Opinion
Case No. 1:21-cv-376
2022-08-12
U.S. BANK, N.A., Plaintiff, v. Drew GILLHAM, et al., Defendants.
Jordan A. Konig, U.S. Department of Justice, Washington, DC, Ryan D. Galisewski, DOJ-Tax, Washington, DC, for Defendants. Drew Gillham, Loveland, OH, Pro Se. Stacy Gillham, Loveland, OH, Pro Se.
Jordan A. Konig, U.S. Department of Justice, Washington, DC, Ryan D. Galisewski, DOJ-Tax, Washington, DC, for Defendants. Drew Gillham, Loveland, OH, Pro Se. Stacy Gillham, Loveland, OH, Pro Se.
ORDER
Karen L. Litkovitz, Chief United States Magistrate Judge
This is an interpleader action filed by plaintiff U.S. Bank, N.A. ("U.S. Bank") against the United States of America and Drew Gillham concerning the rights to the final distribution of trust assets from two irrevocable life insurances trusts. U.S. Bank has deposited the Interpleader Funds into the Court's registry and has been dismissed from this case. (Doc. 27). This matter is now before the Court on the United States of America's motion for summary judgment (Doc. 28), Drew and Stacy Gillham's memorandum in opposition (Doc. 32), the United States' reply memorandum (Doc. 33), and the Gillham's surreply memorandum (Doc. 39). I. Procedural and Factual Background
U.S. Bank initially filed a complaint in the Probate Court of Hamilton County seeking a declaration of its rights as to the distribution of the Trusts' proceeds. That matter was removed by the Unites States to this federal court. (Doc. 1).
The facts outlined in this section are not disputed. The Gillhams have not presented any evidence disputing the fact or amount of taxes assessed by the IRS and the lien imposed thereon. Rather, they dispute the legal interpretation of the Trusts and assert Stacy Gillham is entitled to portions of the Trusts' proceeds, as further discussed in this Order.
A. The Trusts
The following facts are undisputed. U.S. Bank is the Trustee of the Gillham Family Trust (the Family Trust) and the Helen M. Gillham Trust (the Helen Trust). Drew Gillham is a beneficiary of both Trusts, which were created under two irrevocable life insurance trusts established by his parents, Helen M. and Ralph O. Gillham. Upon the death of both parents, on November 24 and 27, 2020 respectively, the Trusts were funded with the proceeds of life insurance policies owed to the Trustee, and the Trustee created subtrust accounts for each of the Trusts' beneficiaries, including Drew Gillham, and apportioned assets of each trust to each subaccount in accordance with the terms of each Trust.
Section 4.2 of the Family Trust provides, in relevant part:
Distribution Upon Death of both Settlors: Upon the death of the last surviving of both Settlors, the Trustee shall distribute all assets in equal and outright shares to Settlors' children, or to the issue of any deceased child of Settlors, per stirpes (subject to Section 4.3) . . . .(Doc. 7-2 at PAGEID 156). The Helen Trust likewise provides, in relevant part:
Upon the death of Settlor, the Trust shall cease and terminate, and all assets thereof shall be distributed and paid over to Settlor's Children, in equal shares; if any of Settlor's Children predeceases Settlor, such child's share shall be distributed 10% to such child's spouse (if such spouse was married to a child of Settlor at the time of such child's death), and 90% to such child's then-living lineal descendants, per stirpes . . . .(Doc. 7-3 at PAGEID 164) (emphasis in the original).
Section 4.3 governs the incapacity of a beneficiary of the corpus of the trust and is not at issue here.
