Estate of Timken v. U.S.

Decision Date25 March 2009
Docket NumberCase No. 5:04CV1188.
Citation630 F.Supp.2d 823
PartiesESTATE OF Louise Blyth TIMKEN (Deceased), et al., Plaintiffs, v. UNITED STATES of America, Defendant.
CourtU.S. District Court — Northern District of Ohio

Matthew Yackshaw, Day, Ketterer, Raley, Wright & Rybolt, Canton, OH, for Plaintiffs.

Stephen T. Lyons, Elizabeth Lan Davis, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OF OPINION AND ORDER

[RESOLVING DOCS. 15 and 16]

JOHN R. ADAMS, District Judge.

In this tax refund case, the plaintiffs1 seek a refund of over $4 million in generation-skipping transfer ("GST") tax plus statutory interest. Plaintiffs' entitlement to the refund turns on whether Treasury Regulation § 26.2601-1(b)(1)(v)(A), the constructive additions Regulation (the "Regulation"),2 is valid; and, if the Regulation is valid, whether it applies to the facts in this case. Through their cross-motions for Summary Judgment (Docs. 15 and 16), which are presently before the Court, the parties have fully briefed the issues. The United States of America filed a Brief in Support of its Motion for Summary Judgment (Doc. 17), a Brief in Opposition to plaintiffs' Motion for Summary Judgment (Doc. 20), and a Reply Brief (Doc. 26). Plaintiffs filed a Brief in Opposition to Defendant's Motion for Summary Judgment (Doc. 19), a Reply Brief (Doc. 25), and two Notices of Supplemental Authority (Docs. 27 and 28). The parties also filed a Joint Stipulation of Facts (Doc. 14).

The Court has also considered the supplemental memoranda (Docs. 37 and 38) filed on July 10, 2008, in response to the Court's Order (Doc. 32) that the parties address the decision of the United States Court of Appeals for the Sixth Circuit in Estate of Gerson v. C.I.R., 507 F.3d 435 (6th Cir.2007), cert. denied, Kleinman v. C.I.R., ___ U.S. ___, 128 S.Ct. 2502, 171 L.Ed.2d 806 (2008)3 and its impact on the issues presented in the case at bar.

The Court has reviewed the motions, memoranda in support and in opposition, the record evidence, and the applicable law. For the reasons set forth herein, the Court holds that the Regulation is valid and applies to the facts in this case and the plaintiffs are not entitled to a tax refund. Thus, plaintiffs' Motion for Summary Judgment (Doc. 15) will be DENIED and defendant's Motion for Summary Judgment (Doc. 16) will be GRANTED.

THE SUMMARY JUDGMENT STANDARD

Summary judgment is appropriately granted when

. . . the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.

Fed.R.Civ.P. 56(c). See also Johnson v. Karnes, 398 F.3d 868, 873 (6th Cir.2005).

The moving party is not required to file affidavits or other similar materials negating a claim on which its opponent bears the burden of proof, so long as the movant relies upon the absence of the essential element in the pleadings, depositions, answers to interrogatories, and admissions on file. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The moving party must "show that the non-moving party has failed to establish an essential element of his case upon which he would bear the ultimate burden of proof at trial." Guarino v. Brookfield Tp. Trustees, 980 F.2d 399, 403 (6th Cir. 1992). Once the movant makes a properly supported motion, the burden shifts to the non-moving party to demonstrate the existence of a genuine dispute. Under Fed. R.Civ.P. 56(e)(2),

. . . an opposing party may not rely merely on allegations or denials in its own pleading; rather, it's response must—by affidavits or as otherwise provided in this rule—set out specific facts showing a genuine issue for trial.

The non-moving party must, in order to defeat the motion, "show that there is doubt as to the material facts and that the record, taken as a whole, does not lead to a judgment for the movant." Guarino, 980 F.2d at 403. In reviewing the motion for summary judgment, the Court must view the evidence in the light most favorable to the non-moving party when deciding whether a genuine issue of material fact exists. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); White v. Turfway Park Racing Ass'n, Inc., 909 F.2d 941, 943-44 (6th Cir.1990).

The United States Supreme Court, in deciding Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), stated that in order for a motion for summary judgment to be granted, there must be no genuine issue of material fact. Id. at 248, 106 S.Ct. 2505. A fact is "material" only if its resolution will affect the outcome of the lawsuit. In determining whether a factual issue is "genuine" the Court must decide whether the evidence is such that reasonable jurors could find that the non-moving party is entitled to a verdict. Id. To withstand summary judgment, the non-movant must show sufficient evidence to create a genuine issue of material fact. Klepper v. First Am. Bank, 916 F.2d 337, 342 (6th Cir.1990). The existence of a mere scintilla of evidence in support of the non-moving party's position ordinarily will not be sufficient to defeat a motion for summary judgment. Id.

