The opinion of the court was delivered by: Arthur J. Schwab United States District Judge
Before the Court are the parties' cross-motions for summary judgment. The Estate of Antonio Palumbo and its Executor (hereinafter "Plaintiff") brought this action seeking a refund (plus accrued interest) of an alleged overpayment of Federal estate taxes. Plaintiff paid federal estate taxes on an amount -- $11,721,141.00 -- which was paid to a charitable trust created by Mr. Palumbo during his lifetime. This payment was made to the charitable trust under the terms of a settlement agreement negotiated (primarily) between Mr. Palumbo's son and intestate heir, although all legatees signed the agreement.
Plaintiff's Complaint asserts that Plaintiff is entitled to a return of the taxes paid on the $11,721,141.00 (plus interest), claiming under Section 2055 of the Internal Revenue Code (26 U.S.C. § 2055, hereinafter "2055"), this amount should constituted a charitable deduction. Plaintiff's Motion for Summary Judgment contends that all evidence produced demonstrates that the transfer of $11,721,141.00 to the Charitable Trust via the settlement agreement complies with the requirements of 2055, thereby requiring the sum of $11,721,141.00 to be deducted from Mr. Palumbo's gross estate and from federal estate taxation.
Defendant disagrees arguing that the $11,721,141.00 amount was paid by operation of a settlement agreement, not by operation of a residuary clause in Mr. Palumbo's Last Will and Testament, and thus, cannot be claimed as a charitable deduction from the Estate. The issue before this Court is whether the charitable trust had an enforceable right to the residuary estate apart from the settlement agreement.
For the reasons set forth in greater detail below, this Court will grant Plaintiff's Motion for Summary Judgment and deny Defendant's Motion for Summary Judgment.
The following facts are material and are not contested by either the Plaintiff or Defendant thereby rendering this matter ripe for summary judgment.
Mr. Palumbo died on December 16, 2002. See doc. no. 36 at ¶¶ 1, 38. In 1974, during his lifetime, Mr. Palumbo created the A.J. and Sigismunda Palumbo Charitable Trust (hereinafter "the Charitable Trust"). Id. at ¶¶ 2, 40.
Mr. Palumbo executed various wills and trust instruments with testamentary provisions during his lifetime. Id. at ¶¶ 3, 39, 41. At the time of his death, Mr. Palumbo's Last Will and Testament executed on July 6, 1999 (hereinafter, "the 1999 Will" ), together with its three codicils was in effect. Id. at ¶¶ 4-5, 39.
Plaintiff claims that "[t]he first paragraph of the 1999 Will addresses [Mr. Palumbo's] residuary estate by providing that the Executor is to pay out of the residuary estate all inheritance, legacy estate or other death taxes of whatsoever nature on [Mr. Palumbo's] estate or on the devolution of any portion thereof, . . . ." Id. at ¶ 4. Plaintiff also claims that the third paragraph of the 1999 Will identifies and defines the Charitable Trust, naming it as "a remainder beneficiary in several places throughout the 1999 Will and the three Codicils . . . ." Id. at ¶ 5.
The parties agree that there was no express residuary provision in the 1999 Will -- although there had been such a provision in previous versions -- or any of its codicils, and this was due to a scrivener's error on the part of Mr. Palumbo's attorney. Id. at ¶¶ 15, 41, 43. As a result of the lack of a residuary provision, Mr. Palumbo's son claimed that as the sole intestate heir, he alone was entitled to the residuary estate; but, the Charitable Trust contacted Mr. Palumbo's son and claimed that it was entitled to the residuary estate because the missing residuary clause in the 1999 Will was due to scrivener's error. Id. at ¶¶ 16, 44. Counsel for Mr. Palumbo's son and the Charitable Trust entered into negotiations and eventually reached a settlement agreement with respect of the distribution of the residuary estate. Id. at ¶¶ 18, 48. The settlement was agreed to by Mr. Palumbo's son, the Charitable Trust, Mr. Palumbo's daughter-in-law, Mr. Palumbo's wife at the time of his death, and the Attorney General for the Commonwealth of Pennsylvania. Id. at ¶ 18.
Pursuant to the terms of the settlement agreement, the Charitable Trust received a portion of the residuary estate -- $11,721,141.00 -- while Mr. Palumbo's son received $5,600,000.00 and real property in Wheeling, West Virginia. Id. at ¶¶ 24, 48. The settlement agreement was approved by a July 10, 2003 Order of the Orphans' Court Division of the Court of Common Pleas of Elk County, Pennsylvania upon the filing of a joint petition for approval of the settlement. Id. at ¶ 27, 51.
Subsequent to entering into this settlement agreement, Plaintiff filed a claim for a federal estate tax charitable deduction in the amount of $11,721,141.00. The Commissioner of Internal Revenue disallowed the charitable deduction of $11,721,141.00, finding that it had been made by Mr. Palumbo's son via a settlement agreement, and not by Mr. Palumbo through his 1999 Will.
Summary judgment may be granted if, drawing all inferences in favor of the non-moving party, "the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a).
A fact is "material" if proof of its existence or non-existence might affect the outcome of the suit under applicable law. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248, (1986). "Facts that could alter the outcome are material facts." Charlton v. Paramus Bd. of Educ., 25 F.3d 194, 197 (3d Cir.1994). Disputes must be both (1) material, meaning concerning facts that will affect the outcome of the issue under substantive law, and (2) genuine, meaning the evidence must be such that a reasonable jury could return a verdict for the nonmoving party. Anderson, 477 U.S. at 248.
A party moving for summary judgment has the initial burden of supporting its assertion that fact(s) cannot be genuinely disputed by citing to particular parts of materials in the record --
i.e., depositions, documents, affidavits, stipulations, or other materials -- or by showing that:
(1) the materials cited by the non-moving party do not establish the presence of a genuine dispute, or (2) that the non-moving party cannot produce admissible evidence to support its fact(s). Fed.R.Civ.P. 56(c)(1).
Conversely, in order to defeat a motion for summary judgment, the non-moving party must support its assertion that fact(s) are genuinely disputed by citing to particular parts of materials in the record, or by showing that: (1) the materials cited by the moving party do not establish the absence of a genuine dispute, or ...