Each Trust also contained a so-called "spendthrift provision" that is at issue in this case. In particular, Section 5.1 of the Family Trust states:
No Assignment Or Transfer Of Trust Assets By Beneficiaries. No income or corpus of the Trust shall be subject in
any manner to anticipation, sale, transfer, assignment, pledge, encumbrance, charge or alienation. If the Trustee determines that any beneficiary of the Trust has become insolvent or bankrupt or has attempted to anticipate, sell, transfer, assign, pledge, encumber, charge or otherwise in any manner alienate any benefit or other amount payable to such beneficiary under the Trust, or that there is any danger of any levy or attachment or other court process or encumbrance on the part of any creditor of such beneficiary against any income or corpus payable to such beneficiary under the Trust, the Trustee may, at any time, in its absolute discretion, withhold any or all income or principal payable to such beneficiary under the Trust and apply the same for the benefit of any such beneficiary, or his/her spouse, children or other dependents, or any of them, in such manner and in such proportion as the Trustee may deem proper . . . .(Doc. 7-2 at PAGEID 145). The Helen Trust contains a substantially similar provision, also in Section 5.1. (Doc. 7-3 at PAGEID 166).
B. Tax Liability
Drew Gillham was previously convicted on three counts of tax evasion under 26 U.S.C. § 7201, for income tax years 1999, 2000, 2001, and one count of obstruction of tax administration under 26 U.S.C. § 7212(a). See United States v. Gillham, Case No. 1:06-cr-00057 (S.D. Ohio). Mr. Gillham was sentenced to a term of imprisonment and three years of supervised release, which included the condition that Mr. Gillham "comply with all tax authorities and follow laws" and "file tax returns for the years of 1998-2005." (Id., Doc. 82 at PAGEID 563).
Mr. Gillham failed to file tax returns for tax years 2000 through 2011, 2013 through 2018, or 2020. (Doc. 28, Kovacevic Decl. ¶¶ 6-7). Because he failed to make income tax returns, the Internal Revenue Service ("IRS") prepared returns for Drew Gillham for the tax years at issue here, namely tax years 2000 and 2001 (which were the subject of the criminal conviction) and 2012, pursuant to 26 U.S.C. ("Internal Revenue Code" or "I.R.C.") § 6020(b). (Id., Kovacevic Decl. ¶ 6).
The IRS is authorized to file a substitute return for a taxpayer who fails to file an income tax return. See 26 U.S.C. § 6020(b). Section 6020 provides in relevant part:
(b) Execution of return by Secretary.
26 U.S.C. § 6020(b).(1) Authority of Secretary to execute return.--If any person fails to make any return required by any internal revenue law or regulation made thereunder at the time prescribed therefor, or makes, willfully or otherwise, a false or fraudulent return, the Secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise.
(2) Status of returns.--Any return so made and subscribed by the Secretary shall be prima facie good and sufficient for all legal purposes.
The IRS assessed against Drew Gillham individual income taxes, penalties for fraudulent failure to file a return under I.R.C. § 6651(f) , penalties for not prepaying tax under I.R.C. § 6654 , and penalties for late payment of tax under I.R.C. § 6651(a)(2) for the 2000, 2001, and 2012 tax years. As of November 16, 2021, the assessments for those years are:
Under 26 U.S.C. § 6651(f), the penalties for the fraudulent failure to file a tax return are increased up to 75% in the aggregate.
Section 6654 prescribes the amount of penalties that are added to the underpayment of estimated tax by an individual. 26 U.S.C. § 6654.
Under 26 U.S.C. § 6651(a)(2), the late payment penalties for the failure to pay certain taxes range from .5% up to 25% in the aggregate.
| Tax Period Ending | Assessment Date | Assessment Type | Amount Assessed |
|---|---|---|---|
| 12/31/2000 | 2/6/20122/6/20122/6/20122/6/2012 | Tax (I.R.C. § 6020(b))Failure to Pre-PayFraudulent Failure-to-File PenaltyLate Payment Penalty | $69,801.00$3,754.22$50,605.73$17,450.25 |
| 12/31/2001 | 2/6/20122/6/20122/6/20122/6/2012 | Tax (I.R.C. § 6020(b))Failure to Pre-PayFraudulent Failure-to-File PenaltyLate Payment Penalty | $44,704.00$1,786.55$32,410.40$11,176.00 |
| 12/31/2012 | 11/2/201511/2/201511/2/201510/30/2017 | Tax (I.R.C. § 6020(b))Late Filing PenaltyLate Payment PenaltyLate Payment Penalty | $3,341.00$751.73$517.85$317.40 |
The IRS also assessed interest on those amounts through November 16, 2021. Mr. Gillham's tax liabilities for the income tax years 2000, 2001, and 2012, as of November 16, 2021, after taking into account the assessment of taxes, penalties, interest, and other statutory additions, and all payments, credits, abatements, and accruals as of that date are as follows:
| Tax Period Ending | Balance Due as of Nov. 16, 2021 |
|---|---|
| 12/31/2000 | $340,826.39 |
| 12/31/2001 | $204,567.35 |
| 12/31/2012 | $6,714.89 |
| TOTAL | $552,108.63 |
Demand for payment was made in 2012 and 2015, but Drew Gillham refused to make payment. (Id., Kovacevic Decl. ¶¶ 8, 9, 12; Exs. A & B). In March 2016, IRS recorded Notices of Federal Tax Lien against Drew A. Gillham for these liabilities in Clermont County, Ohio and Lafayette Parish, Louisiana. (Id., Kovacevic Decl. ¶ 17).
