The executors of the estate of billionaire Richard Mellon Scaife have filed a claim in the U.S. District Court for the Western District of Pennsylvania to recoup an estate tax refund based on a deduction for a liability under an indemnity agreement (H. Yale Gutnick et al. v. United States). Richard had been a beneficiary of a trust established by his mother in 1935. The trust allowed for discretionary distributions of principal to him; on Richard’s death, the remaining trust property would benefit his two children. However, over his lifetime, he had requested and received over $400 million in principal distributions, which completely exhausted the trust. In exchange for each distribution, he signed an indemnity agreement in which he agreed, on behalf of his heirs and executors, among others, to indemnify and hold harmless the trustee for any action related to the distribution.
Richard died survived by his two children whom he completely excluded from his estate plan. The children sued the trustees of the trust for breach of duty, claiming that the distributions made to Richard during his life were improper. They argued that the distributions made to support Richard’s newspaper business and for “estate planning purposes” were a breach of duty. Meanwhile, the estate paid over $239 million in estate taxes and advised the IRS of the claim and its obligation to defend the trustees and pay its legal and administrative expenses.
After six years of litigation, the trustees and the children signed a settlement agreement in which the estate was obligated to indemnify the trustees for an agreed $200 million reimbursement to the trust. The estate has filed a claim for a refund of nearly $70 million in estate taxes, but the IRS hasn’t responded with any notice of disallowance, so the estate filed the complaint.
