle Nelson's Will, the Trustee is to distribute an annuity amount equal to at least five percent (5%) to the nonchadtable beneficiaries and charitable beneficiaries until the death of the final remaining noncharitable beneficiary. The Internal Revenue Service October 4, 2004 Page 5 youngest noncharitable beneficiary ~vas thirty-nine years old (39) at Belle Nelson's death. Because of the very young age of such beneficiary, the remainder interest will not be greater than ten percent ( l 0%) at the death of the last living noncharitable beneficiary and there is a greater than five percent (5%) chance that the trust fund will be exhausted before the trust ends. To the extent that the Trust does not satisfy those two tests, it will not satisfy the requirements of Section 664(d)(1) and accordingly, no charitable deduction is allowable by reason of Section 2055(e)(2)(A) of the Code. Finally, a general statement in Belie Nelson's Will that the Trust shall comply with the requirements of the federal estate tax laws is not sufficient for the Trust to qualify under Code Section 664. The Trust document lacks provisions regarding-l) the deferral of payment; 2) proration of the annuity amount; 3) distributions to qualified charities; 4) additional contributions; 5) prohibited transactions; 7) taxable year; and investment of trust assets. To extent that the Trust does not have these provisions it will not satisfy the requirements of Section 664(d)(1) and accordingly, no charitable deduction is allowable by reason of Section 2055(e)(2)(A) of the Code. Prior to the filing of this ruling request, a petition (the "Petition for Reformation") was filed on October 4, 2004, with the Court of Common Pleas of Cumberland County, Pennsylvania, Orphan's Court Division, to reform the terms of the trust. A copy of the Petition for Reformation is attached hereto as Exhibit "2." The Petition for Reformation requests the Orphan's Court to reform the charitable remainder annuity trust created by Subparagraph (2) of Article FOURTH to comply with Code Section 664(d)(1). The Petition for Reformation contains a proposal to modify the terms of the Will to (1) make the payout amount equal to five percent each year and therefore qualify as a %urn certain" amount under Code Section 664(d)(1)(A); (2) ensure that the value of the remainder interest in the Trust satisfies the requirements of Section 664(d)(1)(D) and Rev. Ruling 77-374; Interual Revenue Service October 4, 2004 Page 6 and (3) insert language regarding the deferral of payment; proration of the annuity amount; distributions to qualified charities; additional contributions; prohibited transactions; taxable year; and investment of trust assets in order to ensure the Trust qualifies as a charitable remainder annuity trust under Code Section 664(d)(1) and the applicable regulations. Upon the death of the last living noncharitable beneficiary, the charitable remainder annuity trust will terminate, the principal will be held in a perpetual charitable trust, and the five percent armuity therefrom will be paid in equal shares to the charitable beneficiaries. All of the charitable beneficiaries are presently organizations described in Section 170(c) of the Code for which charitable deductions are allowable under Section 2055 of the Code. The proposed amendments to Subparagraph (2) of Article FOURTH of the Will to effectuate this planned reformation are attached to the Petition for Reformation as Exhibits "B" and ~D" thereto. Rttlin,~s Requested Based on the facts as described above, we respectfully request the following rulings on behalf of the Estate: (a) The original interest passing through the trust created by Subparagraph (2) of Article FOURTH is a "reformable interest" as defined in Section 2055(e)(3)(C) of the Code. (b) The Petition for Reformation, when granted, will result in a qualified reformation of the trust created by Subparagraph (2) of Article FOURTH of the Will and Codicil, as defined in Section 2055(e)(3)(B). (c) The remainder interest in the Trust created by reformation xvill be deductible under Section 2055(a) of the Code. (d) The annuity interest of the Charities in the Trust created by reformation will be deductible under Section 2055(a) of the Code. Statemettt o fLaw attd Attal~,'si$ Section 2055(e)(2)(A) of the Code provides, in part, that an estate tax charitable dcduction is disallowed if an interest in property (other than an interest described in Internal Revenue Service October 4, 2004 Page 7 Section 170(f)(3)(B)) passes or has passed from the decedent to a charitable beneficiary, or for a charitable purpose described in Section 2055(a), and an interest (other than an interest which is extinguished upon the decedent's death) in the same property passes or has passed (for less than an adeqoate and fifll consideration in money or money's worth) from the decedent to a noncharitable remainder or purpose, unless in the case of a remainder interest, such interest is in a trust which is a charitable remainder annuity trust or a charitable remainder unitrust (described in Section 664) or a pooled income fund (described in Section 642(c)(5)). Section 664(d)(1) provides that a charitable remainder annuity trust is a trust -- (A) from which a sum certain (which is not less than five percent nor more than 50 percent of the initial net fair market value of all property placed in trust) is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in Section 170(c) and, in the case of individuals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of 20 years) or for the life or lives of such individual or individuals; (B) from which no amount other than the payments described in subparagraph (A) and other than qualified gratuitous transfers described in subparagraph (C) may be paid to or for the use of any person other than an organization described in Section 170(c); and (C) folloxving the termination of the payments described in subpara~aph (A), the remainder interest in the trust is to be transferred to, or for the use of, an organization described in Section 170(c) or is to be retained by the trust for such a use, or to the extent the remainder interest is in qualified employer securities (as defined in subsection (g)(4), all or part of such securities are to be transi?erred to an employee stock ownership plan (as defined in section 4975(e)(7) in a qualified gratuitous transfer (as defined by subsection (g)), and (D) the value (determined under Section 7520) of such remainder interest is at least 10% of the initial net fair market value of all property placed into the trust. Internal Revenue Service October 4, 2004 Page $ Because the current language of the Trust provides that the Trustee is to distribute the income of the Trust to the beneficiaries but such distribution shall not be Iess than five percent (5%) of the initial fair market value of the trust, the annual annuity payout may not qualify as a "stun certain." If so, the Trust would not qualify as a charitable remainder annuity trust under Section 664(d)(1)(a). Hence, Section 2055(e)(2)(A) xvould operate to disallow an estate tax deduction to the Estate for the value of the remainder interest. However, Section 2055(e)(3) of the Code provides for rules governing the reformation of split-interest trusts which do not meet the technical requirements imposed by Section 2055(e)(2). Specifically, Section 2055(e)(3) of the Code permits defective charitable remainder annuity trusts to be reformed to comply with Section 2055(e)(2) by "qualified reformation." A ~qualified re forn~ation" means a change of a governing instrument by reformation, amendment, construction, or otherxvise, but only if any difference between the actuarial value (determined as of the date of the decedent's death) of the qualified interest, and the actuarial value (as so determined) of the reformable interest does not exceed five percent of the actuarial valae (as so determined) of the reformable interest. In addition, the non-remainder interest (be£ore and after the qualified reformation) must terminate at the same time, and the change must be e~'fective as of the date of'the dccedent's death. In the present case, the Petition for Reformation o f the language regarding the five percent (5%) payout amount, if granted, xvill bring about a qualified reformation of the trust created by Subparagraph (2) of Article FOURTH of Belle F. Nelson's Will. The proposed relbrmation will be effective as of the date of Belle F. Nelson's death, June 6, 2004. In addition, both belbre and after reformation, the non-remainder interest of the noncharitable beneficiaries will terminate upon the last surviving noncharitable beneficiaries death. Finally, because the reformation results in a payout of five percent (5%) rather than a payout of the greater of five percent (5%) or the income of the trust, it is not possible to determine whether the actuarial Internal Revenue Sen'ice October 4, 2004 Page 9 values of the remainder interest before and after the reformation have changed by more than five percent (5%). Even though that determination is not possible, it is certain that the actuarial values of their annuity interest of the noncharitable beneficiaries before and after the reformation are identical and therefore the total rights of the charities to the annuity interest and remainder interest in the Trust are substantially identical before and after the reformation. Accordingly, the proposed reformation should qualify as a qualified reformation within the meaning of Section 2055(e)(3)(B). In addition, Code Section 664(d)(1)(D) provides that the value of the remainder interest ora charitable remainder trust be at least ten percent (10%) of the initial fair market value of all property placed into the trust. In addition, Revenue Ruling 77-374 provides that a trust will not quali~v as a charitable remainder annuity trust if there is a greater than five percent (5%) chance that the trust land wilI be exhausted before the trust ends. Under Subparagraph (2) of Article FOURTH, the Trustee is to distribute an annuity amount equal to at least five percent (5%) to the noncharitable beneficiaries and charitable beneficiaries until the death of the final remaining noncharitable beneficiary. The youngest noncharitable beneficiary ,,vas thirty-nine years old (39) at Belle Nelson's death. Based on our computation which is a attached as Exhibit "Y', we have determined that the Trust would not satisfy the ten percent (10%) remainder test nor the five percent (5%) exhaustion test. Based on our computation, the remainder interest would be 6.758% and the probability that the principal would be exhausted is 15.58%. In Moor Est. v. Commr., T.C. Memo 1982-299, the Tax Court questioned the mathematical formula set forth in Rev. Rul. 77-374 and held that the "so remote as to be negligible" rule can be satisfied if it can be established that the expected annual earnings of the trust exceed the required annual payout to the armuity recipient. In the Trust, the annuity payout is only five percent (5%) each year. A baIanced portfolio should be able to provide a return that Internal Revenue Service October 4, 2004 Page 10 matches or exceeds the annual five percent payout and therefore the Trust's failure to initially meet the five percent (5%) test set forth in Rev. RuI. 77-374 should be disregarded when determining whether the remainder is a qualified remainder. Further, there is no reason why this same argument should not provide a basis for disregarding the ten percent (10%) remainder test under Code Section 664(d)(1)(D) in the case of this Trust. In addition, the purpose of the ten percent (10%) remainder test and the five percent (5%) exhaustion test is to ensure that the charitable remainder beneficiaries received a portion of the principal from the trust and that the principal was not used entirely to pay the noncharitable beneficiaries during the trust's term. Under the terms of Belle F. Nelson's Trust, the noncharitable beneficiaries receive a fixed sum of six thousand dollars (S6,000) a year and the listed charities receive the remaining balance of the approximately seventy-five thousand dollars (S75,000) annuity to be paid out of the Trust each year. The total payments to be received by the noncharitable beneficiaries under the Trust using the life expectancy of the youngest noncharitable beneficiary ( i.e. 45 years) xvould be two hundred seventy thousand ($270,000). The present value of such annuity would be approximately S 113,000 using the Code Section 7520 rate in effect at Belie F. Nelson's death. Thus, the actual payout to the noncharitable beneficiary would be less than ten percent of the present value of the Trust and therefore the risk that the charitable beneficiaries under the Trust would not receive anything is very small. Rather, the charitable beneficiaries under the Trust will receive most of the Trust's assets. In reality, the remainder interest is so low only because the charitable beneficiaries are receiving their interest in the Trust through the annuity payment each year. Thus, under the terms of the Trust, the put-pose of the ten percent (10%) remainder test and five percent (5%) exhaustion