C. The Interpleader Action
On January 7, 2021, an attorney representing Drew Gillham sent correspondence to Trustee U.S. Bank advising that a distribution of assets to Mr. Gillham would create "the danger of a levy, attachment, or other court process or encumbrance against income or corpus payable to Mr. Gillham as a beneficiary of the two trusts[.]" (Probate State Court Record, Doc. 7-2, ¶ 20; Doc. 7-3 at PAGEID 177). A copy of a tax bill from the IRS to Mr. Gillham dated October 26, 2020 was attached to the January 7, 2021 correspondence. (Id., Doc. 7-2, ¶ 21; Doc. 7-3 at PAGEID 179). The letter requested "that US Bank make out the check or checks to Stacy Gillham, wife of Drew Gillham, pursuant to section 5.1, the spendthrift provision of each of these two trusts." (Id., Doc. 7-3 at PAGEID 177).
This statement, in general, reiterates the language of the spendthrift provision of the Trusts.
On March 15, 2021, Drew Gillham requested that the Trustee hold his share of the distribution for approximately one year rather than distribute it to him as the Trusts' terms provide. (Id., Doc. 7-2, ¶ 26). The Trustee has not distributed any funds held in Mr. Gillham's subtrusts. (Id., Doc. 7-2, ¶ 27).
U.S. Bank then initiated this interpleader action to deposit funds from the two trusts in the Court's registry and obtain a judicial determination regarding the proper distribution of the funds, based on the competing claims to the Interpleader Funds from Drew Gillham and the IRS.
The United States answered the Trustee's complaint asserting its superior claim to the Interpleader Funds; counterclaimed against U.S. Bank to request distribution of the Interpleader Funds; crossclaimed against Drew Gillham to enforce the federal tax liens on the Interpleader Funds and to obtain a judgment for unpaid tax liabilities; and added Drew's spouse, Stacy Gillham, as an additional defendant to the counterclaim so that she could assert a claim to the Interpleader Funds.
As U.S. Bank has deposited the Interpleader Funds in the Court's registry and been dismissed (Doc. 27), this matter is now ripe for review on the United States' motion for summary judgment.
II. Summary Judgment Standard
A motion for summary judgment should be granted if the evidence submitted to the Court demonstrates 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 Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Under Federal Rule of Civil Procedure 56(c), a grant of summary judgment is proper if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Satterfield v. Tennessee, 295 F.3d 611, 615 (6th Cir. 2002). The Court must evaluate the evidence, and all inferences drawn therefrom, in the light most favorable to the non-moving party. Satterfield, 295 F.3d at 615; Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio, 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Little Caesar Enters., Inc. v. OPPCO, LLC, 219 F.3d 547, 551 (6th Cir. 2000).
The trial judge's function is not to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine factual issue for trial. Anderson, 477 U.S. at 249, 106 S.Ct. 2505. The trial court need not search the entire record for material issues of fact, Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479-80 (6th Cir. 1989), but must determine "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52, 106 S.Ct. 2505.
