Court Opinion

ID: 2826715
Source: CourtListenerOpinion
Date Created: 2015-08-12 18:06:09.035908+00
Date Added: 2024-06-11T11:31:22.933184
License: Public Domain

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
_____________________________________________________________________
                                                       Aug 12 2015, 1:40 pm

INDIANA DEPARTMENT OF STATE           )
REVENUE, INHERITANCE TAX DIVISION,    )
                                      )
     Appellant,                       )
                                      )   Cause No. 49T10-1403-TA-00006
                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. 23C01-0901-ES-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 Court) order determining

that the Estate of Janice Hamblin (Estate) was entitled to a refund of inheritance tax

paid. The sole issue before the Court is whether the Probate Court erred when it held

that through her Will, Janice Hamblin transferred interests in life estates, as opposed to

annuities, to her beneficiaries Larry Hamblin and Misty Snuffer. The Court finds that the
Probate Court 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 management,
         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 shall 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 beneficiary 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 beneficiary 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, replacement 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
         accounting of the income and expenses of said trust.                  Said
         beneficiary shall not have the right to assign or pledge her beneficial

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          interest in said trust to any person, firm or corporation. Upon the
          death of said beneficiary, the trustee shall wind up the business 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 Will was admitted to probate on January 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

annuities.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.) The Estate paid that liability.

       On December 14, 2012, the Estate filed with the Department a claim for refund in

which it asserted 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 February 18, 2013.

        On May 17, 2013, the Estate filed a “Complaint to Appeal Order Denying

Refund” with the Probate Court. Both the Estate and the Department subsequently

moved for summary judgment. (See App. at 4, 18-25.) The Probate Court conducted a

hearing on the summary judgment motions on February 6, 2014. Six days later, on

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 Appellant’s App. (“App.”) at 8
with 39-40 (stating that “[t]he discretionary interests created by the trust could not be valued,
and thus were taxed solely to the holders of the trust’s residual beneficiaries”).) See also, e.g.,
IND. CODE § 30-4-2.1-14(a)(1) (2010) (stating that “[a] discretionary interest is a mere
expectancy that is neither a property 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
case is whether the fixed weekly payments made from the trust are properly classified as
annuities or life estates).)
                                                3
February 12, 2014, the Probate Court determined that the interests transferred to Larry

and Misty should have been valued as life estates and therefore granted 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 reviews an appeal

of a probate court’s determination concerning a claim for refund of inheritance tax. IND.

CODE § 6-4.1-10-5 (2015). Because the Probate Court’s determination was issued in

the context of summary judgment, this Court will only consider those materials properly

designated to the Probate Court to determine 1) whether there is a genuine issue as to

any material fact and 2) which 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 determining whether the Probate Court correctly applied the law to the

undisputed facts. See Estate of Neterer, 956 N.E.2d at 1217. In so doing, the Court will

review all questions of law de novo and will affirm the Probate Court’s summary

judgment decision if it can 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 upon

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certain property interest transfers made by a decedent.2 See IND. CODE § 6-4.1-2-1

(2008) (repealed by IND. CODE § 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 federal estate tax purposes.         See IND. CODE §§ 6-4.1-5-1, -1.5 (2008)

(repealed by IND. CODE § 6-4.1-5-0.5 (2013)). In instances where a beneficiary received

less than a fee interest in the decedent’s property (e.g., a future interest, a life estate, or

an annuity), the fair market value of the interest transferred was to be determined using

the IRS’s actuarial tables. See IND. CODE § 6-4.1-6-1(a) (2008) (repealed by IND. CODE

§ 6-4.1-6-0.5 (2013)). See also generally Treas. Reg. § 20.2031-7A(d) (2009). The

actuarial table at issue in this case provides 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

                                        DISCUSSION

       On appeal, the Department asserts that the Probate Court 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,

payable at specified intervals, over a certain period of time. (See Appellant’s Br. at 9-10

(citing Treas. Reg. § 1.7520-3(b)(i)(A) (2009); St. Mary’s Hosp. of Evansville v. Long,

117 N.E.2d 833, 835 (Ind. 1938); BLACK’S LAW DICTIONARY 105 (9th 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 decedent. 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 applies; rather,
their dispute turns on which column of factors in that 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.)
                                               5
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 these

definitions, the Department maintains that Janice’s Will clearly created a trust for the

purpose of transferring annuity interests to Larry and Misty. Indeed, it contends that (1)

the Will provided that Larry and Misty were to receive the fixed sums of $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 effect of Janice’s Will 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 Will, the Court’s primary focus is to

determine and give effect to Janice’s intent. See id. Her intent will be revealed by

looking within the four corners of the Will and the language used therein. See id.

Moreover, the Will must be read as a whole, not piecemeal, and effect must be given to

every provision, clause, term, or word used within the document, if possible. See id.

       In examining the Will, the Court finds that the presence of certain other language

indicates that Janice actually intended to convey to Larry and Misty interests in life

estates, not annuities. For instance, her Will provides that 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 life[.]” (App. at 29-30 (emphases added).) This

type of language is often used to convey an interest in a life estate. See, e.g., Gladden

                                             6
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 Will instructs the trustee to “manage, invest and reinvest” the

personal property contained within the trust. (App. at 29-30.) The sole purpose for this

instruction is to generate trust income. See, e.g., IND. CODE § 30-4-3.5-2(a) (2015)

(providing that a trustee “shall invest and manage trust assets” (emphasis added)); IND.

CODE § 30-2-14-4 (2015) (defining trust income as the return received by the trustee

from investing the trust’s assets or principal).       While the Will specifies that any

discretionary distributions the trustee makes to Larry and Misty are to paid from the

trust’s principal, it does not specify from where (i.e., out of trust income or principal) the

fixed payments are to be made. (See App. at 29-30.) It is therefore reasonable to

presume that through this silence, Janice intended that 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 made the same presumption).)

       Third, Janice’s Will allows the trustee to make any discretionary distributions to

Larry and Misty for whatever purpose “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 minimum

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 a

                                              7
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 earnings of the trust

principal) (citations omitted)) with 5 Daniel R. Gordon et al., HENRY’S INDIANA PROBATE

LAW   AND   PRACTICE § 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 the language of Janice’s Will 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 Court 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, the Court AFFIRMS the Probate Court’s entry of

summary judgment in favor of the Estate and against the Department.

Distribution:

Evan W. Bartel, Jill D. Wesch

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