test have been satisfied. in the alternative, if the Internal Revenue Service determines that the Trust fails to meet the ten percent (I0%) test under 664(d)(I)(D) and five percent (5%) test under Rev. RuI. 77-374, Internal Revenue Service October 4, 2004 Page 11 the petition for reformation has set forth that the Trust will be modified to ensure that it satisfies both the ten percent and five percent tests. Subparagraph (2)(d) of Article FOURTH sets forth that "it is intended that this Trust shall qualify as a Charitable Remainder Annuity Trust under Section 664 of the IntemaI Revenue Code of 1986, as amended. No provisions as stated herein, or mnitted hereof, shall operate to disqualify this Trust.' This language provides the Trust can be amended in order to qualify as a charitable remainder trust. Under Code Section 2055(3)(j), a trust that does not qualify because of an insufficient remainder interest can be reformed by reducing the payout rate or the duration (or both) of any noncharitable beneficiary's interest to the extent necessary to satisfy the requirement. In the Trust's case, the armuity payout percentage cannot be reduced any lower and therefore the period of the Trust will need to be modified. The period is currently based on the life of the youngest noncharitable beneficiary. The Trust term will need to be capped at the longest period of years, not exceeding twenty which causes the trust to qualify under the remainder test. Based on our computation, we have determined that the Trust will pass the ten percent remainder test and five percent exhaustion test if the Trust term is set at a period which is the earlier of the death of the last surviving noncharitable beneficiary or a day before the twentieth anniversary of Belle Nelson's death. The capping of the term of the annuity period to twenty years would ordinarily cause the Trust to fail the 5% variance rule under Code Section 2055(e)(3)(B). However, based on the Conference Report on the TRA 1997, the reformation requirements of Code Section 2055(e)(3)(B) are relaxed "to the extent necessary lbr the reformation for a trust to meet the 10% remainder requirement." Therefore, the Trust will not need to satisfy the five percent (5%) variance rule to the extent necessary to reform the Trust to meet the ten percent (10%) remainder requirement. Accordingly, the proposed reformation should qualify as a qualified reformation within the meaning of Section 2055(e)(3)(B). Internal Revenue Service October 4, 2004 Page 12 In addition, the Trust, as reformed, will contain the provisions set forth in Revenue Ruling 72-395, 1972-2 C.B. 340, as modified and clarified by Revenue Ruling 80-123, 1980-1 C.B. 205; Revenue Ruling 82-128, 1982-2 C.B. 7l and Revenue Ruling 82-165, 1982-2 C.B. 117. Accordingly, the Trust's governing instrument will meet the requirements of Section 664 of the Code. Finally, the Trust, as reformed, will closely follow Belle F. Nelson's intent of the making planned payout of six thousand dollars (S6,000) to the noncharitable beneficiaries during their lives and paying the remainder of the five percent (5%) annuity amount to the charitable beneficiaries during each of those years. From the perspective of the noncharitable beneficiaries and charitable beneficiaries, there is virtually no substantive economic difference between the Trust in its present fmTn and the reformed Trust if the Internal Revenue Service does not require the term of the Trust to be modified to satis~v Code Section 664(d)(I)(D). To the extent that the Trust is required to be modified to meet the requirements under Code Section 664(d)(1)(D), there will be some economic difi"erence to the noncharitable beneficiaries. However, such modification is consistent with Belle F. Nelson's intent to create a qualified charitable remainder annuity trust to act as an endowment for the various charities listed in her Will. _~oll clltsion For the reasons stated above, the undersigned believes that the ~anting of the Petition for Reformation will bring about a qualified reformation of the Trust within the meaning of Section 2055(e)(3)(B) of the Code. Thus, the Estate should be entitled to an estate tax charitable deduct/on for the value of the remainder interest in the Trust and the annuity value of the char/table beneficiaries under the Trust. Internal Revenue Service October 4, 2004 Page 13 Procedural l}latters With respect to the issues involved in this ruling request, it is represented that (1) the identical issue is not in earlier returns of the taxpayer; (2) the Service has not previously ruled on the same or similar issue for the taxpayer, nor has the taxpayer, or any representative (a) previously submitted the same or similar issue to the Service but withdrew it before a letter riding or determination Ietter was issued; (b) previously submitted a request involving the same or similar issue that is currently pending; or (c) submitted at the same time as this request another request containing the same or similar issue to the Service; (3) the identical issue is not the subject of any pending legislation that may affect the proposed transaction; and (4) the law in connection with this recluest is not uncertain and the issue is adequately addressed by relevant authorities. ]~n addition, the undersigned is not aware of any precedential published authority, such as legislation, pending legislation, tax treaties, court decisions, regulations, revenue rulings, revenue procedures or announcements, which is directly contrary to the ruling requested herein. A check covering the user fee in the amount of $500.00 is enclosed. In addition, a Form 2848, Power of Attorney, to the undersigned is enclosed (Exhibit "4"). The deletions statement required pursuant to Section 7.01 (11) of Revenue Procedure 2004-1 is also enclosed and attached as Exhibit "5" and the private letter ruling checklist is enclosed as Exhibit "6". Ifa favorabIe ruling on the issues presented herein is not anticipated, the privilege ora conference is requested. Thank you very much. Sincerely, Kevin M. Scott Under penalties of perjury, ! declare that I have examined this request, including accompanying documents, and to the best of my knowledge and belief, the request contains all the relevant facts relating to d~e request, and such Facts are true, correct and complete. ]5 further certify that the decedent Belle F. Nelson's total income, as reported on her last federal income tax return for the taxable year ending before her date of death, was less than S250,000. Dated: ~Jq0os'' '5~ ,2004 v Manufacturers and Traders Trust Company, Executor (2) Predeceased Spouse. (a) Should nay husband predecease me, or not survive lane by thirty (30) days, or survive me and subscqucntly die, then and in that event, my estate shall bc distributed to my Trustee in trust to be administered under this provision. I intend this bequest to establish a charitable remainder almuity trust wittain the meaning of Rev. Proc. 2003-60 and §664(a)(1) of the Internal Revenue Code. Tile trust shall be knoxxn as the FRITZ C. and BELLE F. NELSON Charitable Remainder Annuity Trust. (b) paj,ment of Annuity Amottnt. The annuity amount is equal to five percent (5%) of thc initial net fair market xalue of all} property passing to this trust as finally determined for t'cderal estate tax purposes. In each taxable 3'car ofti~e trust during thc annuity period, the Trustee shall pay $6,000 of the anmfity amount hq equal shares to NANCY RUDOLPH, KAREN SCl[lATZ and PAUL NELSON (bcrcinaP. cr. "the Noncharitable Recipients") during their oint lives, and upon the death of one (hcrcinal'ter '~the Predeceasing Noucharitablc Recipient')- the Trustee shall pay thc entire S6.000 (subject to proration in paragraph c) in equal shares to the trust survivors or su'v~xor (here naitc "the Survivor Recipient"). In cacb taxable year of the during the annuity period, thc Trustee shall pa)' an amount equal to annuity anaount minus $6,000 to the following charitable organizations in the following manner: (i) One half to the CAMP HILL PRESBYTERIAN CHURCH of Camp Hill. Pennsylvania, and (ii) One half in the follo~x lng amounts: A. Fifteen percent (15%) thereof each to aid the HOLY SPIRIT I-IOSPITAL OF THE SISTERS OF CHRiSTiAN CHAR1TY, Camp ltill, Pennsylvania, CAP1TAL HEALTH sYSTEMS, Harrisburg, Pennsylvania, ALZHE1MER ASSOCIATION, SOUTH CENTRAL PENNSYLVANIA CHAPTER- Harrisburg, Pennsylvania. and tile AMERICAN BIBLE SOCIETY, NCx, V '~'Ol'l'~, Nt~xA York. B. Eight percent (8'3';) thcrcofto each thc BETHESDA MISSION OF HARRISBURG, lqarrisbLn'g, Pennsvlx ania, BILLY GRAHAM EVANGELISM ASSOCIATION, Minneapolis, Minnesota, ROBERT l-I. SCHULLE TELEVANGEL1SM ASSOCIATION, iNC., Orange, California, and the. UNITED WAY OF THE CAPITAL REGION of Harrisburg, Penusylvanm. C. Four percent (4%) thereol,to cach the SALVATION ARMY for use in the Harrisburg, Pennsylx ania metropolitan area and CHRISTIAN CHURCHS UNITED OF THE irt COUNTY AREA for thc HELP MINISTRY. (iii) Should ally of thc entities used in Paragraphs (i) and (ii) abo~e not qualify as an organization described in ~ 170(c) and 2055(a) of the Code wken the annuity payment is to be distributed to it, its share shall be allocated to the remaining beneficiaries within its class that qualil}' as an organization described in § 170(c) and 2055(a) of tire Code. Failing that, the Trustee slral/distribute its share to one or more organizations described m §170(c) at~d 2055(a) of the Code as the Trustee shall select, and in tine proportions as tbe Trustee shall decide, in tine Trustce's sole discretion. (c) Attllttio, Period. The first day o 'the annaity period shall be tire date of nay death and thc last day of the annuity period shall bc the earlier of thc date of the last Survivor Recipient's death or the day before the twentieth anniversary of my date of death. The annuity amount shall be paid in equal quarterly instalhnents at thc end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of thc trust for a taxable year in excess of the annuity amount shall Dc added to principal, lfthe initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finai,ly determined for federal estate tax purposes, thc Trustee shall pay to thc Noncharitable Recipients and Cl~aritable Recipients (in thc case of an uudervaluation) or rcccive from the Noncharitable Recipients and thc Charitable Recipients (in the case of an overvaluation) an amount eqnal to the difference between thc annuity amount properly payable and the annuity amount actual paid. , , · Provision. The obligation to pay thc annuity amount shall commence (d) D~eferlal`~ ,- .........rent of the annuity amount may be deterred from sucb date with the date ol my cream, um ~,,~v, - Within a reasonable until the end of the taxable year in which the trust is completely funded. time after tire end of thc taxable year in whicb the complete funding of thc trust occurs, thc Trustee must pay to the Noncharitablc Recipients and Charitable Recipicnts (in tbe case of an underpayment) or receix'e from the Noncharitable Recipients and Charitable Recipients (in tine case of an overpayme[lt) the difi,krence betwecn: (i) any annuity amounts actually paid, pi,us interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations tinder Section 664 oftbe Code prescribe for the trust for such computation for snch period; and (ii) the annuity amounts payable, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations nnder Section 664 prescribe for the trust ['or such computation for sttch period. (c) Proratio, of~dltltttit)' AtttOtlltt. The Trustee sball prorate the annuity amount on a daily basis for any short taxable year, Upon the death of a Predeceasing Recipient, the T.rustee slmll prorate on a dail'¢' basis tbe Predeceasing Recipient's share of the next rcgular annmty paymcnt between the estate of the Predeceasing Recipicnt and the Survivor Recipient/Survivor Recipients. In tlne taxable year of the trust during which tine annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of tire annuity period in tlnat taxable year. ( ~) Distribtttion to Charities tit Ettd of .4ttt~uit)' Period. At thc termination of tile annuity period, the Trustee shall distrib~tte tile entire annuity amouut (other than any amount dae thc Recipients or their Estates and the Charitable Recipients above) each taxable year to the Charitable Organizations listed above in tile shares set forth above. If any Charitable Organization is not an organization described in ~170(c) and 2005(a) oftbe Code at the time when such distribution is to be made, its share shall be allocated to the remaining beneficiaries ~ithin its class that qualify as an organization described in §170(c) and 2055(a) of thc Code. Failing that, tine Trustee shall distribute sucb slnare to one or more organizations describcd in § 170(c) and ?055(a) of the Code as thc Trustee shall select, and in the proportions as thc Trustee shall decide, in tire Trustee's sole discretion. ntributions. No additional contributions shall bc made to the Trust ~ Additiottal Co ...... I,,,11 I,~ ~t~-emed consist of all after th~Irttlal contribution. Tile m~t~al conmbut~on, no~xc~ct, = .............. to property passing to the Trust by reason of my death. (h) Prohibited Transactiotts. The Trustee shall not engage in any act of self-dealing within the meaning of Section 4941(d) of the Codc, as modified by Section 4947(a)(2)(A) of thc Code and shall not make any taxable (e~:pcnditurcs within thc meaning of Section 4945(d) of the Code, as modified by Section 4947(a)(-)(A) of the Code Thc Trustee shall not make any investments that jeopardize thc exempt purpose of the trust t'or purposes of Section 4944 of the Code, as modified by Section 4947(a)(2)(A) of the Code, or retain any excess business holdings for purposes of Section 4943 of the Code, as modified by Section 4947(a)(2)(A) of the Code. After the end o f tile annuity period, the incomc of each taxable year sball be distributed at such time and in such manner as not to subject the trust to tax under Code Section 4942. Further, after the end of thc annuity period, it is my intent that the trust qualify as a private foundation witbin Code Section 509(a) as modified by Code Section 4947(a)(1 ) and the Trustee is prohibitcd from exercising any power or discrction granted tinder said laws that would bc inconsistent with thc quail fication of the Trust as a privatc lbundation under Code Section 509(a) as modi fled by Code Section 4947(a)(1) of the Code and thc corresponding regulations. ri) Taxable Year. The taxable year of the Trust shall be thc caleudar year. . ,, ' Lan The oncration of thc Trust shall be governed by thc laws of thc (il Gel ettttttg 7~ r . ' r , ~ i~ nrohibited from exercising any CommO~-~wealtb o1[' Pennsylvama. Fhe Trustee, no~x ex c~, .