The moving party has the initial burden of showing the absence of a genuine issue of material fact as to an essential element of the non-moving party's case. Hedrick v. W. Reserve Care Sys., 355 F.3d 444, 451 (6th Cir. 2004) (citing Celotex, 477 U.S. at 323, 106 S.Ct. 2548). The burden then shifts to the non-moving party to "come forward with 'specific facts showing that there is a genuine issue for trial.' " Matsushita, 475 U.S. at 587, 106 S.Ct. 1348 (emphasis in original). To meet that burden, the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Id. at 586, 106 S.Ct. 1348. If, after an appropriate time for discovery, the opposing party is unable to demonstrate a prima facie case, summary judgment is warranted. Street, 886 F.2d at 1478 (citing Celotex and Anderson). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.' " Matsushita, 475 U.S. at 587, 106 S.Ct. 1348.
III. Resolution
A. Reducing the Tax Assessment to a Judgment
Title 26 U.S.C. § 7402 authorizes a federal district court to "render such judgments and decrees as may be necessary or appropriate for the enforcement of the internal revenue laws." 26 U.S.C. § 7402(a). In an action to collect a tax assessment, the government's assessment of such tax is granted "an initial presumption of validity." United States v. Besase, 623 F.2d 463, 465 (6th Cir. 1980) (citing Sharwell v. Comm'r, 419 F.2d 1057, 1060 (6th Cir. 1969)). See also United States v. Rohner, 634 F. App'x 495, 499 (6th Cir. 2015) (quoting United States v. Fior D'Italia, Inc., 536 U.S. 238, 242, 122 S.Ct. 2117, 153 L.Ed.2d 280 (2002)) ("The IRS's tax assessments enjoy 'a legal presumption of correctness' in civil cases."). Once the IRS lays a "minimum evidentiary foundation" for the tax assessment, the burden shifts to the taxpayer to disprove the assessment. United States v. Hammon, 277 F. App'x 560, 563 (6th Cir. 2008) (citing United States v. Walton, 909 F.2d 915, 919 (6th Cir. 1990); Besase, 623 F.2d at 465). Where the taxpayer disputes the assessment and provides "[r]easonable denials of the assessment's validity," the burden of proof shifts back to the government to substantiate the tax assessment. Besase, 623 F.2d at 465.
In this case, the United States has presented evidence of federal income tax assessments against Drew Gillham in the amount of $552,108.63, which includes taxes, penalties, and interest for tax years 2000, 2001, and 2012. (Doc. 28-2, Kovacevic Decl. ¶¶ 5-6, 11; Exs. A & B.). Those tax assessments are given a presumption of correctness, and the United States has satisfied its burden of laying a minimum evidentiary foundation for the tax assessment against Drew Gillham. Besase, 623 F.2d at 465. Mr. Gillham has not presented any evidence disputing the fact or the amounts of the tax assessments assessed by the IRS for years 2000, 2001, and 2012, in the total amount of $552,108.63 as of November 16, 2021. The United States has established that Mr. Gillham owes the amount of assessed taxes. Therefore, under 26 U.S.C. § 7402(a), this Court will reduce the IRS's assessment to a judgment.
B. IRS Tax Lien
"Under the relevant provisions of the Internal Revenue Code, to satisfy a tax deficiency, the Government may impose a lien on any 'property' or 'rights to property' belonging to the taxpayer." Drye v. United States, 528 U.S. 49, 55, 120 S.Ct. 474, 145 L.Ed.2d 466 (1999). Title 26 U.S.C. § 6321 provides that "[i]f any person liable to pay any tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." The IRS gave notice and made a demand on Mr. Gillham for payment of tax liabilities for the years 2001, 2002, and 2012, and as of November 16, 2021, Mr. Gillham has neglected or refused to pay these amounts. (Doc. 28-2, Kovacevic Decl. ¶¶ 8-9, 12). Thus, by operation of law under IRC Section 6321, a federal tax lien was created on any property or rights to property belonging to Mr. Gillham. Drye, 528 U.S. at 55, 120 S.Ct. 474.
