ATTORNEYS FOR APPELLANT : ATTORNEY FOR APPELLEE :

GREGORY F. ZOELLER DONALD W. SHELMON ATTORNEY GENERAL OF INDIANA ATTORNEY AT LAW EVAN W. BARTEL Rensselaer, IN DEPUTY ATTORNEY GENERAL Indianapolis, IN 

# IN THE

INDIANA TAX COURT

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

- 1207

- TA

- 000 38 v. ) ) THE ESTATE OF ORVILLE J. RAUCH, ) ) Appellee. )

ON APPEAL FROM THE JASPER CIRCUIT COURT The Honorable John D. Potter, Judge Ca u se No. 37C01

- 1011

- EU

- 000 688 FOR PUBLICATION November 7 , 201 6 WENTWORTH , J. The Indiana Department of State Re venue, Inheritance Tax Division appeals the Jasper Circuit Court’s (Probate C ourt) order determining the inheritance tax liability of
T he Estate of Orville J. Rauch. The Department asserts that the Probate C ourt erred when it decid ed that beneficiaries Robert and Claudia Wandless were Class A transferees because they had a n in loco parentis relationship with the deceased

. The Court affirms

.2 FACTS AND PROCEDURAL HISTORY Orville J. Rauch was born on December 22, 1930 . H e never married and had no children. He owned farm land in Illinois and farmed most o f his life. Orville liv ed with his parents until their deaths , but o ther family members were no t evident in his life , although two of his cousins attended his funeral. When Orville was in his 40’s, he had a stroke after which he had a hard time walking. Around or about the early 1970’s, Orville met and befriended two young neighbor childr en: Robert Wandless and Claudia L’Ecuyer

. Orville met Robert when Robert was about 10 years old, visiting him at Robert’s home while he was farming with his father. Robert lived with his natural parents, but Orville gave him advice, direction, and even discipline, treating him just the same as did Robert’s natural pare nts

. Indeed, Orville referred to Robert as his son in the presence of others, and he took Robert out to eat a couple of times a week. Sometimes Orville would pay Robert to do tasks, but Orville expected Robert to help him fill planters and do other tasks without compensation. Nonetheless, Orville was never Robert’s legal guardian, never claimed Robert as a dependent for tax or census purposes, and had no legal authority to control Robert’s actions. Orville met Claudia when she was about 12 years old. Claudia lived with her natural parents , and Orville regularly visite d her at her home “to see how eve rybody was” as often as five tim es a week. ( See Hr’g Tr. 6 , Mar. 7, 2012

. ) Orville drove over to her house in his truck, but he did not get out a lot because h e used a walker

- so she went out to see him. Orville attended every one of Claudia’s family a ffairs, birthday parties, and holiday eve nts. A t least a couple of days a week, he had supper with3

Claudia and her family , and he always gave her gifts. Throughout their relationship, Orville often gave Claudia advice, direction, and correction. Indeed, Orville treated her no differently than her parents did, and she treated him “just like a parent . . . if he needed something, we took care of him.” ( Hr’g Tr. 8. ) Although Orville told “ [ p ] retty much everybody” that Claudia w as his daughter “ [ t ] o t he da y he died [ , ] ” he was never her legal guardian nor did he have any legal authority over her. ( See Hr’g Tr. 9. ) Claudia called him “Buddy,” because calling him that made him laugh , and she considered him “just as much a parent [to her ] as [her] own.” ( Se e Hr’g Tr. 7, 13. ) Robert and Claudia married when they were 19 years old. At that time, Orville provided for them “in much the same manner a father would for his children by turning over farming operations to them on very favorable terms.” ( Appellant’ s App. , Vol. I at 4 .) In return, t hey took care of all his financial matters and farm ed his land under a 50/50 crop sharing agreement until his death. Orville referred to Robert and Claudia ’ s children as “his grandchildren [

. ] ” ( Hr’g
Tr. 12. ) In fact , he gave, or attempted to give , his belongings to Claudia, Robert, and their childre n throughout his life, making specific requests that their children get certain of his possessions that were passed down from his family. Moreover, one of their children lived with Orville for a two
- year period between 2003 and 2005. Orville wanted to give Claudia and Robert his interest in his Illinois farmland, but Robert refused because he did not want any of Orville’s extended family to say that he and Claudia were t aking Orville, his belongings, and all his possessions away from them. While Orville was living in a nursing home in Illinois, he decided to sell his Illinois real estate and invest the proceeds in farmland where the parcels would be all together4

in the s ame vicinity. He would not sign the papers for the sale of his Illinois property , however, until Claudia and Robert promised to take him with them wherever they went