- t, power or discretion granted under said laws tbat would be inconsistent with the qualification of the Trust under Section 664(d)(1 ) o f the Code and the corresponding regulations. (k) Limited Power of~lmeltdltteltt. Tbe Trustee shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that tile Trust qualifies and continucs to qualify as a charitable remainder annuity trust within the meaning of Section 664(d)(1) of the Code. Furtber, after tbe annuity period, the Trustee shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that the Trust qualifies and continues to qualify as a private foundation within the meaning of Code Section 509(a) as modified by Code Section 4947(a)(1). (1) lnvestntent of Trust Assets. Nothing herein shall be construed to restrict the Trustee from investing tire Trust assets itl a manner that could result in thc annual realization of a reasonable amount of income or gain fi-om the sale or disposition of Trust assets. -3- COI!RT OF COMMON PLEAS OF CUSIBERI,AND COUNTY, PENNSYLVANIA ORPItANS' COURT DIVISION TRUST UNDER WILL OF BELI,E F. NELSON No. of :'L. ,_ i PRELIMINARY DECREE AND NOW, this ty' of ,2004, upon consideration of the annexed Petition fi>r Citation to Shoxx Cause Why Reformation of a Charilable Remainder Annuity Trust should not be granted, it is hereby DECREED that a Citation is awarded, directed to Paul Nelson, Nancy Rudolph, Karcn Schat×, Holy Spirit Hospital of thc Sisters of Christian Charity, Pinnacle Health System (successor by merger to Capital Health System), Alzhcimer Association (South Central Pennsylvania Chapter), American Bible Society, Bethesda Mission of Harrisburg, Billy Grahum lex angclism Association. Roi)crt H. Schuller Telcvangelism Association, United Way of tine Capital Region of Harrisburg, Salvation Army, Christian Churchs United of thc Tri-County Area lbr the HELP Ministry, and the Office of the Attorney General of Pennsylvania, to show cause why the aforesaid Petition for Reformation should not be granted. By the Court: IN RE: TRUST UNDER WILL OF BELLE F. IN! THE COURT OF COMMON P[.F~Ag NELSON ORPHANS' COURT DIVISION CUMBERLAND COUNTY, PENNSYLVANIA NO.21-2004-0893 CITATION WE COMMAND, you that laying aside all business and excuses whatsoever, you be and appear in your proper person before the Honorable Judges of the Court of Common Pleas, Orphans' Court Division at a session of the said Court there to be hcld, for the County of Cumberland to show cause why the aforesaid Petition lbr Reformation should not be granted. This Citation is returnable 20 days from service. Witness my hand an official seal of office at Carlisle, Pennsylvania, this 15th day of October 2004. ' ' '& /) '; i ] ' Clerk Orphans Court~D,v,s,on. ~ ~' .rN,,r ,~ . ~ Cumberland County, (arhsle, PA / ' ~ ' ' My ( omnnsslon Expires on y Janoary, 2004 COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION TRUST UNDER WiLL OF BELLE F. NELSON No.~ of'~t~ AMENDMENT TO PETITION FOR REFORMATION OF CHARITABLE REMAINDER ANNUITY TRUST TO COMPLY WITH REQUIREMENTS OF §664(d)(1)(A) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED To the Honorable, the Judges of the Said Court: Your Petitioner, Manufacturers and Traders Trust Company, respectfully represents that: 1. On October 4, 2004, Petitioner filed a Petition for Reformation of the charitable remainder annuity trust established by the terms of Subparagraph (2) of Article FOURTH of Belle F. Nelson's Will. 2. On October 15, 2004, the Court issued a Citation requiring all interested parties to show cause why the aforesaid Petition for Reformation should not be granted. 3. Petitioner has served the Citation on all interested parties. 4. No interested party filed an objection to the Petition for Reformation. 5. Although no interested party filed an objection to the Petition for Reformation, one interested party communicated to the Petitioner that three sections of the proposed language of the charitable remainder trust should be modified to more closely reflect the intent of Belle F. Nelson in her Will. 6. Petitioner concurs that the three minor changes proposed by the interested party would result in the language of the reformed charitable remainder annuity trust more closely reflecting the intent of Belle F. Nelson in her Will. 7. The first change addresses the ordering of payout under the charitable remainder annuity trust if a charitable beneficiary fails to qualify as a qualified charity. 8. Under Article Fourth 2(c)(iii) of Belle F. Nelson's Will, ifa charity was no longer a qualified charitable organization, such charity's share would be allocated to the remaining beneficiaries within its class. Failing that, the disqualified chadty's share would be added to the class set forth in the subparagraph immediately preceding it. 9. Under the initial petition for reformation, the Petitioner followed the language in the IRS' model forms that provided that if a charity did not qualify and no other charity in its class qualified, the trustee, in its sole discretion, should distribute the share to a qualified charity of its choosing. 10. Petitioner therefore proposes to modify Article Fourth 2(b)(iii) and Article Fourth 2(f) of Exhibit B in the original petition to include the additional step of adding the charity's share to the class set forth in the subparagraph immediately preceding it in order to more closely reflect the language set forth in Article Fourth 2(c)(iii) of Belle F. Nelson's original Will. A copy of the black lined changes to Article Fourth 2(b)(iii) and Article Fourth 2(f) of Exhibit B of the original petition are attached hereto as Exhibit 1. 11. For the second change, the Petitioner recommends that the payout provisions after the last surviving noncharitable beneficiary dies be modified. 12. After the last surviving noncharitable beneficiary' death, there is no need to limit the payout to the charities to the initial annuity amount and therefore the Petitioner proposes a -2- modification that will enable the Trustee to distribute the greater of five percent of the initial principal amount or the trust income. Such modification to Article Fourth 2(f) in Exhibit B of the original petition more closely reflects Belle F. Nelson's intent as set forth under Article Fourth 2(c) of her Will, as modified by Codicil. A copy of the black lined changes to Article 2(0 of Exhibit B are attached hereto as Exhibit 1. 13. Further, as part of its original petition for reformation, Petitioner included an alternative proposed charitable remainder annuity trust document under Exhibit D of the original petition. Such alternate document is essentially the same as the charitable remainder annuity trust set forth in Exhibit B of the original petition except that it is limited to a term of twenty years. The modifications proposed to the charitable remainder annuity trust document under Exhibit B should also be made to Exhibit D. A copy of the black lined changes to such charitable remainder trust are attached hereto as Exhibit 2. 14. Finally, Petitioner removes the first sentence of the first full paragraph of page 6 of the private letter ruling request found under Exhibit C of the original petition and replaces it with the following language: "Upon the death of the last surviving noncharitable beneficiary, the charitable remainder annuity trust will terminate, the principal will be held in a perpetual charitable trust, and the greater of five percent of the initial value or the income from the trust will be paid to the charitable beneficiaries based on their percentage interests set forth under Belle F. Nelson's Will." 15. It is believed, and therefore averred, that the three minor modifications to Belle F. Nelson's charitable remainder annuity trust set forth above are necessary to comply with -3- Belle F. Nelson's intent and to qualify the Trust as a charitable remainder annuity trust as dictated by the Will. THEREFORE, your Petitioner prays this Honorable Court to issue a Rule, in the form annexed hereto, directed to Paul Nelson, Nancy Rudolph, Karen Schatz, Camp Hill Presbyterian Church, Holy Spirit Hospital of the Sisters of Christian Charity, Pinnacle Health System (successor by merger to Capital Health System), Alzheimer Association (South Central Pennsylvania Chapter), American Bible Society, Bethesda Mission of Harrisburg, Billy Graham Evangelism Association, Robert H. Schuller Televangelism Association, United Way of the Capital Region of Harrisburg, Salvation Army, Christian Churchs United of the Tri- County Area for the HELP Ministry, and the Office of the Attorney General of Pennsylvania, to show cause why the amendment to reformation of the charitable remainder annuity trust created under subparagraph (2) of Article FOURTH of the Will and Codicil of Belle F. Nelson, should not be granted. And your Petitioner will ever pray, etc .... Man~//~/~r ~mpany, Executor ~-'"~lChoma~ E~. Morkin, Vice President Kevin M. Scott I.D. No. 70322 Saul Ewing LLP 2 North Second Street, 7th Floor Harrisburg, PA 17101 Counsel for Petitioner COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION TRUST UNDER WILL OF BELLE F. NELSON No. of Manufacturers and Traders Trust Company, by Thomas E. Morkin, verifies that it is the Petitioner in the within the Amendment to the Petition for Reformation, and verifies that the statements of fact made in this Amendment to the Petition are true and correct to the best of its information and belief, and they are made subject to the penalties of 18 Pa. C.S. §4904 relating to unsworn falsification to authorities. Manufacturers and Traders Trust Company, Executor Date: ,/A~6, ,9.oo'W ~//cj.~ ,a,,,/.e£/ZT~/vT' 109997 I I 1/23/04 (2) Predeceased Spouse. (a) Should my husband predecease me, or not survive me by thirty (30) days, or survive me and subsequently die, then and in that event, my estate shall be distributed to my Trustee in trust to be administered under this provision. I intend this bequest to establish a charitable remainder annuity trust within the meaning of Rev. Proc. 2003-60 and §664(a)(1) of the Internal Revenue Code. The trust shall be known as the FRITZ C. and BELLE F. NELSON Charitable Remainder Annuity Trust. (b) Payment of Annuity Amount. The annuity amount is equal to five percent (5%) of the initial net fair market value of all property passing to this trust as finally determined for federal estate tax purposes. In each taxable year of the trust during the annuity period, the Trustee shall pay $6,000 of the annuity amount in equal shares to NANCY RUDOLPH, KAREN SCHATZ and PAUL NELSON (hereinafter, "the Noncharitable Recipients") during their joint lives, and upon the death of one (hereinafter "the Predeceasing Noncharitable Recipient"), the Trustee shall pay the entire $6,000 (subject to proration in paragraph e) in equal shares to the survivors or survivor (hereinafter "the Survivor Recipient"). In each taxable year of the trust during the annuity period, the Trustee shall pay an amount equal to annuity amount minus $6,000 to the following charitable organizations in the following manner: (i) One half to the CAMP HILL PRESBYTERIAN CHURCH of Camp Hill, Pennsylvania, and (ii) One half in the following amounts: A. Fifteen percent (15%) thereof each to aid the HOLY SPIRIT HOSPITAL OF THE SISTERS OF CHRISTIAN CHARITY, Camp Hill, Pennsylvania, CAPITAL HEALTH SYSTEMS, Harrisburg, Pennsylvania, ALZHEIMER ASSOCIATION, SOUTH CENTRAL PENNSYLVANIA CHAPTER, Han'isburg, Pennsylvania, and the AMERICAN BIBLE SOCIETY, New York, New York. B. Eight percent (8%) thereof to each the BETHESDA MISSION OF HARRISBURG, Harrisburg, Pennsylvania, BILLY GRAHAM EVANGELISM ASSOCIATION, Minneapolis, Minnesota, ROBERT H. SCHULLER TELEVANGELISM ASSOCIATION, INC., Orange, California, and the UNITED WAY OF THE CAPITAL REGION of Hanisburg, Pennsylvania. C. Four percent (4%) thereof to each the SALVATION ARMY for use in the Harrisburg, Pennsylvania metropolitan area and CHRISTIAN CHURCHS UNITED OF THE TRI-COUNTY AREA for the HELP MINISTRY. (iii) Should any of the entities used in Paragraphs (i) and (ii) above not qualify as an organization described in §§170(c) and 2055(a) of the Code when the annuity payment is to be distributed to it, its share shall be allocated to the remaining beneficiaries within its class that qualify as an organization described in §170(c) and 2055(a) of the Code. Fa/line that. the Trustee shall distribute its share to the class set forth in the subparaeraph immediately preceding it_ if such class has a beneficiary that qualifies as an organization described in g 170(c~ and 2055(a'} of the Code. Failing that, the Trustee shall distribute its share to one or more organizations described in § 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. (c) Annuity Period. The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the date of the last Survivor Recipient's death. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Noncharitable Recipients and Charitable Recipients (in the case of an undervaluation) or receive from the Noncharitable Recipients and the Charitable Recipients (in the case of an overvaluation) an amount equal to the difference between the annuity amount properly payable and the annuity amount actual paid. (d) Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of the annuity amount may be deferred from such date until the end of the taxable year in which the trust is completely funded. Within a reasonable time after the end of the taxable year in which the complete funding of the trust occurs, the Trustee must pay to the Noncharitable Recipients and Charitable Recipients (in the case of an underpayment) or receive from the Noncharitable Recipients and Charitable Recipients (in the case of an overpayment) the difference between: (i) any annuity amounts actually paid, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under Section 664 of the Code prescribe for the trust for such computation for such period; and (ii) the annuity amounts payable, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under Section 664 prescribe for the trust for such computation for such period. (e) Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. Upon the death of a Predeceasing Recipient, the Trustee shall prorate on a daily basis the Predeceasing Recipient's share of the next regular annuity payment between the estate of the Predeceasing Recipient and the Survivor Recipient/Survivor Recipients. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year. (f) Distribution to Charities at End of Annuity Period. At the termination of the annuity period, the Trustee shall distribute the creater of the entire annuity amounB2LIl:lj-st in~ome (other than any amount due the Recipients or their Estates and the Charitable Recipients above) each taxable year to the Charitable Organizations listed above in the shares set forth above. If any Charitable Organization is not an organization described in §170(c) and 2005(a) of the Code at the time when such distribution is to be made, its share shall be allocated to the remaining beneficiaries within its class that qualify as an organization described in § 170(c) and 2055(a) of the Code. lCailine that. the Trustee shall distribute its share to the class set forth in the subnaragranh immediately nrecedine it. if such class has a beneficiary that oualifies as an 9reanization described in ~ 170(c~ and 2055(a~ of the Code. Failing that, the Trustee shall distribute such share to one or more organizations described in §170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. (g) Additional Contributions. No additional contributions shall be made to the Trust after the initial contribution. The initial contribution, however, shall be deemed to consist of all property passing to the Trust by reason of my death. (h) Prohibited Transactions. The Trustee shall not engage in any act of self-dealing within the meaning of Section 4941(d) of the Code, as modified by Section 4947(a)(2)(A) of the Code, and shall not make any taxable expenditures within the meaning of Section 4945(d) of the Code, as modified by Section 4947(a)(2)(A) of the Code. The Trustee shall not make any investments that jeopardize the exempt purpose of the trust for purposes of Section 4944 of the Code, as modified by Section 4947(a)(2)(A) of the Code, or retain any excess business holdings for purposes of Section 4943 of the Code, as modified by Section 4947(a)(2)(A) of the Code. After the end of the annuity period, the income of each taxable year shall be distributed at such time and in such manner as not to subject the trust to tax under Code Section 4942. Further, after the end of the annuity period, it is my intent that the trust qualify as a private foundation within Code Section 509(a) as modified by Code Section 4947(a)(1) and the Trustee is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the qualification of the Trust as a private foundation under Code Section 509(a) as modified by Code Section 4947(a)(1) of the Code and the corresponding regulations. (i) Taxable Year. The taxable year of the Trust shall be the calendar year. (j) Governing Law. The operation of the Trust shall be governed by the laws of the Commonwealth of Pennsylvania. The Trustee, however, is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the qualification of the Trust under Section 664(d)(1 ) of the Code and the corresponding regulations. (k) Limited Power of Amendment. The Trustee shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that the Trust qualifies and continues to qualify as a charitable remainder annuity trust within the meaning of Section 664(d)(1) of the Code. Further, after the annuity period, the Trustee shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that the Trust qualifies and continues to qualify as a private foundation within the meaning of Code Section 509(a) as modified by Code Section 4947(a)(1). (1) Investment of Trust Assets. Nothing herein shall be construed to restrict the Trustee from investing the Trust assets in a manner that could result in the annual realization of a reasonable amount of income or gain from the sale or disposition of Trust assets. (2) Predeceased Spouse. (a) Should my husband predecease me, or not survive me by thirty (30) days, or survive me and subsequently die, then and in that event, my estate shall be distributed to my Trustee in trust to be administered under this provision. I intend this bequest to establish a charitable remainder annuity trust within the meaning of Rev. Proc. 2003-60 and §664(a)(1) of the Internal Revenue Code. The trust shall be known as the FRITZ C. and BELLE F. NELSON Charitable Remainder Annuity Trust. (b) Payment of Annui~g Amount. The armuity mount is equal to five percent (5%) of the initial net fair market value of all property passing to this trust as finally determined for federal estate tax purposes. In each taxable year of the trust during the annuity period, the Trustee shall pay $6,000 of the annuity amount in equal shares to NANCY RUDOLPH, KAREN SCHATZ and PAUL NELSON (hereinafter, "the Noncharitable Recipients") during their joint lives, and upon the death of one (hereinafter "the Predeceasing Noncharitable Recipient"), the Trustee shall pay the entire $6,000 (subject to proration in paragraph e) in equal shares to the survivors or survivor (hereinafter "the Survivor Recipient"). In each taxable year of the trust during the annuity period, the Trustee shall pay an amount equal to annuity amount minus $6,000 to the following char/table organizations in the following manner: (i) One half to the CAMP HILL PRESBYTERIAN CHURCH of Camp Hill, Pennsylvania, and (ii) One half in the following amounts: A. Fifteen percent (15%) thereof each to aid the HOLY SPIRIT HOSPITAL OF THE SISTERS OF CHRISTIAN CHARITY, Camp Hill, Pennsylvania, CAPITAL HEALTH SYSTEMS, Harrisburg, Pennsylvania, ALZHEIMER ASSOCIATION, SOUTH CENTRAL PENNSYLVANIA CHAPTER, Harrisburg, Pennsylvania, and the AMERICAN BIBLE SOCIETY, New York, New York. B. Eight percent (8%) thereof to each the BETHESDA MISSION OF HARRISBURG, Harrisburg, Pennsylvania, BILLY GRAHAM EVANGELISM ASSOCIATION, Minneapolis, Minnesota, ROBERT H. SCHULLER TELEVANGELISM ASSOCIATION, INC., Orange, California, and the UNITED WAY OF THE CAPITAL REGION of Harrisburg, Pennsylvania. C. Four percent (4%) thereof to each the SALVATION ARMY for use in the Harrisburg, Pennsylvania metropolitan area and CHRISTIAN CHURCHS UNITED OF THE TRI-COUNTY AREA for the HELP MINISTRY. (iii) Should any of the entities used in Paragraphs (i) and (ii) above not qualify as an organization described in §§170(c) and 2055(a) of the Code when the annuity payment is to be distributed to it, its share shall be allocated to the remaining beneficiaries within its class that qualify as an organization described in § 170(c) and 2055(a) of the Code. Failing that. the Trustee shall distribute its share to fl~e class set fq)rth in the subpara~aph immediately ~receding it_ if such class has a beneficiary that qualifies as an oreanization described in gl70(c) and 2055(a~ of the Code. Failing that, the Trustee shall distribute its share to one or more organizations described in § 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. (c) Annuity Period. The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the earlier of the date of the last Survivor Recipient's death or the day before the twentieth anniversary of my date of death. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Noncharitable Recipients and Charitable Recipients (in the case of an undervaluation) or receive from the Noncharitable Recipients and the Charitable Recipients (in the case of an overvaluation) an amount equal to the difference between the annuity amount properly payable and the aunuity amount actual paid. (d) Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of the annuity amount may be deferred from such date until the end of the taxable year in which the trust is completely funded. Within a reasonable time afier the end of the taxable year in which the complete funding of the trust occurs, the Trustee must pay to the Noncharitable Recipients and Charitable Recipients (in the case of an underpayment) or receive from the Noncharitable Recipients and Charitable Recipients (in the case of an overpayment) the difference between: (i) any annuity amounts actually paid, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under Section 664 of the Code prescribe for the trust for such computation for such period; and (ii) the annuity amounts payable, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under Section 664 prescribe for the trust for such computation for such period. (e) Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. Upon the death of a Predeceasing Recipient, the Trustee shall prorate on a daily basis the Predeceasing Recipient's share of the next regular annuity payment between the estate of the Predeceasing Recipient and the Survivor Recipient/Survivor Recipients. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year. (f) Distribution to Charities at End of Annuity Period. At the termination of the annuity period, the Trustee shall distribute the gr.Cagr,&o~f. It~entire annuity amount or trust income (other than any amount due the Recipients or their Estates and the Charitable Recipients above) each taxable year to the Charitable Organizations listed above in the shares set forth above. If any Charitable Organization is not an organization described in §170(c) and 2005(a) of the Code at the time when such distribution is to be made, its share shall be allocated to the remaining beneficiaries within its class that qualify as an organization described in § 170(c) and 2055(a) of the Code. Failing that. the Trustee shall distribute its share to the class set forth in the gubnaram'anh immediately t~receding it. if such class has a beneficiary that qualifies as an Qreanization described in $170(c~ m~d 2055(a~ of the Code. Failing that, the Trustee shall distribute such share to one or more organizations described in § 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. (g) Additional Contributions. No additional contributions shall be made to the Trust after the initial contribution. The initial contribution, however, shall be deemed to consist of all property passing to the Trust by reason of my death. (h) Prohibited Transactions. The Trustee shall not engage in any act of self-dealing within the meaning of Section 4941(d) of the Code, as modified by Section 4947(a)(2)(A) of the Code, and shall not make any taxable expenditures within the meaning of Section 4945(d) of the Code, as modified by Section 4947(a)(2)(A) of the Code. The Trustee shall not make any investments that jeopardize the exempt purpose of the trust for purposes of Section 4944 of the Code, as modified by Section 4947(a)(2)(A) of the Code, or retain any excess business holdings for purposes of Section 4943 of the Code, as modified by Section 4947(a)(2)(A) of the Code. After the end of the annuity period, the income of each taxable year shall be distributed at such time and in such manner as not to subject the trust to tax under Code Section 4942. Further, after the end of the annuity period, it is my intent that the trust qualify as a private foundation within Code Section 509(a) as modified by Code Section 4947(a)(1) and the Trustee is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the qualification of the Trust as a private foundation under Code Section 509(a) as modified by Code Section 4947(a)(1) of the Code and the corresponding regulations. (i) Taxable Year. The taxable year of the Trust shall be the calendar year. (j) Governing Law. The operation of the Trust shall be governed by the laws of the Commonwealth of Pennsylvania. The Trustee, however, is prohibited from exercising anypower or discretion granted under said laws that would be inconsistent with the qualification of the Trust under Section 664(d)(1) of the Code and the corresponding regulations. (k) Limited Power of Amendment. The Trustee shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that the Trust qualifies and continues to qualify as a charitable remainder annuity trust within the meaning of Section 664(d)(1) of the Code. Further, after the annuity period, the Trustee shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that the Trust qualifies and continues to qualify as a private foundation within the meaning of Code Section 509(a) as modified by Code Section 4947(a)(1). (1) Investment of Trust Assets. Nothing herein shall be construed to restrict the Trustee from investing the Trust assets in a manner that could result in the annual realization of a reasonable amount of income or gain from the sale or disposition of Trust assets. 108134 2 12113/04 -4- 0 COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION TRUST UNDER WILL OF BELLE F. NELSON of OOq RULE TO SHOW CAUSE Amendment to Petition for Reformation of a Charitable Remainder Annuity Trust, IT IS HEREBY ORDERED THAT within ~ days of the date of service of this Rule, Paul Nelson, Nancy Rudolph, Karen Schatz, Camp Hill Presbyterian Church, Holy Spirit Hospital of the Sisters of Christian Charity, Pinnacle Health System (successor by merger to Capital Health System), Alzheimer Association (South Central Pennsylvania Chapter), American Bible Society, Bethesda Mission of Harrisburg, Billy Graham Evangelism Association, Robert H. Schuller Televangelism Association, United Way of the Capital Region of Harrisburg, Salvation Army, Christian Churchs United of the Tri-County Area for the HELP Ministry, and .~.the,©ffice of the Attorney General of Pennsylvania, to show cause why the aforesaid Amendment to Petition for Reformation should not be granted. B l, [0, J' COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION TRUST UNDER WILL OF BELLE F. NELSON ~' "~-~ No. of CERTIFICATE OF SERVICE I hereby ce~ify that on this ~ day of December 2004, a copy of the foregoing ~endment to Petition for Refo~ation of Chmtable Remainder ~uity Trust was se~ed upon the persons below by first-class, postage prepaid: Holy Spirit Hospital of the Sisters Of Pi~acle Health System C~sti~ Charity 17 S. Market Street 503 N. 21st Street Ha~sburg, PA 17101 Camp Hill, PA 17011 Alzheimer Association ~efican Bible Society 3544 N. Progess Avenue 1865 Broadway Ha~sb~g, PA 17110-9480 New York, ~ 10023 Bethesda Mission of Ha~sburg Billy Gr~m Evangelism Association 1500 N. Second Street 1 Billy Gr~am P~kway Ha~sburg, PA 17102 Charlotte, NC 28201 Robe~ H. Schuller Televangelism Association United Way of the Capital Region Custal Cathedral 2235 Mille~ium Way P.O. Box 100 Enola, PA 17025 Garden Grove, CA 92842-0100 The Salvation ~Y C~sti~ Churches United of the Th-County 1122 Green Street ~ea for the HELP Ministu H~sburg, PA 17102 413 S. 19th Street Attn: Major Ron Dake Ha~sburg, PA 17104 Mark A. Pacella, Chief Deputy Attorney General Mr. Paul Nelson Office of Attorney General 410 Janeway Street Chmtable Trusts and Organizations Section Kane, PA 16735 Strawbe~y Square Ha~sburg, PA 17120 Ms. Nancy Rudolph Ms. Karen Schatz 613 Westwind Road 2939 Rich Valley Road Kane, PA 16735 Emporium, PA 15834 Camp Hill Presbyterian Church 101 North 23rd Street Camp Hill, PA 17011 Manufacturers and Traders Trust Company, Executor Kevin M. Scott, Esquire ID No. 70322 Saul Ewing LLP 2 North Second Street, 7th Floor Harrisburg, PA 17101 Counsel for Petitioner -2- COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION TRUST UNDER WILL OF BELLE F. NELSON 80 1"",,-). , No. 893 of 2004 C) CJ (A) MOTION FOR WITHDRAWAL OF PETITION FOR REFORMATION OF~)3iLLE F. \'.) NELSON TRUST TO QUALIFY AS CHARITABLE REMAINDER TRUST AND (B) C' SUBSTITUTION OF A PETITION TO REFORM THE CHARITABLE ANNUITY PAY ABLE UNDER WILL OF BELLE F. NELSON TO QUALIFY AS GUARANTEED CHARITABLE ANNUITY INTEREST TO COMPLY WITH REQUIREMENTS OF IRS REGULATION 20.2055-2( e )(2)(vi). To the Honorable, the Judges of the Said Court: Your Petitioner, Manufacturers and Traders Trust Company, respectfully represents that: 1. On October 4, 2004, Petitioner filed a Petition for Reformation of the charitable remainder annuity trust established by the terms of Subparagraph (2) of Article FOURTH of Belle F. Nelson's Will ("Belle F. Nelson Trust"). 2. The Petition for Reformation was filed in order to correct deficiencies in Belle F. Nelson's Will the that would prohibit the trust from qualifying as a charitable remainder trust under Section 664 of Internal Revenue Code of 1986, as amended. 3. On October 15,2004, the Court issued a Citation requiring all interested parties to show cause why the aforesaid Petition for Reformation should not be granted. 4. The Citation was served on all interested parties. 5. No interested party filed an objection to the Petition for Reformation. 6. Concurrently with the filing of the Petition, the Petitioner filed a Private Letter Ruling request with the Internal Revenue Service requesting approval of the proposed reformation . 136334.1 10/25/07 Cj 7. In response to the Petitioner's Private Letter Ruling request, the Internal Revenue Service on February 28,2006 declined to provide a ruling with respect to the Petitioner's request. A true and correct copy of such response is attached as Exhibit A. 8. Based on Petitioner's counsel's oral communications with the Internal Revenue Service, counsel was able to ascertain that the Internal Revenue Service did not believe that the original interests under Belle Nelson's Will were reformable interests as defined in Section 2055(e)(3)(C) of the Code and could not be reformed to qualify as a charitable remainder trust. 9. Based on the Internal Revenue Service's notice, there is no reason for the Court to proceed on Petitioner's Petition for Reformation and therefore Petitioner has requested the Court to grant its request to withdraw such Petition. 10. Although Petitioner has requested the withdrawal of its original Petition, it still has the need for the Court review and rule on additional modifications to Belle F. Nelson's Trust. 11. The first modification to the Belle F. Nelson Trust is for the Court allow the Trust to be modified so that the annuity interest that is to be paid to listed charitable beneficiaries under Belle F. Nelson's Trust will qualify as a guaranteed charitable annuity interest under IRC Code 2055(e)(2)(B). 12. If the annuity interest to be paid to the charities is treated as guaranteed charitable annuity interest an estate tax deduction will be generated which will eliminate all Federal Estate tax for Belle F. Nelson's estate. 13. Subparagraph (2) of Article FOURTH of the Will provides that the charities listed in the Will shall receive an amount each year equal to the greater of the income or five percent (5%) of the net fair market value of the trust minus the six thousand dollar ($6,000) payment to the three non-charitable beneficiaries listed in the Will. 136334.1 10/25/07 -2- 14. Based on IRS Regulation 20.2055-2(e)(2)(vi), the charitable annuity interest created under Belle F. Nelson's Trust does not qualify as a guaranteed charitable annuity interest because the annuity amount does not qualify as a determinable interest at the date of death. 15. In order to qualify as a determinable interest, the Belle F. Nelson Trust document should be reformed to set forth the amount to be split among the charitable beneficiaries under the trust as a sum certain or fixed percentage. 16. For Belle F. Nelson's Trust, we request that the charitable annuity amount be set at a fixed percentage of 4.5933%. Such amount reflects what the annuity would have been under the original language of the Trust but states it as a fixed percentage. A copy of the calculation that results in such percentage is attached hereto as Exhibit B. 17. Such percentage will result in an fixed annuity equal to $67,760 that will be split among the listed charities each year. 18. In addition to not qualifying as a determinable interest, the term of the annuity interest is not based on the life expectancy of a permissible beneficiary and therefore such language will also need to be reformed. 19. Under IRS Regulation 20.2055-2(e)(3)(iii), a guaranteed annuity interest created under a Will of a decedent that dies after April 4, 2000 that uses nonpermissible individual shall be reformed into a lead annuity interest payable not to exceed a specified term of years. 20. The term of years is determined by taking the factor for valuing an annuity interest for the named individual measuring life and identifying the term of years that corresponds to the equivalent term of years factor for an annuity interest. 21. Based on the IRS' calculation using its actuarial tables, the appropriate term of years to be used by the trust is 56 years. 136334.1 10/25/07 -3- 22. In addition to the changes to how the charitable annuity interest is defined, the Trust will need to be reformed in order to comply with the requirements set forth under Code Section 4947 for Charitable Trusts and Split-Interest Trusts. 23. It is proposed that the Trust created under Section (2) of Article FOURTH be reformed and amended to correct the deficiencies set forth herein above. The reformed Trust is attached as Exhibit C and made a part hereof. 24. Prior to the submission of this Petition, Petitioner obtained a private letter ruling from the Internal Revenue Service in which the Internal Revenue Service approved each of the modifications requested above. A true and correct copy of the ruling request and Internal Revenue Service ruling are attached hereto as Exhibit D. THEREFORE, your Petitioner prays this Honorable Court to issue a Rule, in the form annexed hereto, directed to Paul Nelson, Nancy Rudolph, Karin Schatz, Camp Hill Presbyterian Church, Holy Spirit Hospital of the Sisters of Christian Charity, Pinnacle Health System (successor by merger to Capital Health System), Alzheimer Association (South Central Pennsylvania Chapter), American Bible Society, Bethesda Mission of Harrisburg, Billy Graham Evangelism Association, Robert H. Schuller Televangelism Association, United Way of the Capital Region of Harrisburg, Salvation Army, Christian Churches United of the Tri-County Area for the HELP Ministry, and the Office of the Attorney General of Pennsylvania, to show cause why the (A) Motion for withdrawal of the Petition for Reformation ofthe Belle F. Nelson Trust to qualify as a charitable remainder trust and (B) substitution of the Petition to reform the charitable annuity payable under Will of Belle F. Nelson to qualify as a guaranteed charitable annuity interest under IRS Regulation 20.2055-2(e)(2)(vi) should not be granted. 