After an individual fails or refuses to pay a tax, the IRS may "levy upon all property and rights to property . . . belonging to such person or on which there is a lien provided in this chapter for the payment of such tax." 26 U.S.C. § 6331(a). "The threshold question . . . in all cases where the Federal Government asserts its tax lien, is whether and to what extent the taxpayer had property or rights to property to which the tax lien could attach." Aquilino v. United States, 363 U.S. 509, 512, 80 S.Ct. 1285, 4 L.Ed.2d 1365 (1960) (internal quotation marks omitted). "[A]lthough state law creates legal interests and rights in property, federal law determines whether and to what extent those interests will be taxed." United States v. Irvine, 511 U.S. 224, 238, 114 S.Ct. 1473, 128 L.Ed.2d 168 (1994).
Upon the death of his parents, Drew Gillham's right to his share of the Trusts' proceeds vested, and the assets of the Trust were to be distributed to him. (Probate State Court Record, Doc. 7-2, Family Trust, Section 4.2 at PAGEID 156; Id., Doc. 7-3, Helen Trust, Section 4.2 at PAGEID 164). As a beneficiary of the Trusts, Drew Gillham's interest in the Trusts' income was property for purposes of imposing a tax lien. Bank One Ohio Trust v. United States, 80 F.3d 173, 176 (6th Cir. 1996). The federal tax liens relating to unpaid federal income taxes for tax years 2001, 2002, and 2012 attached to all of Drew Gillham's property and rights to property, including his interest in the Family Trust and the Helen Trust. See 26 U.S.C. §§ 6321, 6322. Mr. Gillham does not dispute he is a beneficiary of the Trusts or that the proceeds of the Trusts are property to which the tax liens attach. Rather, the Gillhams argue that Stacy Gillham also maintains an interest in the Trusts' proceeds, and her share of such proceeds may not be attached by the IRS to pay Drew Gillham's tax liabilities.
C. Stacy Gillham's arguments
The Gillhams argue that Stacy Gillham is entitled to at least 50% of the Trusts' funds because the spendthrift provision of the Trusts should be invoked; she was not a party to Drew's conviction and is an "innocent spouse"; Stacy contributed $10,000.00, an amount that was equal to the contributions of Drew and the other settlors' lineal descendants, to pay the premiums for the insurance policies that funded the Trusts; and she has a marital interest in the Trusts. Thus, the question is whether Stacy Gillham has any property right or interest in the proceeds of the Trusts.
1. The spendthrift provisions
The Gillhams contend the spendthrift provision of the Trusts "should be invoked because Stacy Gillham should have rights to at least 50% of the trust fund benefits because she provided an equal portion to the life insurance trust funds as did her husband. Stacy Gillham was not a party to her husband's conviction." (Doc. 32 at PAGEID 338).
The spendthrift provision of the Trusts provides, in relevant part:
No income or corpus of the Trust shall be subject in any manner to anticipation, sale, transfer, assignment, pledge, encumbrance, charge or alienation. If the Trustee determines that . . . there is any danger of any levy or attachment or
other court process or encumbrance on the part of any creditor of such beneficiary against any income or corpus payable to such beneficiary under the Trust, the Trustee may, at any time, in its absolute discretion, withhold any or all income or principal payable to such beneficiary under the Trust and apply the same for the benefit of any such beneficiary, or his/her spouse, children or other dependents, or any of them, in such manner and in such proportion as the Trustee may deem proper . . . .(Doc. 7-2 at PAGEID 145; Doc. 7-3 at PAGEID 166).
