ATTORNEYS FOR APPELLANT : ATTORNEY FOR APPELLEE :

GREGORY F. ZOELLER JILL D. WESCH ATTORNEY GENERAL OF INDIANA WALLACE LAW FIRM EVAN W. BARTEL Covington, IN DEPUTY ATTORNEY GENERAL Indianapolis, IN

________________________________________________________ _____________ 

# IN THE INDIANA TAX COURT

_____________________________________________________________________ IN DIANA DEPARTMENT OF STATE ) REVENUE, INHERITANCE TAX DIVISION , ) ) Appellant, ) ) Cause No. 49T10

- 1 403

- TA

- 0000 6 v. ) ) STEVEN B. McCOMBS, EXECUTOR OF ) THE ESTATE OF JANICE HAMBLIN, ) ) Appellee. )

____________________________________________________________________ __

ON APPEAL FROM THE FOUNTAIN CIRCUIT COURT The Honorable Susan Orr Henderson, Judge Case No. 23 C01

- 0901

- E S

- 0007
FOR PUBLICATION August 12 , 2015 FISHER, Senior Judge The Indiana Department of State Revenue, Inheritance Tax Division (Department) appeals the Fountain Circuit Court’s (Probate C ourt) order determining th at the Estate of Jan ice Hamblin (Estate) was entitled to a refund of inheritance tax paid

. The sole issue before t he Court is whether the Probate C ourt erred when it held that through her W ill, Janice Hamblin transferred interests in life estates, as opposed to annuities, to her be neficiaries Larry Hamblin and Misty Snuffer. The Court finds that the2

Probate C ourt did not err. FACTS AND PROCEDURAL HISTORY Janice Hamblin died testate on December 14, 2008. Her Last Will and Testament , dated May 15, 2008, provides in relevant part as follows:

ITEM IV: A. TRUST FOR LARRY HAMBLIN AND MISTY SNUFFER I give and bequeath all of the rest, residue and remainder of my personal property, wherever situate, to Kentland Bank, Kentland, Indiana, as trustee, with discretionary powers of mana gement, investment and reinvestment in trust for the use and benefit of my husband, Larry Hamblin, for and during his natural life, as hereinafter provided: Said trustee shall have all the powers provided for a trustee under the Indiana Trust Code and sha ll distribute the sum of $1,250.00 per week from said trust to or for the benefit of said beneficiary for his use. Said Trustee shall further have the discretion to make distributions of the principal of said trust to or for the benefit of said beneficiar y for his quarterly federal and Indiana estimated tax payments, replacement of his personal vehicle or such other purposes as it deems appropriate in its sole discretion. Said trustee shall not be required to docket said trust or make accountings therefor to any court, but shall furnish said beneficiary an annual accounting of the income and expenses of said trust. Said beneficiary shall not have the right to assign or pledge his beneficial interest in said trust to any person, firm or corporation. Upon the death of said Larry Hamblin, said trustee shall continue to hold the assets remaining in said trust with discretionary powers of management, investment and reinvestment, in trust, for the use and benefit of my only child, Misty Snuffer, for and during her natural life, as hereinafter provided: Said Trustee shall have all the powers provided for a trustee under the Indiana Trust Code and shall distribute the sum of one thousand dollars ($1,000.00) per week from said trust to or for the benefit of said b eneficiary at least monthly for her use. Said Trustee shall further have the discretion to make distributions of the principal of said trust to or for the benefit of said beneficiary for payment of her quarterly federal and Indiana income tax estimates, r eplacement of her personal vehicle or such other purposes as it deems appropriate in its sole discretion. Said trustee shall not be required to docket said trust or make accountings therefor to any court, but shall furnish said beneficiary an annual accou nting of the income and expenses of said trust. Said beneficiary shall not have the right to assign or pledge her beneficial3 interest in said trust to any person, firm or corporation. Upon the death of said beneficiary, the trustee shall wind up the busi ness of said trust and distribute the balance of said trust to Kentland Bank, Kentland, Indiana, as Trustee of the Trust for Grandchildren provided in paragraph B below. (Appellant’s App. (“App.”) at 29

- 30.) Janice’s W ill was admitted to probate on Janua ry 27, 2009

. The Estate filed its Indiana Inheritance Tax Return on September 14, 2009. For purposes of calculating the amount of tax owed, the Estate valued the interests transferred to Larry and Misty as annuit ies

. 1 ( Compare App. at 8 with 38

- 41.) On December 8, 2009, the Department notified the Estate that it owed an additional $105,000 in inheritance tax for reasons not at issue in this appeal . ( See , e.g. , App. at 6, 16.) T he Estate paid th at liability

. On December 14, 2012, the Estate filed wit h the Department a claim for refund in which it assert ed that the interests transferred to Larry and Misty should have been valued as life estates and not as annuities . ( See, e.g

. , App. at 16 , 22

- 25 .) The Department denied the Estate’s refund claim on Fe bruary 18, 2013

. On May 17, 2013, the Estate filed a “Complaint to Appeal Order Denying Refund” with the Probate C ourt. Both the Estate and the Department subsequently moved for summary judgment. ( See App. at 4, 18