THE FACTS

On November 17, 1936, Henry H. Timken, Jr. established a revocable trust in favor of himself for his life and upon his death for his wife, Louise Blyth Timken, under the name "Henry H. Timken, Jr. Trust, Fund A." Doc. 14 at ¶¶ 1 and 3. At the time of its creation, Henry H. Timken, Jr. transferred assets to the Henry H. Timken, Jr. Trust, Fund A. Id. at ¶ 4. The original Trustee was the Cleveland Trust Company. Subsequent trustees were Ameritrust, Key Bank, N.A. (the trustee at the time of Louise Blyth Timken's death), and finally Mellon Bank, N.A. (the Trustee as of August 15, 2005). Id. at ¶ 5.

Henry H. Timken, Jr. modified the Henry H. Timken, Jr. Trust, Fund A several times before his death on March 15, 1968—the final modification was dated December 29, 1964 (hereinafter the Henry H. Timken, Jr. Trust, Fund A, as modified on December 29, 1964, shall be referred to as the "Trust Agreement"). Id. ¶¶ 6-15; see also Doc. 14-6 (Trust Agreement). It is this latter trust that contains the relevant dispositive provisions. The Trust became irrevocable upon the death of Henry H. Timken, Jr. Id. at ¶ 16. According to one of the advisors to the Trust, "no corpus was added" to the Trust after September 25, 1985. Affidavit of Donald R. Black (Doc. 15-3) at ¶ 4.

In Article I(b)(2) of the Trust Agreement, the Trust gave Louise Blyth Timken a general power of appointment by will in order to qualify the Trust for the estate tax marital deduction under Internal Revenue Code ("I.R.C.") § 2056(b)(5).4 Doc 14-6 at 4-5. When she died on October 3, 1998, Louise Blyth Timken had exercised her general power of appointment only to the extent of directing that the federal estate tax attributable to the inclusion of the Trust property in her gross estate be paid from the Trust property. She did not otherwise exercise the general power of appointment. Doc. 14 at ¶ 19; see also Doc. 14-7 (the Last Will and Testament and two codicils of Louise Blyth Timken). Because of her general power of appointment over the Trust property, the Trust property was included in Mrs. Timken's gross estate for federal estate tax purposes pursuant to I.R.C. § 2041.5 The Estate of Louise Blyth Timken paid $33,600,952.67 in federal estate tax. Doc. 15-3 at ¶ 9. The amount of the federal estate taxes attributable to the inclusion of the Trust assets into the Estate of Louise Blyth Timken totaled $15,313,793.80, which was paid by the Trust. Id. at ¶ 8.

Louise Blyth Timken and Henry H. Timken, Jr. did not have any children of their own. Doc. 14, at ¶ 17. W.R. Timken and John M. Timken were the brothers of Henry H. Timken, Jr. Edith M. Timken, Jane M. Timken, Barbara C. Timken, and John M. Timken, Jr. are the nieces and nephew of Louise Blyth Timken and Henry H. Timken, Jr.

All children of W.R. Timken and John M. Timken were forty years or older at the death of Louise Blyth Timken and were entitled to receive their entire balance outside of any trust. Id. at ¶ 20. Two of the three children of W.R. Timken received their interest under the terms of the Trust Agreement as soon as practicable following the death of Louise Blyth Timken. Id. at ¶ 21. The amounts the two children of W.R. Timken received under the terms of the Trust Agreement are not in any way affected or involved in this lawsuit and they make no claim for refund of any tax related to the distributions which they received under the terms of the Trust Agreement. Id. at ¶ 22.

Edith M. Timken is the third child of W.R. Timken, and she did not receive any interest in the Trust because she made a Qualified Disclaimer of any interest in the Trust. Id. at ¶ 23; see also Doc. 14-8 (Edith M. Timken's Qualified Disclaimer). Following Edith M. Timken's Qualified Disclaimer, that share of the Trust was subdivided and placed into trusts pursuant to the terms of the Trust Agreement for her three children: Alexander C. Timken, Peter T. Toot, and Elizabeth Burnham Timken, who were all then under the age of 40. Doe. 14 at ¶ 25. The trust established for Alexander C. Timken is named "Henry H. Timken, Jr. Trust, Fund A1A fbo Alexander C. Timken" and one-third of the funds otherwise due to Edith M. Timken were distributed into that trust. Id. at ¶ 26. The trust established for Peter T. Toot is named "Henry H. Timken, Jr. Trust, Fund A1B fbo Peter T. Toot" and one-third of the funds otherwise due to Edith M. Timken were distributed into that trust. Id. at ¶ 27. The trust established for Elizabeth Burnham Timken is named "Henry H. Timken, Jr. Trust, Fund A1C fbo Elizabeth Burnham Timken" and the remaining one-third of the funds otherwise due...

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  • ESTATE OF TIMKEN v. US
    • United States
    • U.S. Court of Appeals — Sixth Circuit
    • 2 Abril 2010
    ...amendment that, under Treas. Reg. § 26.201-1(c), took effect after Louise Blyth Timken's death in 1998. Estate of Timken v. United States, 630 F.Supp.2d 823, 832-33 (N.D.Ohio 2009). The district court held, however, that Gerson required the conclusion that the grandfathering exemption is am......

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