As indicated above, Ohio law identifies "the nature of the legal interests which the taxpayer had in property" sought to be reached by 26 U.S.C. § 6321, the tax lien statute. Bank One, 80 F.3d at 175 (internal quotation marks omitted) (quoting Aquilino, 363 U.S. at 513, 80 S.Ct. 1285) (in turn quoting Morgan v. Commissioner, 309 U.S. 78, 82, 60 S.Ct. 424, 84 L.Ed. 585, 84 L.Ed. 1035 (1940)). Section 6321 "merely attaches consequences, federally defined, to rights created under state law . . . ." Id. (internal quotation marks omitted) (quoting United States v. Bess, 357 U.S. 51, 55, 78 S.Ct. 1054, 2 L.Ed.2d 1135 (1958)). Important for this case, federal law determines "the consequences that attach to ownership of the interest." Id. at 176. See also United States v. Safeco Ins. Co. of America, Inc., 870 F.2d 338, 340 (6th Cir. 1989) ("state-law limitations upon the ability of general creditors to reach a taxpayer's property do not affect the attachment of federal tax liens because the state-law consequences flowing from a property interest properly defined under state law are of no concern to the operation of the federal tax law") (internal quotation marks and citation omitted). As explained by the Sixth Circuit in Bank One, which is directly on point with this case:
The spendthrift provision said that the interest was not to be alienated, or disposed of, or encumbered in any manner—and, as would be true in most states, these restraints on alienation are enforceable in Ohio. "In Ohio, a spendthrift provision of a trust, when applicable, will be given full force and effect." Domo [v. McCarthy], 66 Ohio St.3d 312, 2nd Syl., 612 N.E.2d [706,] 707 [(Ohio 1993)] (following Scott [v. Bank One Trust Co.], 62 Ohio St.3d 39, 577 N.E.2d 1077 [(Ohio 1991]).Bank One, 80 F.3d at 176 (citations omitted). In other words, even where restraints on alienation are valid under state law, such as with the spendthrift provisions of the Trusts in this case, they are ineffective to prevent a federal tax lien from attaching to Mr. Gillham's property interest under Section 6321 as a matter of federal law. Id. As a result, the spendthrift provisions of the Trusts do not preclude the IRS from reaching Mr. Gillham's property interest in the Trusts.
Under the great weight of federal authority, however, such restraints on alienation are not effective to prevent a federal tax lien from attaching under 26 U.S.C. § 6321.
A federal tax lien arose in this case in 2012 and 2015 when penalties were assessed against Mr. Gillham, 26 U.S.C. § 6322, and that lien attached to Mr. Gillham's interest in the Trusts when he failed to make payment after a demand by the IRS. Bank One, 80 F.3d at 176. Upon the subsequent deaths of Mr. Gillham's parents, the Trusts were fully funded and Mr. Gillham's right to a distribution of the Trusts' proceeds became fully vested under Section 4.2 of the Trusts. The spendthrift provisions of the Trusts do not bar the federal tax lien from attaching to Mr. Gillham's property interest in the Trusts, even where "the elements of a spendthrift trust are combined with provisions granting discretionary powers of distribution to the trustee." First Nw. Tr. Co. of S. Dakota v. Internal Revenue Serv., 622 F.2d 387, 390 (8th Cir. 1980) (cited with approval in Bank One, 80 F.3d at 176). Therefore, the spendthrift provisions of the Trusts do not support a distribution of the Trusts' proceeds to Stacy Gillham.
2. Innocent spouse
The Gillhams also argue that Stacy is an "innocent spouse" who should not be penalized for her husband's crimes.
Section 6015(b) governs the "innocent spouse" provision of the Internal Revenue Code. "[A] spouse who qualifies as an innocent spouse . . . may avoid joint liability for taxes due on a joint return." Est. of Quirk v. Comm'r, 928 F.2d 751, 762 (6th Cir. 1991). "The purpose of the innocent spouse rule is to protect one spouse from the overreaching or dishonesty of the other." Purcell v. Comm'r, 826 F.2d 470, 475 (6th Cir. 1987). However, to qualify for relief under this rule, the tax liability must arise from the filing of a joint tax return. 26 U.S.C. § 6015(b)(1)(A). For the years in question—2000, 2001, and 2012—no tax return was filed by Drew Gillham, let alone a joint tax return, and the IRS prepared returns for Drew Gillham for those tax years in accordance with prevailing law. (Id., Doc. 28-2, Kovacevic Decl. ¶¶ 6, 15). As there was no joint tax liability under 26 U.S.C. § 6013(d)(3), Stacy Gillham cannot qualify for relief as an "innocent spouse." Shea v. Comm'r, 780 F.2d 561, 565 (6th Cir. 1986) ("to qualify for innocent spouse protection the return must be a joint return").