- 25.) T he Probate C ourt conducted a
h earing on th e summary judgment motions on February 6, 2014. Six days later, o n

1 Other than reporting an estimated trust distribution for Larry’s 2009

- 2018 state and federal income tax liabilities, the Estate ’s Inheritance Tax Return did not report a value for any discretionary interests transferred to Larry or Misty . ( Compare App ellant’s App

. (“App.”) at 8 with 39

- 40 (stating that “ [t] he discretionary interests created by t he trust could not be valued, and thus were taxed solely to the holders of the trust’s residual beneficiaries” ).) See also, e.g. , I ND

. C ODE § 30

- 4

- 2.1

- 14(a)(1 ) (2010) (stating that “[a] discretionar y interest is a mere expectancy that is neither a propert y interest nor an enforceable right”). Ultimately, the valuation of Larry and Misty’s discretionary interests is not at issue in this case. ( See, e.g. , Appellant’s Br. at 8, Appellant’s Reply Br. at 4

- 12 ( stating explicitly that the sole issue in this ca se is whether the fixed weekly payments made from the trust are properly classified as annuities or life estates).)4

February 12, 2014, the Probate C ourt determined that the interests transferred to Larry and Misty should have been valued as life estates and therefore grant ed summary judgment in favor of the Estate and against the Department

. (App. at 6.) The Department appealed to this Court on March 11, 2014. The Court conducted oral argument on September 25, 2014. Additional facts will be supplied when necessary. STANDARD OF REVIEW The Indiana Tax Court acts as a true appellate tribunal when it review s an appeal of a probate court’s determination concerning a claim for refund of inheritance tax

. I ND

. C ODE § 6

- 4.1

- 10

- 5 (201 5 )

. Because the Probate C ourt’s determination was issued in the context of summary judgment, th is Court will only consider those materials properly designated to the Probate C ourt to determine 1) whether there is a genuine issue as to any material fact and 2) wh ich party is entitled to judgment as a matter of law. See Estate of Neterer v. Indiana Dep’t of State Revenue , 956 N.E.2d 1214, 1217 (Ind. Tax Ct. 2011) , review denied ; Ind. Trial Rule 56(C)

. The Court, finding that there are no material facts in dispute in this case, will limit its review to de termining whether the Probate C ourt correctly applied the law to the undisputed facts. See Estate of Neterer , 956 N.E.2d at 121 7

. In so doing, the Court will review all questions of law de novo an d will affirm the Probate C ourt’ s summary judgment decision if it ca n be sustained by any theory or basis in the record. See id. at
1217

- 18. LAW At the time of Janice’s death in 2008 , Indiana imposed an inheritance tax upon5

certain prope rty interest transfers made by a decedent. 2 See I ND

. C ODE § 6

- 4.1

- 2

- 1 ( 20 08 ) ( repeal ed by I ND

. C ODE § 6

- 4.1

- 1

- 0.5 (2013) )

. Generally, the amount of inheritance tax due was based on the fair market value of the property interests transferred as of the date of the decedent’s death or the date used to value the property interests for federa l estate tax purposes

. See I ND

. C ODE §§ 6

- 4.1

- 5

- 1,

- 1.5 ( 2008 ) ( repealed by I ND

. C ODE § 6

- 4.1

- 5

- 0.5 (2013) )

. In instances whe re a beneficiary receive d less than a fee interest in the decedent’s property ( e.g. , a future interest, a life estate, or

an annu ity) , the fair market value of the interest transferred was to be determined using the IRS’s actuarial tables. See I ND

. C ODE § 6

- 4.1

- 6

- 1(a) (2008) ( repealed by I ND

. C ODE § 6

- 4.1

- 6

- 0.5 (201 3) )

. See also generally Treas. Reg. § 20.2031

- 7A(d) (2009). The

a ctuarial table at issue in this case pro vide s certain numerical factors that are to be applied when valuing annuities and other numerical factors that are to be applied when valuing life estates. See Treas. Reg. § 20.2031

- 7A(d)(6) (Table A). 3 DISCUSSI ON On appeal, t he Department asserts that the Probate C ourt erred in determining that Janice transferred interests in life estates to Larry and Misty

. To support its position, the Department explains that the term “annuity” is defined as a fixed sum,
paya ble at specified intervals, over a certain period of time. ( See Appellant’s Br. at 9

- 10 ( citing Treas. Reg. § 1

. 75 2 0

- 3(b)(i)(A) (2009) ; St. Mary’s Hosp

. of Evansville v. Long , 117 N.E.2d 833, 835 (Ind. 1938); B LACK ’ S L AW D ICTIONARY 105 (9 th ed. 2009)).) In

2 The inheritance tax was not a tax on the property of the decedent’s estate, but rather a tax on the privilege of succeeding to the property rights of the dece dent