. U pon the purchase of farmland in Indiana , Orville, Claudia , Robert , and their children all moved to this state

. O rville spent the la st twenty years of his life in nursing home s

. When he was in a nursing home in Illinois, Claudia visited him “two or three days a week; when [they all ] moved to Indiana, [Claudia] actually worked at the [Indi ana] nursing home, so [they] had lunch [together] every day and [she ] stay [ ed ] with him in the afternoon .

. . watch[ing] his favorite movies [

. ] ” ( Hr’g Tr. 11

. ) Robert did not visit him as much as Claudia, but did so as much as he could. “ Nursing home s taff noted that Orville treated [Robert] and Claudia as his children, and vice versa .” ( Appellant’s App. , Vol. I at 4. ) Furthermore, relatives, neighbors, and business associates of Orville testified that he had a fatherly relationship with Robert and Cla udia , and “in turn, [ they ] took care of him as adult children would an elder parent.” ( Appellant’s App. , Vol. I at 4

- 5 .) When Orville passed away on October 25, 2010 , Robert and Claudia made all of his funeral arrangements. T heir children placed a pillo w with the word “Grandpa” on it inside his casket. Upon his death, Orville left the majority of his estate to Robert and Claudia

. On September 29, 2011, Orville’s Estate filed its inheritance tax return reporting , among other things , t hat Robert and Cla udia were his children in loco parentis

. ( See Appellant’s App., Vol. II at 25

- 44.) As a result, the Estate treated Robert and Claudia as Class A trans ferees in computing its inherita nce tax liability. ( See Appellant’s App., Vol. II at 26.) On Septembe r 30 , 20 11 , the Probate C ourt accepted, as filed, the Esta te’s5

inheritance tax return

. ( Compare Appellant’s App., Vol. I at 2 with Appellant’s App., Vol. II at 45.) On J anuary 27 , 2012 , the Department filed a “Petition for Rehearing and Redetermination of Inheritance Tax” with the Probate C ourt. (Appellant’s App., Vol. I at
8

- 9.) In its Petition, the Department asserted that the Estate had not show n that Orville took the place of Robert and Claudia ’s natural parents or that he had the rights, duties,

a nd responsibilities of a parent as required for an in loco parentis relationship under Indiana Code § 6

- 4.1

- 3(e) and 45 Indiana Administrative Code 6

- 4.1

- 10 (“45 IAC 6

- 4.1

- 10”). (Appellant’s App., Vol. I at 9.) A ccordingly, the Department claimed that Ro bert and Claudia should have been classified as Class C transferees , not Class A transferees , and the Estate owed an additional $ 512,919.68 in i nheritance tax plus interest. (Appellant’s App., Vol. I at 9.) On May 23, 2012, after holdin g a hearing , the P robate C ourt issued an order denying the Department’s Petition. ( Appellant’s App. , Vol. I at 4.) T he Probate C ourt stated: The Court finds and concludes that Orville Rauch con sidered

himself in the role of the father to [Robert] and Claudia Wandless

– a nd discharged a natural obligation above and beyond the duty of a parent by financially providing for [them], and leaving his legacy, farmland, to them as if they were his children whom would normally inherit the land. Claudia and [Robert] Wandless should be granted Class A Transferee status under the statutory in loco parentis exception. (Appellant’s App. , Vol. I at 6

. ) On June 22 , 2012 , the Department filed a Mot ion to Correct Error with the Probate Court , which was subsequently denied. (Appellant’s
A pp. , Vol. I at 3, 7.) The Department appealed to this Court on July 23 , 2012. The Court conducted6

oral ar gument on March 1 , 20 13 . Additional facts will be supplied as 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 the amount of Indiana inheritance tax due. I ND

. C ODE § 6

- 4.1

- 7

- 7 (201 6 ) ; In re Estate of Young , 851 N.E.2d 393, 395 (Ind. Tax Ct. 2006 )