136334.1 10/25/07 -4- And your Petitioner will ever pray, etc. . . . Manufacturers and Traders Trust Company, Executor By: 4~'l_~ Kevin M. Scott J.D. No. 70322 Saul Ewing LLP 2 North Second Street, ih Floor Harrisburg, P A 17101 Counsel for Petitioner 136334.1 10/25/07 -5- COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYL VANIA ORPHANS' COURT DIVISION TRUST UNDER WILL OF BELLE F. NELSON No. 893 of 2004 VERIFICATION Manufacturers and Traders Trust Company, by Thomas E. Morkin, verifies that it is the Petitioner in the within the Motion for withdrawal of the Petition for Reformation of the Belle F. Nelson Trust to qualify as a charitable remainder trust and (B) substitution of the Petition to reform the charitable annuity payable under Will of Belle F. Nelson to qualify as a guaranteed charitable annuity interest under IRS Regulation 20.2055-2(e)(2)(vi), and verifies that the statements of fact made in this document are true and correct to the best of its information and belief, and they are made subject to the penalties of 18 Pa. C.S. 94904 relating to unsworn falsification to authorities. Manufacturers and Traders Trust Company, Executor ~41:L- By: Date: Q;I dJ";)007 J " 136334.1 10/25/07 EXHIBIT A , . Internal Revenue Service Department of the Treasury Washington, DC 20224 Kevin M. Scott, Esq. Saul Ewing LLP 2 North 2nd Street 7th Floor Harrisburg, PA 17101 Person To Contact: Deborah S. Ryan #50-06321 Telephone Number: (202) 622-3090 Re!9f Reply To: CC:PSI:4-PLR-153013-04 Date: FEB 2 7 2006 Re: Estate of Belle F. Nelson Dear Mr. Scott: This letter confirms the February 27, 2006 telephone conversation with George Masnik and Deborah Ryan of this office. While it is the practice of the Internal Revenue Service to answer inquiries from individuals, the Service will decline to rule when appropriate in the interest of sound tax administration or on other grounds, whenever warranted by the facts or circumstances of a particular case. See ~ 6.02 of Rev. Proc. 2006-1,2006-1 I.R.B. 1, 18. As we discussed, we are declining to provide the rulings with respect to the above-referenced request. Under ~ 15.10 of Rev. Proc. 2006-1, the user fee will be returned if the Service declines to rule on a request. Accordingly, we are closing our file on this case and will direct that your user fee be refunded under separate cover. Sincerely yours, Ac~v~ George Masnik Chief, Branch 4 Office of Associate Chief Counsel (Passthroughs and Special Industries ) EXHIBIT B Belle F. Nelson Charitable Annuity Trust Computation of Charitable Annuity Interest Gross Estate as ReDorted on u. S. Estate Tax Return Form 706 2,143,483.68 Less: Debts and Expenses Claimed on 706 50.70 Expenses not Clained on 706 114,853.20 Less Expenses Paid from Non Probate Property 8,891.50 105,961.70 Non Probate Property 546,766.48 Pennsvlvania Inheritance Tax 15,500.55 668279.43 Date of Death Value of Residuary Estate Passing in Trust 1 A7i:\ ?nA ?i:\ Residuarv Trust 1,475,204.25 Payout at 5% 73,760.21 Less Non Charitable Annuitv 6 000.00 Charitable Annuitv 1::."7 "7l::.n .,.. Charitable Annuitv as a percentaQe of the Trust 4.5933% EXHIBIT C , , (2) Predeceased Spouse. (a) Should my husband predecease me, or not survive me by thirty (30) days, or survive me and subsequently die, then and in that event, my estate shall be distributed to my Trustee in trust to be administered under this provision. The trust shall be known as the FRITZ C. and BELLE F. NELSON Charitable Trust. (b) Payment of Annuity Amount to Non-Charitable Beneficiaries. The Trustee shall pay $6,000 yearly in equal shares to NANCY RUDOLPH, KAREN SCHATZ and PAUL NELSON (hereinafter, "the Non-charitable Recipients") during their joint lives, and upon the death of one (hereinafter "the Predeceasing Non-charitable Recipient"), the Trustee shall pay the entire $6,000 (subject to proration in paragraph e) in equal shares to the survivors or survivor (hereinafter "the Survivor Recipient"). (b 1) Payment of Annuity Amount to Charitable Beneficiaries. In each taxable year of the trust during the annuity period, the Trustee shall pay an amount equal to four and six tenths percent (4.6%) of initial fair market value of the Trust's assets at my death to the following charitable organizations in the following manner: (i) One half to the CAMP HILL PRESBYTERIAN CHURCH of Camp Hill, Pennsylvania, and (ii) One half in the following amounts: A. Fifteen percent (15%) thereof each to aid the HOLY SPIRIT HOSPITAL OF THE SISTERS OF CHRISTIAN CHARITY, Camp Hill, Pennsylvania, CAPITAL HEALTH SYSTEMS, Harrisburg, Pennsylvania, ALZHEIMER ASSOCIATION, SOUTH CENTRAL PENNSYLVANIA CHAPTER, Harrisburg, Pennsylvania, and the AMERICAN BIBLE SOCIETY, New York, New York. B. Eight percent (8%) thereof to each the BETHESDA MISSION OF HARRISBURG, Harrisburg, Pennsylvania, BILLY GRAHAM EV ANGELISM ASSOCIATION, Minneapolis, Minnesota, ROBERT H. SCHULLER TELEVANGELISM ASSOCIATION, INC., Orange, California, and the UNITED WAY OF THE CAPITAL REGION of Harrisburg, Pennsylvania. C. Four percent (4%) thereof to each the SALVATION ARMY for use in the Harrisburg, Pennsylvania metropolitan area and CHRISTIAN CHURCHS UNITED OF THE TRI-COUNTY AREA for the HELP MINISTRY. (iii) Should any of the entities used in Paragraphs (i) and (ii) above not qualify as an organization described in ~~ 170(c) and 2055(a) of the Code when the annuity payment is to be distributed to it, its share shall be allocated to the remaining beneficiaries within its class that qualify as an organization described in ~ 1 70( c) and 2055(a) of the Code. Failing that, the Trustee shall distribute its share to the class set 132025.1 10/8/07 forth in the subparagraph immediately preceding it, if such class has a beneficiary that qualifies as an organization described in ~170(c) and 2055(a) of the Code. Failing that, the Trustee shall distribute its share to one or more organizations described in ~ I70( c) and 2055(a) ofthe Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. (c) Annuity Period. The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be earlier ofthe date of death of the last surviving Non-charitable recipient or the day before the fifty-sixth anniversary of my date of death. The annuity amount (i.e. the payment of the annuities under subparagraph (b) and (bl)) shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Non-charitable Recipients and Charitable Recipients (in the case of an undervaluation) or receive from the Non-charitable Recipients and the Charitable Recipients (in the case of an overvaluation) an amount equal to the difference between the annuity amount properly payable and the annuity amount actual paid. (d) Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of the annuity amount may be deferred from such date until the end of the taxable year in which the trust is completely funded. Within a reasonable time after the end of the taxable year in which the complete funding of the trust occurs, the Trustee must pay to the Non-charitable Recipients and Charitable Recipients (in the case of an underpayment) or receive from the Non-charitable Recipients and Charitable Recipients (in the case of an overpayment) the difference between: (i) any annuity amounts actually paid, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under Section 664 of the Code prescribe for the trust for such computation for such period; and (ii) the annuity amounts payable, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under Section 664 prescribe for the trust for such computation for such period. (e) Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. Upon the death of a Predeceasing Recipient, the Trustee shall prorate on a daily basis the Predeceasing Recipient's share ofthe next regular annuity payment between the estate of the Predeceasing Recipient and the Survivor Recipient/Survivor Recipients. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year. (f) Distribution to Charities at End of Annuity Period. At the termination of the annuity period, the Trustee shall distribute the greater of five percent (5%) of the initial fair market value of the Trust's assets at my death or trust income (other than any amount due the Recipients or their Estates and the Charitable Recipients above) each taxable year to the Charitable Organizations listed above in the shares set forth above. Such payment will be in addition to the $6,000 payment to the non-charitable beneficiaries under subparagraph (b) above 132025.1 10/8/07 -2- which will end at the death of the last surviving non-charitable beneficiary. If any Charitable Organization is not an organization described in ~ 170(c) and 2005(a) of the Code at the time when such distribution is to be made, its share shall be allocated to the remaining beneficiaries within its class that qualify as an organization described in ~ 170(c) and 2055(a) ofthe Code. Failing that, the Trustee shall distribute its share to the class set forth in the subparagraph immediately preceding it, if such class has a beneficiary that qualifies as an organization described in ~ 170(c) and 2055(a) of the Code. Failing that, the Trustee shall distribute such share to one or more organizations described in ~ 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. (g) Additional Contributions. No additional contributions shall be made to the Trust after the initial contribution. The initial contribution, however, shall be deemed to consist of all property passing to the Trust by reason of my death. (h) Prohibited Transactions. The Trustee shall not engage in any act of self-dealing within the meaning of Section 4941 (d) of the Code, as modified by Section 4947(a)(2)(A) of the Code, and shall not make any taxable expenditures within the meaning of Section 4945( d) of the Code, as modified by Section 4947(a)(2)(A) of the Code. The Trustee shall not make any investments that jeopardize the exempt purpose of the trust for purposes of Section 4944 of the Code, as modified by Section 4947(a)(2)(A) of the Code, or retain any excess business holdings for purposes of Section 4943 of the Code, as modified by Section 4947(a)(2)(A) of the Code. After the end of the annuity period or after the interests of the non-charitable beneficiaries in this trust have expired or been separated/segregated from this trust, the income of each taxable year shall be distributed at such time and in such manner as not to subject the trust to tax under Code Section 4942. Further, after the end of the annuity period or after the interests of the non-charitable beneficiaries in this trust have expired or been separated/segregated from this trust, it is my intent that the trust qualify as a private foundation within Code Section 509(a) as modified by Code Section 4947(a)(1) and the Trustee is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the qualification of the Trust as a private foundation under Code Section 509(a) as modified by Code Section 4947(a)(1) of the Code and the corresponding regulations. (i) Taxable Year. The taxable year of the Trust shall be the calendar year. G) Governing Law. The operation of the Trust shall be governed by the laws of the Commonwealth of Pennsylvania. The Trustee, however, is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the qualification of the Trust under Section of the Code and the corresponding regulations. (k) Limited Power of Amendment. The Trustee shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that the annuity interest payable to the charities under the Trust qualifies and continues to qualify as a charitable guaranteed annuity interest within the meaning of Section 2055(e)(2)(B) of the Code. Further, after the annuity period or upon the expiration of all non-charitable interests in the Trust, the Trustee shall have the power, acting alone, to amend the Trust in any manner required for the 132025.1 10/8/07 -3- , . sole purpose of ensuring that the Trust qualifies and continues to qualify as a private foundation within the meaning of Code Section 509(a) as modified by Code Section 4947(a)(l). (1) Investment of Trust Assets. Nothing herein shall be construed to restrict the Trustee from investing the Trust assets in a manner that could result in the annual realization of a reasonable amount of income or gain from the sale or disposition of Trust assets. (m) Proration of Payment If Insufficient Funds During Annuity Period. If there are insufficient funds to make full payment ofthe annual annuity amounts to the Non-charitable and Charitable beneficiaries during the Annuity Period, the remaining funds in the trust will be paid on a prorata basis between to the non-charitable and charitable beneficiaries based on each beneficiary's proportionate share of the total annuity amount paid each year. 132025.1 10/8/07 -4- EXHIBIT D ,', Internal Revenue Service Department of the Treasury Washington. DC 20224 Index Number: 2055.12-07 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ,IDNo. Telephone Number: Refer Reply To: CC:PSI:B04 PLR-128846-06 Date: JUNE 19.2007 LEGEND: Decedent = Date 1 = Date 2 = A = B = C = $m = $y = $x = ~ years = Charity 1 = Charity 2 = Charity 3 = Charity 4 = Charity 5 = Charity 6 = Charity 7 = Charity 8 = Charity 9 = Charity 10 = Charity 11 = Charity 12 = Dear This is in response to you'r authorized representative's letter of April 26, 2007, and other correspondence, requesting rulings on the application of ~ 2055(a) of the Internal Revenue Code to a trust. , . PLR-128846-06 2 Decedent died testate on Date 1. Under the terms of her will, the residuary estate, valued at $x as of the date of her death, passed to a trust ("Trust"). Under Paragraph Fourth (2) of the Trust, $m per month (or $y per year) of Trust income is to be divided among A, B, and C, per capita, until the death of the last to survive of A, B, and C. The remaining Trust income is to be distributed among Charities1-12, provided the organization is tax-exempt under ~ 501 (c)(3) and charitable in nature. Under no condition is the annual distribution to be less than 5% of the initial fair market value of the Trust property. If the minimum required distribution exceeds the net income in any period, the trustees are to invade the Trust principal as necessary. On the death of the last to survive of A, B, and C, the Trust will continue and the income will be distributed exclusively to Charities 1-12. Under the terms of Trust, the amount to be distributed to the charities until all of A, B, and C have died does not meet the requirements of a guaranteed annuity or a fixed percentage distributed yearly of the fair market value of the property, as required by ~ 2055(e)(2). Also, Trust does not satisfy the requirements of ~ 664 as required under ~ 2055(e)(2) in order for the charitable remainder interest to qualify for an estate tax deduction. Moreover, based on: (i) the ages of A, B, and C, and (ii) the Trust provision for the use of principal to pay the annuities, there is a potential for the Trust principal to be fully consumed before A, B, and C have all died. That is, based on appropriate actuarial factors, the annuity period is to continue until all of A, B, and C have died or upon the expiration of Sl years, whichever occurs first. See ~ 25. 