3. Stacy Gillham's alleged contribution to life insurance premiums to fund the Trusts and marital interest in the Trusts' proceeds
The Gillhams contend that Stacy's marital status entitles her to a distribution from the Trusts. In addition, the Gillhams argue that Stacy "contributed equal amounts to the Life Insurance Trust policy as her husband did," thus entitling her to 50% of the Trusts' proceeds. (Doc. 39 at PAGEID 372-73). They argue that the terms of the Helen Trust "clearly show[ ] that Stacy Gillham is part of the allotted funds" as she was one of 20 individuals who contributed $10,000.00 in insurance premiums to fund the Trust. (Id. at PAGEID 372, citing Section 4.1 of the Trust). They argue that under the terms of the Helen Trust, Stacy was permitted to make withdrawals of her contributions as a lineal descendant. (Id.). In addition, the Gillhams allege that U.S. Bank, the Trustee, sent trust statements to Stacy Gillham, showing she had "a vested interest in the trust benefit funds." (Id. at PAGEID 373).
Under Ohio law, a court's chief duty in construing the terms of a trust is to "ascertain, within the bounds of the law, the intent of the . . . settlor." In re Trust of Brooke, 82 Ohio St.3d 553, 697 N.E.2d 191, 194 (1998) (internal quotations omitted) (quoting Domo, 612 N.E.2d at 708). "The express language of the trust guides the court in determining the intentions of the settlor." Id. (citing Casey v. Gallagher, 11 Ohio St.2d 42, 227 N.E.2d 801 (1967)). A court presumes that the terms of the trust are "used according to their common, ordinary meaning." Id. (citing Albright v. Albright, 116 Ohio St. 668, 157 N.E. 760 (1927)). "When the language of the trust instrument is unambiguous, a court can ascertain the settlor's intent from the express terms of the trust itself, and extrinsic evidence is not admissible to interpret the trust provisions." McDonald & Co. Sec., Gradison Div. v. Alzheimer's Disease & Related Disorders Assn., Inc., 140 Ohio App.3d 358, 747 N.E.2d 843, 847 (2000) (citing Domo, 612 N.E.2d at 708; PNC Bank, N.A. v. Camping & Edn. Foundation, No. C-990690, 2000 WL 331635, at *1 (Ohio App. Mar. 31, 2000)).
In this case, neither of the Trusts named Stacy Gillham as a beneficiary under the circumstances of this case where both of the settlors are deceased. Section 4.2 of the Helen Trust governs "Distributions Upon Death Of Settlor." (Doc. 3 at PAGEID 100). This section states, "Upon the death of Settlor, the Trust shall cease and terminate, and all assets thereof shall be distributed and paid over to Settlor's Children, in equal shares; if any of Settlor's Children predeceases Settlor, such child's share shall be distributed 10% to such child's spouse (if such spouse was married to a child of Settlor at the time of such child's death), and 90% to such child's then-living lineal descendants, per stirpes." (Id.) (emphasis in original). It is undisputed that Drew Gillham did not predecease his mother, Helen, for purposes of the Trust. Thus, under the express terms of the Helen Trust, Stacy is not a beneficiary who is entitled to a distribution of the Trust funds.
The Gillhams contend that Section 4.1 of the Helen Trust shows that Stacy was a lineal descendent who had rights to make withdrawals from the Trust, and therefore she is entitled to at least 50% of the Trust proceeds. The Gillhams are correct that Section 4.1(a) of the Helen Trust defines "Settlor's lineal descendants" to include spouses of the settlor's children and that such "lineal descendants" had the right to make withdrawals from the Trust under Section 4.1(c). (Doc. 3 at PAGEID 97). However, the withdrawal provisions permitted under Section 4.1 of the Helen Trust applied "[p]rior to the death of [the] Settlor" and "in such amount or amounts and in such proportions as the Trustee shall in its sole and continuing discretion determine." (Id. at PAGEID 96) (emphasis added). While Stacy Gillham may have made contributions to the life insurance premiums that funded the Trust, her beneficial interest - by he express terms of the Trust - existed only during the lifetime of the settlor, Helen Gillham. Her beneficial interest was also limited by the Trustee's "sole" discretion, and there is no evidence that the Trustee exercised such discretion during Helen Gillham's lifetime. As Helen Gillham is deceased, Section 4.1 of the Trust does not grant any beneficial interest to Stacy Gillham. Moreover, the terms of the Trust are not ambiguous, and the Court may not consider any extrinsic evidence in construing the terms of the Helen Trust. Section 4.2 of the Trust governs the dispute in this case, and Stacy Gillham is not a beneficiary who is entitled to a distribution from the Trust.