. “ On appeal, the court will not reweigh the e vidence nor judge the credibility of witnesses, bu t will affirm the probate court’ s judgment upon any legal theory supported by evidence introduced at trial. ” Indiana Dep’ t of State Revenue v. Estate of Baldwin , 652 N.E.2d 124, 125 (Ind. T ax C t . 1995) ( ci ting Estate of Hibbs v. Indiana Dep’ t of State Revenue , 636 N.E.2d 204, 206 (Ind. Tax Ct. 1994) )

. Accordingly , the Court afford s a probate c ourt great deference in its role as the finder of fact, but review s its legal conclusions de novo

. In re Estate of Young , 851 N.E.2d at 395

. LAW In Indiana, “[a]n inheritance tax is im posed at the time of a decedent’ s death on certain property interest transfers made by him.” I ND

. C ODE § 6

- 4.1

- 2

- 1 (2010) ( amended 2012 ) . This tax “is not a tax on the property of [th e] decedent’ s estate, but a tax on the privilege of succeeding to [the] property rights of the deceased.” In re Estate of McNicholas v. State of Indiana , 580 N.E.2d 978, 980

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

. Generally, the amo unt of inheritance tax due on each of the decedent’ s transfers is based on the fair market value (as of the date of the decedent’ s death) of the property interests transferred

. See I ND

. C ODE §§ 6

- 4.1

- 5

- 1 .5 (a) ( 2010 ). The General Assembly has , however, pr ovided specific exemptions t hat lower the amount of inheritance tax7

due based on the classification of the transferee’s relationship with the decedent

. See
I ND

. C ODE § 6

- 4.1

- 5

- 1 (2010). For instance , “[ t ] he first one hundred thousand dollars ($100,000) o f property interests transferred to a Class A transferee

. . . is exempt from the inheritance tax [,] ” while only t he first $500 of property i nterests tran sferred to a Class B transferee and the first $100 of property interests transferred to a Class C
tran sferee , are exempt from inheritance tax. I ND

. C ODE § § 6

- 4.1

- 3

- 10 (2010) (amended 2012); see also I ND

. C ODE §§ 6

- 4.1

- 3

- 11 , - 12 (2010).
In diana Code § 6

- 4.1

- 1

- 3 defines the three classes of transferee s as follows : (a) “Class A transferee” means a transferee w ho is a: (1) l ineal ancestor of the transferor; (2) lineal descendant of the transferor; (3) stepchild of the transferor, whether or not the stepchild is adopted b y the transferor; or (4) lineal descendant of a stepchild of the transferor, whether or not the stepchi ld is adopted by the transferor. (b) “Class B transferee” means a transferee who is a: (1) brother or sister of the transferor; (2) descendant of a brother or sister of the transferor; or (3) spouse, widow, or widower of a child of the transferor

. (c) “Class C transfe ree” means a transferee, except a surviving spouse, who is neither a Cl ass A nor a Class B transferee.
I ND

. C ODE § 6

- 4.1

- 1

- 3(a)

- ( c ) (2010) ( amended 2012 )

. In addition, a transferee who is
not the natural child of the transferor is deemed to be a natural chil d of the transferor , and thus a Class A transferee for inheritance tax purposes , in two separate contexts. First, a non

- relative is considered the natural child of adoptive parents even if the biological parents are alive because adoption formalities , if done before emancipation, divest the biological parents of all legal rights, duties , and obligations to the adopted8

child

. In re Estate of Quackenbush , 926 N.E.2d 127, 130 (Ind. Tax C t . 2010) . Second,

a non - relative is considered a Class A transferee “ i f a relationship of loco parentis has existed for at least ten (10) years and if the relationship began before the child’s fifteenth b irthday [

. ] ” I.C. § 6

- 4.1

- 1

- 3(e) (emphasis added)

. Although t he statute does not define the term “ loco parentis , ” t he Department has defined the term to mean “a
pe r son who takes the place of a parent; charged, factitiously, with a parent’s rights, duties, an d responsibilities.” 45 I ND

. A DMIN

. C ODE 4.1

- 1

- 10 (a) (2010) (see http://www.in.gov/legislative/iac/ ). ANALYSIS On a ppeal, the Department contends that the Probate Court erred in finding that Orville had an in loco parentis relationship with C laudia and Robert and thus erred in granting them Class A Transferee status