7520-3(b )(2)(i); 25.7520- 3(b)(2)(v) Example 5. For this reason, a deduction under ~ 2055(a) is not allowable for the charitable remainder interest in any event because, on the date of Decedenfs death, the possibility that the remainder will fail is not so remote as to be negligible. Section 20.2055-2(b)(1) of the Estate Tax Regulations. On Date 2, a date prior to the due date of the federal estate tax return for Decedent's estate, the executor of Decedent's estate and trustee of the Trust commenced a judicial proceeding to reform Trust under the provisions of state law and ~ 2055(e)(3). The proceeding is still pending ~t this time. Under the proposed reformation, the Trust will distribute annually an amount equal to 5 percent of the initial net fair market value of the Trust, as follows: (1) An annual annuity amount of $y (or .38% of the fair market value of the Trust assets at Decedent's date of death) is to be paid to A, B, and C or the survivor of them, until all of A, B, and C have died or upon the expiration of Sl years, whichever occurs first (the "Annuity Term"). (2) An annual annuity amount (the "Charitable Lead Annuity") equal to 4.62% of the fair market value of the Trust assets at Decedent's date of death is to be , . PlR-128846-06 3 paid to Charities 1-12 for the Annuity Term. (3) At the end of the Annuity Term, any property remaining in the trust will be held for the exdusive benefit of Charities 1-12. Under the terms of Trust, the trustee is preduded from engaging in any act of self dealing, failing to make distributions, retaining any excess business holdings, or making any taxable expenditures, so as to subject the trust to any tax under ~~ 4941, 4942, 4943,4944,or4945. It is represented that the proposed reformation of Trust will be effective as of Decedent's date of death and that Charities 1-12 are charitable organizations described in ~ 2055(a). You have requested the following rulings: 1. The charitable lead annuity interest created in Artide Fourth of the Trust is a "reformable interesr, within the meaning of ~ 2055{e)(3){C); 2. The Petition for Reformation, when granted, will result in a qualified reformation of the Trust, within the meaning of ~ 2055{e)(3){B); 3. A deduction under ~ 2055{a) is allowable for the present value of the Charitable lead Annuity, as reformed. Section 2055{a) provides that the value of the taxable estate shall be determined by deducting from the value of the gross estate the amount of all bequests, legacies, devises, and transfers to or for a corporation or certain other organizations organized and operated exdusively for religious, charitable, scientific, literary, or educational purposes. Section 2055{e){2) provides that where an interest in property passes or has passed from the decedent to a person or for a use described in subsection (a), and an interest in the same property passes (for less than an adequate and full consideration in money or money's worth) from the decedent to a person or for a use not described in subsection (a), no deduction shall be allowed under ~ 2055{a) unless: (A) in the case of a remainder interest, the inte~est is in a trust which is a charitable remainder annuity trust or a charitable remainder unitrust described in ~ 664, or a pooled income fund described in ~ 642(c){5), or (B) in the case of any other interest, the interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair market value of the property (to be determined yearly). Section 20.2055-2{e)(1)(i) provides that where an interest in property passes or , . PlR-128846-06 4 has passed from the decedent for charitable purposes and an interest in the same property passes or has passed from the decedent for private purposes (for less than an adequate and full consideration in money or money's worth) no deduction is allowed under ~ 2055 for the value of the interest which passes or has passed for charitable purposes unless the interest in property is a deductible interest described in ~ 20.2055- 2(e)(2). Under ~ 20.2055-2(e)(2)(vi)(a), a deductible interest includes a charitable interest in the form of a guaranteed annuity interest. The term "guaranteed annuity interest" means the right pursuant to the instrument of transfer to receive a guaranteed annuity. A guaranteed annuity is an arrangement under which a determinable amount is paid periodically, but not less often than annually, for a specified term of years or for the life or lives of certain individuals, each of whom must be living at the date of death of the decedent and can be ascertained at such date. An amount is determinable if the exact amount which must be paid under the conditions specified in the instrument of transfer can be ascertained as of the appropriate valuation date. For example, the amount to be paid may be a stated sum for a term of years, or for the life of the decedents spouse, at the expiration of which it may be changed by a specified amount. In further illustration, the amount to be paid may be expressed in terms of a fraction or a percentage of the net fair market value, as finally determined for Federal estate tax purposes, of the residue of the estate on the appropriate valuation date. Section 20.2055-2(e){2)(vi)(f) provides that where a charitable interest in the form of a guaranteed annuity interest is in trust. the charitable interest generally is not a guaranteed annuity interest if any amount may be paid by the trust for a private purpose before the expiration of all the charitable annuity interests. There are two exceptions to this general rule. First, the charitable interest is a guaranteed annuity interest if the amount payable for a private purpose, is in the form of a guaranteed annuity interest and the trusts governing instrument does not provide for any preference or priority in the payment of the private annuity as opposed to the charitable annuity. Second, the charitable interest is a guaranteed annuity interest if under the trusts governing instrument the amount that may be paid for a private purpose is payable only from a group of assets that are devoted exclusively to private purposes and to which ~ 4947(a)(2) is inapplicable by reason of ~ 4947{a)(2){B). For purposes of this paragraph, an amount is not paid for a private purpose if it is paid for an adequate and full consideration in money or money's worth. Section 2055{e)(3)(A) provides that a deduction shall be allowed under ~ 2055(a) in respect of any qualified ref()rmation. Section 2055(e){3)(B) provides that the term "qualified reformation" means a change of a governing instrument by reformation, amendment, construction, or , . PLR-128846-06 5 otherwise that changes a reformable interest into a qualified interest but only if- (i) any difference between- (I) the actuarial value (determined as of the date of the decedenfs death) of the qualified interest, and (II) the actuarial value (as so determined) of the reformable interest, does not exceed 5 percent of the actuarial value (as so determined) of the reformable interest, (ii) in the case of- (I) a charitable remainder interest, the non remainder interest (before and after the qualified reformation) terminated at the same time, or (II) any other interest, the reformable interest and the qualified interest are for the same period, and (m) such change is effective as of the date of the decedent's death. Section 2055(e)(3)(C)(i) provides that the term "reformable interest" means any interest for which a deduction would be allowable under ~ 2055(a) at the time of the decedent's death but for ~ 2055(e)(2). Section 2055(e)(3)(C)(ii) provides that the term "reformable interest" does not include any interest unless, before the remainder vests in possession, all payments to persons other than an organization described in ~ 2055(a) are expressed either in specified dollar amounts or a fixed percentage of the fair market value of the property. Section 2055(e)(3)(C)(iii) provides, however, that ~ 2055(e)(3)(C)(ii) shall not apply to any interest if a judicial proceeding is commenced to change such interest into a qualified interest not later than the 90th day after- (I) if an estate tax return is required to be filed, the last date (including extensions) for filing such return, or (II) if no estate tax return is required to be filed, the last date (including extensions) for filing the income tax return for the first taxable year for which such a return is required to be filed by the trust. Section 2055(e)(3)(0) provides that the term "qualified interesr means an interest for which a deduction is allowable under ~ 2055(a). Section 2055(e)(3)(E) provides that the deduction referred to in ~ 2055(e)(3)(A) shall not exceed the amount of the deduction which would have been allowable for the reformable interest but for ~ 2055(e)(2). Under the terms of Trust, as reformed, Trust will pay an annual annuity equal to 5% the initial fair market value of the Trust property on Decedenfs date of death. Of this, the Charitable Lead Annuity amount will be equal to 4.62 % of the fair market value of the Trust assets on Oecedenfs date of death. We have determined that the difference between the actuarial value (determined as of the date of decedenrs death) of the qualified interest and the actuarial value (as so determined) of the ref<?rmable interest does not exceed 5 % of the actuarial value (as so determined) of the reformable interest. See ~ 2055(e)(3)(8). Furthermore, the term of the Charitable Lead Annuity is for the same period both before and after the - - ..... .--- ___..__'-~_c.__-----,-,--,,~~-'---___.c.-.----__~____~_.__. . . PLR-128846-06 6 reformation. See ~ 2055(e)(3)(B)(ii)(II). In addition, the charitable lead interest provided under the terms of Trust prior to reformation constitutes a -reformable interest" within the meaning of ~ 2055(e)(3)(C). The annuity interest to be paid during the Annuity Term to the charities will constitute a guaranteed annuity within the meaning of ~ 2055(e)(2)(B). Accordingly, we conclude that the reformation, when judicially approved, will constitute a qualified reformation within the meaning of ~ 2055(e)(3)(B). Therefore, a charitable deduction will be allowable under ~ 2055(a) for the present value of the Charitable Lead Annuity, determined in accordance with ~ 20.2055-2(f)(2)(iv). The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury , statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative. This ruling is directed only to the taxpayer requesting it. Section 611 0(k)(3) of the Code provides that it may not be used or cited as precedent. Sincerely yours, (I..u 0..... Y1t-- George L. Masnik Chief, Branch 4 Office of Associate Chief Counsel (Passthroughs and Special Industries) Enclosure copy for 6110 purposes ~ , COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION TRUST UNDER WILL OF BELLE F. NELSON No. 893 of 2004 CERTIFICATE OF SERVICE I, Kevin M. Scott, Esquire, hereby certify that on this 29th day of October, 2007, I served a true and correct copy of the foregoing via First Class Mail, postage prepaid, upon the following: Nancy L. Rudolph 613 Westwind Road Kane, PA 16735 Karin M. Schatz 2939 Rich Valley Road Emporium, PA 15834 Pinnacle Health System Attn: Financial Accounting P.O. Box 8700 Harrisburg, PA 17105-8700 Alzheimer's Assn. South Central Pennsylvania Chapter 3544 N. Progress Avenue, Suite 205 Harrisburg, P A 17110 Bethesda Mission P.O. Box 3041 Harrisburg, P A 17105 Camp Hill Presbyterian Church 101 North 23rd Street Camp Hill, PA 17011 Holy Spirit Hospital Attn: Suzanne Gookin 503 N. 21 st Street Camp Hill, PA 17011 American Bible Society Attn: Legal Dept., Juliet Thomas 1865 Broadway New York, NY 10023-9980 Robert H. Schuller Televangelism a/kIa Crystal Cathedral Ministries Attn: Beth Muma 13280 Chapman A venue Garden Grove, CA 92840 Christian Churches United of the Tri-County Area Attn: Jacqueline Rucker 413 S. 19th Street, P.O. Box 60750 Harrisburg, PA 17106-0750 136334.1 10/29/07 Paul Nelson 410 Janeway Street Kane, PA 16735 Billy Graham Evangelistic Assn. Attn: Justin T. Arnot 1 Billy Graham Parkway Charlotte, NC 28201-0001 United Way of the Capital Region 2235 Millennium Way Enola, P A 17025 The Salvation Army Attn: Major John N. Griner P.O. Box 2205 Harrisburg, P A 17105-2205 Michael Foerster, Esquire Deputy Attorney General Charitable Trusts Section Office of Attorney General 15th Floor, Strawberry Square Harrisburg, P A 17120 _~'L~j~ Kevin M. Scott I' , '. o . Iller II" <"UI ~V 'I COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYL VANIA ORPHANS' COURT