. In re Estate of McNicholas , 580 N.E.2d 978, 980

- 81 (Ind. Ct. App. 1991), trans. denied

.
3 Neither the Estate nor the Department dispute that that IRS’s actuarial table appl ies ; rather, their dispute turns on which column of factors in th at actuarial table applies to the interests transferred. ( See, e.g. , Appellant’s Br. at 9; Appellee’s Br. at 8; Appellant’s Reply Br. at 4.)6

contrast, a “life estate” is defined as “‘ the right of a person for his or her life . . . to receive the income of certain property or to use nonincome

- producing property. ’ ” (Appellant’s Br. at 11 ( quoting Treas. Reg. § 20.2031

- 7A(d)(3)).) Based on th ese definition s , the Department maintains that Janice ’s W ill clearly created a trust for the purpose of transferr ing annuity interests to Larry and Misty . Indeed, it contends that (1) the W ill provided that Larry and Misty w ere to receive the fixed sums o f $1,250 and $1,000 , respectively , each week, for the duration of their lives and (2) those fixed sums were payable from the trust’s principal and not from trust income

. (Appellant’s Br. at 10.) The interpretation, construction, or legal e ffect of J anice’s W ill is a question of law. See Carlson v. Sweeney, Dabagia, Donoghue, Thorne, Janes & Pagos , 895 N.E.2d 1191, 1197 (Ind. 2008). In construing her W ill, the Court’s primary focus is to determine and give effect to Janice’s intent

. See id. Her in tent will be revealed by looking within the four corners of the W ill and the language used therein

. See id. Moreover, the W ill must be re ad as a whole, not piecemeal , and effect must be given to every provision, clause, term, or word used within the docu ment , if possible. See id. In examining the W ill, the Court finds th at th e presence of certain other language
i ndicat es that Janice actually intended to convey to Larry and Misty interests in life
estates , not annuities . F or instance , her W ill provides th at the personal property held in the trust is “ for the use and benefit of my husband, Larry Hamblin, for and during his natural life ” and then “ [u] pon [his] death

. . . for the use and benefit of my only child, Misty Snuffer, for and during her natural l ife [.]” (App. at 29

- 30 (emphases added).) This type of language is often used to convey an interest in a life estate. See, e.g. , Gladden7

v. Jolly , 655 N.E.2d 590, 592 (Ind. Ct. App. 1995) (explaining that a devise in a will “for or during the devisee’s lifetime, or for as long as the devisee shall live, or until the devisee’s death, or such similar phrase, creates a life estate in the devisee, unless other provisions show another intent ”). Second, Janice’s W ill instructs the trustee to “ manage, invest and reinvest” the personal property contained within the trust . (App. at 29

- 30.) T he sole purpose for this instruction is to generate trust income

. See , e.g. , I ND

. C ODE § 30

- 4

- 3.5

- 2(a) (2015) ( providing that a trustee “ shall invest and manage trust asse ts” (emphasis added) ) ; I ND

. C ODE § 30

- 2

- 14

- 4 (2015) (defining trust income as the return received by the trustee from investing the trust’s assets or princip al ). While the W ill specifies that any discretionary distributions the trustee ma kes to Larry and Misty are to paid from the trust’s princip al , it does not specify from where ( i.e., out of trust income or princip al ) the fixed payments are to be made. ( See App. at 29

- 30.) It is therefore reasonable to presume that through th is silence, Janice intended th at the fixed payments to Larry and Misty could be payable from the trust income. ( See also Appellant’s Br. at 6 (indicating that the Department ma de the same presumption ).) Third, Janice’s W ill allows the trustee to make any discretionary d istributions to Larry and Misty for whatever p urpose “it deems appropriate.” ( See App. at 29

- 30.) Given this extremely broad grant of discretion, the Court concludes that Janice simply intended the “ fixed ” amounts of $1,250 and $1,000 to be Larry and Misty ’s m inimum
trust distributions

. Stated differently, the interests Janice intended to convey to Larry and Misty were, in all reality, uncertain in amount. Compare In re Weill’s Will , 45 N.E.2d 362, 365 (Ind. Ct. App. 1942) (explaining that the difference between an annuity and a8

gift of “ an income” is that while an annuity confers a fixed and certain sum of money
upon the beneficiary without any contingency, the value of a gift of an income is uncertain in amount because it is contingent upon the net profits or earn ings of the trust princip al ) (citations omitted)) with 5 Daniel R. Gordon et al., H ENRY ’ S I NDIANA P ROBATE L AW AND P RACTICE § 33.10 at 33

- 72 (Matthew Bender 2010) ( making the exact same distinction between an annuity and the gift of a life estate)

. The Court finds that t he language of Janice’s W ill as a whole demonstrates her intent to convey life estates to Larry and Misty

. See In re Estate of Owen , 855 N.E.2d 603, 609 (Ind. Ct. App. 2006) (explaining that “[i]n both the will and trust contexts, substance trumps form”). As a result, the Probate C ourt did not err when it determined that for Indiana inheritance tax purposes, those interests were to be valued as life estates and not as annuities. CONCLUSION For the above stated reasons, t he Court AFFIRMS the Probate C ourt’s entry of summary judgment in favor of the Estate and against the Department.

D istribution: Evan W. Bartel, Jill D. Wesch