. ( See Appellant’s Br. at 14 .) T he Department

reason s 1) that Orville’s behavior was inconsistent with the plain meaning of the term “ in loco parentis , ” having neither taken the place of Claudia and Robert’s natural parents

nor assumed the legal rights, duties, and responsibilities of a parent ; and 2) that the facts show that Orville was their friend , not a parent

. ( See Appellant’s Br. at 7

- 14

. )
1. The Department claims that the Probate Court er red in construing the statut ory language of Indiana § 6

- 4.1

- 1

- 3 (e) and 45 IAC 4.1

- 1

- 10 (a) strictly against the
D epartment, rather than applying the words and phrases in their pla in, ordinary, and usual sense. ( A ppellan t ’s Br. a t 7

- 8

. ) The Department acknowledges that the critic al
term “ loco parentis ” used to define Class A transferees is not defined in the statute , but contends that the plain meaning of 45 IAC 4.1

- 1

- 10(a) contains the controlling definition

.9

( Appellant ’s Br. a t 8

- 9

. )
An undefined statutory phrase requires a c ourt to apply the rules of construction to determine its meaning. See 1 Stop Auto Sale s, Inc. v. Indiana Dep’ t of State Revenue , 785 N.E.2d 672, 674 (Ind. Tax Ct. 2003), rev’ d on other grounds , 810 N.E.2d 686 (Ind. 2004) (stating that when a word in a statute is u ndefined by statute or case law , the Court gives the word its plain and ordina ry meaning and may refer to a dictionary ). Webster’s D ictionary defines i n loco parentis as “in the place of a parent [.]”
W EBSTER ’ S T HIRD N EW I NT ’ L D ICTIONARY 1165 (2002 ed. ). See also B LACK ’ S L AW D ICTIONARY 858 (9th ed.) (stating that “ in loco parentis ” means “[o]f, relating to, or acting as a temporary guarding or caretaker of a child, taking on all or some of the responsibilities of a parent”). Accordingly, the Departme nt’s definition of in loco parent is
in its regu lation 45 IAC 4.1

- 1

- 10(a) does not appear to be inconsistent with the dictionary defini tion. Indiana case law breathes life into the plain meaning of the term

. At common law , an in loco parentis relationship exists when “‘ a person [] has put himself in the situation of a lawful parent by assuming the obligations incident to the parental relation without going the formalities n ecessary to legal adoption. It embodies the two ideas of assuming the parental status and discharging the parental duties

. ’ ” See In re Marriage of Snow v. England , 862 N.E.2d 664, 666 (Ind. 2007) (citation omitted). Significantly , the refore, an in loco parentis relationship is based on intent

. Id

. Moreover , because the relationship requires an intent to continue , the status is “ temporary in nature and essentially voluntary. ” Id

. a t 667. Nearl y 150 years ago, our Supreme Cour t explained that the test for in loco10

parentis is “‘ whether the circumstances, taken in the aggregate, amount to moral certainty that a testator considered himself in the place of the chil d’s father, and as meaning to discharge that natural obligation which it was th e duty of a parent to perform. ’ ” See Weston v. Johnson , 48 Ind. 1, 6 (Ind. 1874) (emphase s added)

. The Court does not find a requirement that the natural parents be dead or th at a testator
must assume all the obligations and duties of a natural parent to have an in loco parentis relationship , in contrast to the requirements discussed above for a non

- relative adoptee

. 1 Indeed, the Supreme Court clearly instructed that the focus in determining whether an i n loco parentis relationship exists is the intent of the testator , stating

“ putative fathers, are not to be considered in loco parentum unless they have intended to assume the office and duty of a parent .” Id

. at 5

- 6 (e mphasis added) (citation omitted)

. The Probate Court found and concluded “that Orvil le Rauch con sidered himself in the role of the father to [ Robert ] and Claudia Wandless [

. ] ” (Appellant’s App. , Vol. I a t 6.) Moreover , the Probate Court found that Orville “discha rged a natural obligation above and beyond the duty of a parent by financially providing for [Robert] and Claudia, and leaving his legacy, farmland, to them as if they were his children whom would normally inherit the land.” (Appellant’s App. , Vol. I a t 6 .) Therefore, the Probate