DIVISION TRUST UNDER WILL OF BELLE F. NELSON No. 893 of 2004 RULE TO SHOW CAUSE AND NOW, this ,..;(" day of ~ ~007, upon consideration ofthe annexed Petition, IT IS HEREBY ORDERED THAT within 30 days of the date of service of this Rule, Paul Nelson, Nancy Rudolph, Karin Schatz, Camp Hill Presbyterian Church, Holy Spirit Hospital of the Sisters of Christian Charity, Pinnacle Health System (successor by merger to Capital Health System), Alzheimer Association (South Central Pennsylvania Chapter), American Bible Society, Bethesda Mission of Harrisburg, Billy Graham Evangelism Association, Robert H. Schuller Televangelism Association, United Way of the Capital Region of Harrisburg, Salvation Army, Christian Churches United of the Tri-County Area for the HELP Ministry, and the Office of the Attorney General of Pennsylvania, to show cause why the aforesaid (A) Motion for withdrawal of the Petition for Reformation of the Belle F. Nelson Trust to qualify as a charitable remainder trust and (B) substitution of the Petition to reform the charitable annuity payable under Will of Belle F. Nelson to qualify as a guaranteed charitable annuity interest under IRS Regulation 20.2055-2(e)(2)(vi) should not be granted. c') J. (~'J ~ ~:-. C:::. '-. (j ~ In Re: BELLE F. NELSON ORPHANS' COURT DIVISION COURT OF COMMON PLEAS OF CUMBERLAND COUNTY PENNSYLVANIA NO. 21-04-0893 CERTIFICATE OF SERVICE OF ORDER ORDER DATE: 11-1-07 JUDGE'S INITIALS: EEG TIME STAMP DATE: 11-1-07 IN RE: RULE TO SHOW CAUSE """"""""""""""""""",""""""'"""""""""""""""""""",""""""'""""""""" SERVICE TO: CHRISTIAN CHURCHES UNITED OF TRI-COUNTY AREA ATIN: JACOUELINE RUCKER ROBERT H SCHULLER TELEVANGELISM A/KJA CRYSTAL CATHEDRAL MINISTRIES ATIN BETH MUMA. THE SALVATION ARMY A TTN MAJOR JOHN N GRINER. METHOD OF MAILING: ENVELOPES PROVIDED BY: [gI USPS ORRR o HAND DELIVERED o OTHER_ [gI PETITIONER o JUDGE o CLERK OF ORPHANS COURT MAILED: 11-2-07 """""""""""""""""""""""""""""""""""""""""""""""""""""""""\""",,, SERVICE TO: AMERICAN BIBLE SOCIETY A TTN JULIET THOMAS. HOLY SPIRIT HOSPITAL A TIN SUZANNE GOOKIN. UNITED WAY OF THE CAPITAL REGION. CAMP HILL PRESBYTERIAN CHURCH. BETHESDA MISSION. METHOD OF MAILING: ENVELOPES PROVIDED BY: [gI USPS ORRR o HAND DELIVERED o OTHER_ o PETITIONER o JUDGE o CLERK OF ORPHANS COURT MAILED: 11-2-07 ~flL 9 9&hNll0.- Deputy Clerk of Orphans' Court In Re: BELLE F. NELSON ORPHANS' COURT DIVISION COURT OF COMMON PLEAS OF CUMBERLAND COUNTY PENNSYLVANIA NO. 21-04-0893 CERTIFICATE OF SERVICE OF ORDER ORDER DATE: 11-1-07 JUDGE'S INITIALS: EEG TIME STAMP DATE: 11-1-07 IN RE: RULE TO SHOW CAUSE """"\\""""""""""""""""""""""""""""""""""""""""""""""""""""""""" SERVICE TO: BILLY GRAHAM EVANGELISTIC ASSN. ALZHEIMER'S ASSN SOUTH CENTRAL. PINNACLE HEALTH SYSTEM. PAUL NELSON. KARIN M SCHATZ. NANCY L RUDOLPH. KEVIN M SCOTT. MICHAEL FOERSTER OFFICE OF ATTY GENERAL METHOD OF MAILING: ENVELOPES PROVIDED BY: IZI USPS DRRR D HAND DELIVERED D OTHER_ IZI PETITIONER D JUDGE D CLERK OF ORPHANS COURT MAILED: 11-2-07 """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" SERVICE TO: D USPS DRRR D HAND DELIVERED DOTHER_ ENVELOPES PROVIDED BY: D PETITIONER D JUDGE D CLERK OF ORPHANS COURT METHOD OF MAILING: MAILED: 11-2-07 tftL1~ O~ Deputy Clerk of Orphans' Court COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYL VANIA ORPHANS' COURT DIVISION TRUST UNDER WILL OF BELLE F. NELSON No. 893 of 2004 ORDER AND NOW, this 3.f day of ~2007, IT IS HEREBY ORDERED: (A) Manufacturers and Traders Trust Company's Motion for withdrawal of the Petition for Reformation of the Belle F. Nelson Trust to qualify as a charitable remainder trust is granted and; (B) Manufacturers and Traders Trust Company's Petition to reform the charitable annuity payable under Will of Belle F. Nelson to qualify as a guaranteed charitable annuity interest under IRS Regulation 20.2055-2(e)(2)(vi) is granted with the "Limited Power to Amend" section of the reformed trust hereby amended as follows: "(k) All beneficiaries and the Trustee of the Trust may enter into a binding nonjudicial settlement agreement to amend the Trust in order to comply with existing tax law, to react efficiently to changes in tax law and to maximize tax benefits after notice to the Commonwealth of Pennsylvania, Office of Attorney General. Such amendment shall be consistent with the section of the Pennsylvania version of the Uniform Trust Act, currently codified at 20 Pa. C.S.A. S 7710.1 (d)( 11) which states, "Matters that may be resolved by a nonjudicial settlement agreement include the following ... (11) the modification or termination of the trust." The reformed trust approved by this Court is annexed hereto. 1..'- \~l (/) LL.J .- J C~ ~~:~.~ fE ;-, ~ c) t~) c) r ~- fi~: tJ C)(~ &=1 ;~i: cc \D M CA x: c:r $(: t-rr. cr.:: LL =) S-' C-... c~'" , ,jc.J Ef Sf) , d~fr: 0..7.' \ 0::;;:::, 05 (.) ..::r , U L.t.J o r- <:::::> c:::;;. ('oo.J J. . by a nonjudicial settlement agreement include the following ... (11) the modification or termination of the trust. (1) Investment of Trust Assets. Nothing herein shall be construed to restrict the Trustee from investing the Trust assets in a manner that could result in the annual realization of a reasonable amount of income or gain from the sale or disposition of Trust assets. (m) Proration of Payment!f Insufficient Funds During Annuity Period. If there are insufficient funds to make full payment of the annual annuity amounts to the Non-charitable and Charitable beneficiaries during the Annuity Period, the remaining funds in the trust will be paid on a pro rata basis between to the non-charitable and charitable beneficiaries based on each beneficiary's proportionate share of the total annuity amount paid each year. 132025.2 11/27/07 -4- .. .' SAUL EWING Attorneys at Law A Delaware LLP Kevin M. Scott Phone: (717) 257-7551 Fax: (717) 257-7592 kscott@saul.com www.saul.com November 27, 2007 Judge Edward E. Guido Court of Common Pleas of Cumberland County One Court House Square 4th Floor Carlisle, P A 17013 Re: Trust Under Will of Belle F. Nelson No. 893 of 2004 Dear Judge Guido: On behalf of Manufacturers and Traders Trust Company ("M&T Trust Company"), Executor of Belle F. Nelson's estate, I am writing to you to request a minor modification to the proposed reformed trust that was previously included as part of M&T Trust Company's Petition to Reform the Charitable Annuity Payable under the Will of Belle F. Nelson. The Petition was filed with the Court on October 29,2007 and is attached as Exhibit 1. The minor modification has been proposed by Michael Foerster, Esq. of the Charitable Trusts Section of the Office of the Attorney General. Attorney Foerster has proposed that subparagraph (k) of the reformed trust be replaced with the following: "(k) All beneficiaries and the Trustee of the Trust may enter into a binding nonjudicial settlement agreement to amend the Trust in order to comply with existing tax law, to react efficiently to changes in tax law and to maximize tax benefits after notice to the Commonwealth of Pennsylvania, Office of Attorney General. Such amendment shall be consistent with the section of the Pennsylvania version of the Uniform Trust Act, currently codified at 20 Pa. C.S.A. ~7710.1(d)(11) which states, "Matters that may be resolved by a nonjudicial settlement agreement include the following ... (11) the modification or termination of the trust." This modification to the reformed trust will not alter any of the beneficiaries' rights to distributions from the trust. Rather, the modification will provide the beneficiaries with a voice regarding any modification of the trust. Because this modification is relatively minor and does not adversely affect any of the beneficiaries, we recommend that the Court adopt the minor modification to the proposed trust document without any formal notice to the beneficiaries. 2 North Second Street, 7th Floor. Harrisburg, PA 17101-1619 . Phone: (717) 257-7500. Fax: (717) 238-4622 BALTIMORE CHESTERBROOK HARRISBURG NEWARK PHILADELPHIA PRINCETON WASHINGTON WILMINGTON 7448.1 11/27/07 A DELAWARE LIMITED LIABILITY PARTNERSHIP November 27, 2007 Page 2 In order to adopt the minor modification to the trust, we have provided the Court with the a proposed order and revised trust document. The order and trust document are attached as Exhibit 2. It is counsel's expectation that no objections will be filed by the beneficiaries to the initial petition for reformation and therefore this order can be adopted by the Court after December 1 st when the response period expires for the rule issued by the Court for the Executor's petition. Please call me if you have any questions regarding this request. /u:~t- ~~ Kevin M. Scott Cc: Michael Foerster, Esq. Office of Attorney General 1374481 11/27/01 In Re: TRUST UNDER WILL OF BELLE F NELSON ORPHANS' COURT DIVISION COURT OF COMMON PLEAS OF CUMBERLAND COUNTY PENNSYL VANIA NO. 21-2004-0893 CERTIFICA TE OF SERVICE OF ORDER ORDER DATE: 12/03/07 JUDGE'S INITIALS: EEG TIME STAMP DATE: 12/04/07 IN RE: ORDER "... '\... """,......" ,,,...........,,... ..." '\ ""'" '\...""" '\...,' ",... '\ ""... '\" , ...""" '\"..."..."" ,,' ",... '\ '\...... ,,,,.....,, '\..."..................... '\... , '\................""... '" SERVICE TO: KEVIN SCOTT (MANUFACTURERS AND TRADERS TRUST CO) METHOD OF MAILING: ENVELOPES PROVIDED BY: t8J USPS DRRR D HAND DELIVERED D OTHER_ o PETITIONER o JUDGE r8'J CLERK OF ORPHANS COURT MAILED: 12/04/07 ".................."... '\... "'..." "" "'" ""...... '\ 'I"""'''' '\ ,.......".. '" ","'... ",... '\ ""..."" "'" ",..."""........... '\....................................""............" '\"'" '" ..."" "......... SERVICE TO: METHOD OF MAILING: ENVELOPES PROVIDED BY: o USPS DRRR D HAND DELIVERED o OTHER_ o PETITIONER o JUDGE o CLERK OF ORPHANS COURT MAILED: J~wtk- __ I Deputy c7 (' Clerk of Orphans' Court COMMONWEALTH OF PENNSYLVANIA OFFICE OF ATTORNEY GENERAL March 31, 2008 TOM CORBETT ATTORNEY GENERAL Charitable Trusts and Organizations Section 14th Floor, Strawberry Square Harrisburg, P A 17120 Telephone: (717) 705-1611 Facsimile: 717-787-1190 hvance Jittman@attorneygeneral.gov Kevin M. Scott, Esquire SAUL EWING 2 North Second Street, ih Floor Harrisburg, PA 17101 Re: Estate of Belle F. Nelson Dear Mr. Scott: This will acknowledge receipt of your notice pursuant to Supreme Court Orphans' Court Rule 5.5 regarding the above-captioned matter. I have reviewed the First and Final Account and have no objections. Please forward a copy of the Decree or Confirmation, whichever is applicable, when entered so that I can complete my file. Please be advised that this review has been conducted pursuant to the parens patriae role of this offic(: and has no bearing on any matter unrelated to that function. Thank you for your cooperation during the course of our review. Very truly yours, '1-J-.Y~.I'~ Heather J. Vance-Rittman Deputy Attorney General o c ;c~o ;"~ ::0 :c! -l:J ,~; ;t: P ~rT' ~-: :;-; v") -.'. /" ':") .-)C) 0 ,~-..., ~::"- -n \.~..,,,-,"- ::.0 :0---1 )3;: ".J = <.::::> = ;n.. -0 ;::0 co -0 :II: <:? .&;- -I:"" -\fV\\ \. \} *' COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF PUBLIC WELFARE BUREAU OF FINANCIAL OPERATIONS DIVISION OF THIRD PARTY LIABILITY ESTATE RECOVERY PROGRAM PO BOX 8486 HARRISBURG, PA 17105-8486 NAR 1 2 2DDB March 7, 2008 SAUL EWING LLP Ml\RONETTA F MILLER LEGAL ASSISTANT 2 NORTH SECOND ST 7TH FLOOR HARRISBURG PA 17101-1604 Re: BELLE F NELSON SSN: 182-40-9714 Dear Ms Miller: Pursuant to your letter dated February 01, 2008, the Department of Public Welfare (DPW), Estate Recovery Program, has reviewed the information you provided regarding the above-referenced individual. It has been determined that this individual did not receive any type of assistance during the questioned period. Therefore, according to the information you provided, the Department's Estate Recovery Program will not seek any recovery from this estate. If your client applied for Medical Assistance and had an application and/or hearing pending at the time of death, please advise us and provide any additional information that may affect a recovery by our Department. If you have any questions, please feel free to contact me. Sincerely, ~9-~~lL- Carole A. Procope Recovery Section Manager (717) 772-6604 SAUL EWING Attorneys at Law A Delaware LlP Maronetta F. Miller Phone: (717) 257-7524 Fax: (717)257-7588 mmiller@saul.com www.saul.com April 17, 2008 Delivery By Federal Express Cumberland County Courthouse Register of Wills Attn: Glenda Farner Strasbaugh One Courthouse Square Carlisle, P A 17013-3387 Re: Estate of Belle F. Nelson No. 893 of 2004 Dear Glenda: Enclosed please find original letter from Attorney General's Office stating that they have no objections to the First and Final Account as presented. Also enclosed is original letter from the Estate Recovery Program stating that Mrs. Nelson did not receive any assistance during her lifetime. I would ask that you make both letter part of the file to be presented at the Audit before the Court on April 22, 2008. Please call me if you have any questions. Thank you for your assistance. ~incerely, )\ (\"\,'\0) ,",c c,k / _l " . Mar~etta F. 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