Stacy Gillham's rights under the Family Trust were even more limited. There is no provision in the Family Trust granting the spouses of the children a beneficial interest in the Trust prior to the death of the settlors, Ralph O. Gillham and Helen M. Gillham. (Doc. 3 at PAGEID 76, Section 4.1). Unlike the Helen Trust, Section 4.1 of the Family Trust does not define lineal descents to include spouses of the children of Ralph O. Gillham and Helen M. Gillham. (Id.). Similar to the Helen Trust, however, Section 4.2 of the Family Trust provides, "Upon the death of the last surviving of both Settlors, the Trustee shall distribute all assets in equal and outright shares to Settlors' children, or to the issue of any deceased child of Settlors, per stirpes . . . ." (Id. at PAGEID 92) (emphasis added). The plain language of Section 4.2, which governs in this case, grants no beneficial interest to Stacy Gillham as the spouse of Drew Gillham.
In addition, any marital interest Stacy Gillham may have had in the Helen Trust by virtue of her marriage to Drew during the lifetime of Helen Gillham extinguished with the death of the Helen Gillham. As explained above, while the Helen Trust granted the spouses of Ralph and Helen Gillham's children limited rights to the net income and/or principal of the Trust during the lifetime of Helen (the settlor) (Doc. 3 at PAGEID 96, Section 4.1), any such limited rights extinguished upon the death of Helen Gillham under Section 4.2 of the Trust. (Id. at PAGEID 100, Section 4.2).
Finally, under Ohio law, Drew Gillham's trust proceeds are considered "separate" and not "marital" property. "Separate property" is defined as any "inheritance by one spouse by bequest, devise, or descent during the course of the marriage" and "[a]ny gift of any real or personal property or of an interest in real or personal property that is made after the date of the marriage and . . . given to only one spouse." Ohio Rev. Code § 3105.171(a)(6)(i), (vii). Thus, Drew Gillham's interest in each of the Trust fund proceeds is his personal property to which Stacy Gillham has no legal claim. The Gillhams have not disputed this provision of Ohio law nor cited any legal authority indicating that Drew Gillham's inheritance or gift from the Trusts is transformed into "marital" property by virtue of Stacy Gillham's contribution to the insurance policy that funded the Trusts. In the absence of such authority, the Court cannot find Stacy Gillham is a beneficiary to or has a legal interest in the Trust proceeds which are the personal and separate property of Drew as a named beneficiary under the Trust.
In conclusion, the terms of the Trusts are clear that Drew Gillham is a beneficiary to the Family Trust and Helen Trust, and the proceeds from each Trust are subject to the federal tax liens in this case. Therefore, the Court grants the United States' motion for summary judgment as to the distribution of the Interpleader Funds and its crossclaim to reduce Drew Gillham's liabilities to judgment, for the amount left owing to the IRS after applying the Trusts' distributions to his liabilities.
IT IS THEREFORE ORDERED:
1. The United States' motion for summary judgment (Doc. 28) is GRANTED.
2. Judgment is entered in favor of the United States and against defendant Drew Gillham for Mr. Gillham's unpaid tax liabilities for income tax years 2000, 2001, and 2012, in the amount of $552,108.63, plus statutory additions and interest accruing from and after November 16, 2021, including interest pursuant to 26 U.S.C. §§ 6601, 6621, and 6622, and 28 U.S.C. § 1961(c), reduced by the amount received from the United States from the Interpleader Funds;
3. The Clerk of Court is DIRECTED to distribute the Interpleaded Funds plaintiff U.S. Bank deposited in the Court's registry to the United States toward the outstanding unpaid income tax liabilities of defendant Drew Gillham.
IT IS SO ORDERED.