1 T he existence of a natu ra l parent w ith parental rights and duties is not necessarily fatal to a determination of in loco parentis

. See , e.g. , Sturrup v. Mahan , 305 N.E.2d 877 , 881

- 82 (Ind. 1974) (finding a student who moved fr om his parent’s Florida home to live with his adult brother in Indiana and was appointed his legal guardian had an in loco parentis relationship) , overruled on on other grounds , 694 N.E.2d 222 (Ind. 1997); Weston v. Johnson , 48 Ind. 1, 6 (Ind. 1874) ( findi ng that the existence of a natural father was not relevant in determining no in loco parentis relationship existed ); Indiana D ep’t of State Revenue v. Nat’ l Bank of Logansport , 402 N.E.2d 1008, 1010 (Ind. Ct. App. 1980) (holding a legatee was a Class A tra nsferee of her in loco parentis stepmother as well as her natural mother ) . Accordingly, these facts are not bright line legal standards, but are subject to a trial court’s duty to weigh e vidence and judge credibility.11

Court ’s findings are based on the intent of the testator and are not inconsistent with the plain meaning of the term in loco parentis

. T he Department argues in the alternative that the statute at issue concerns the application of an exemption that should be construed in favor of the state and against Robert and Claudia. ( See Appellant’s Br. at 10.) The statute at issue, however, is not an exemption statute

. Indiana Code § 6

- 4.1

- 1

- 3 is located in chapter 1 of Indiana’s Inherit ance Tax Code , which contains definitions and rules of construction that apply throughout the Code

. See I ND

. C ODE § 6

- 4.1

- 1

- 1 (2010)

. Accordingly, it is not an exemption statute subject to the above rule of const ruction. Moreover, finding otherwise woul d defeat the long

- standing general principle that the Inheritance Tax Act is to be interpreted and construed in favor of the taxpayer. Indiana Dep’t of State Revenue v. Nat’ l Bank of Logansport , 402 N.E.2d 1008, 1010 (Ind. Ct. App. 1980) ; see also In re C assner’ s Estate , 325 N.E.2d 487, 492 ( Ind. Ct. App. 1975) (stating that “ the words of exemption found in the [Inheritance Tax] Statute should be liberally construed in favor of the taxpayer ” ).
2. The Department further claims that the Probate Court erre d in determining that Orville had an in loco parentis relationship with Claudia and Robert because the facts show his relationship was that of a friend, not a parent. (Appellant’s Br. at 10

- 14 .) In support, the Department points to several facts it claim s are antithetic to finding an in loco parentis relationship. (Appellant’s Br. at 12.) For example, neither Robert nor Claudia ever lived with Orville, Orville had no legal authority over them, and they both maintained close relationships with their natu ral parents that Orville did not replace.12

(Appellant’s Br. at 12.)
An in loco parentis relationship “embodies more than furnishing material help to a close relative who is in need. One may be willing to furnish needed assistance to such a relative, eve n over an indefinite period of time, without being willing at the same time to assume the legal obligation of a parent.” Niewiadomski v. United States , 159 F.2d 683, 686 (6th Cir. 1947) ; see also Weston , 48 Ind. at 6 (explaining that providing assistance to a relative is so usual that it cannot not raise a clear inference that the testator intended to substitute himself in loco parentis )

. I t is the prov ince , however, of the Probate Court , not the Tax Court, to weigh the evidence. Horlock v. Oglesby , 231 N.E.2d 810, 815 ( Ind. 1967 ); see also Estate of Hibbs , 636 N.E.2d at 206

. T he Probate Court identified facts that clearly demonstrated Orville ’s intent to be a father to Robert and Claudia and his intent to assume obligations of a parent by financially pro viding for them , while the facts recited by the Department had tenuous connection s to Orville’s intent. Accordingly, the Tax Court holds that the Pro bate Court provided substantial evidence of probative value to support its judgment . Furthermore, the Tax Court holds that the Probate Court applied the proper legal standard based on the intent of the testator in determining that an in loco parentis relationship exist ed for purposes of the inheritance tax

. CONCLUSION For the reasons stated above, the Court affirms the Probate Court’s order that Claudia and Robert Wandless had an in loco parentis relationship with the deceased, Orville J. Rauch, from before they were 15 years old until his death and are thus Class A transferees regarding the inheritance tax liability of his estate.