Cassner's Estate, In re

• Decision Date: 10 April 1975
• Docket Number: No. 2--774A183,2--774A183
• Citation: 163 Ind.App. 588,325 N.E.2d 487
• Parties: In the Matter of ESTATE of Robert Paul CASSNER, Deceased.
• Court: Indiana Appellate Court

Page 487

325 N.E.2d 487

163 Ind.App. 588

In the Matter of ESTATE of Robert Paul CASSNER, Deceased.

No. 2--774A183.

Court of Appeals of Indiana, Second District.

April 10, 1975.

Theodore L. Sendak, Atty. Gen., Glenn Richard Potter, Deputy Atty. Gen., Indianapolis, for appellant

T. Michael Smith, Indianapolis, amicus curiae, for executor of the Estate of Robert Paul Cassner, deceased.

BUCHANAN, Judge.

CASE SUMMARY

Petitioner-Appellant, the State of Indiana (State), appeals from a Judgment excluding from Indiana Inheritance Tax accmulated life insurance policy dividends on the life of Robert Paul Cassner.

We affirm.

FACTS

On June 9, 1972, Robert Paul Cassner (the Deceased), a resident of Marion County, Indiana, died testate, leaving his entire estate to his daughter, Sandra Lee Cassner.

He was the owner of four separate life insurance policies, with a total face value of $13,000, each of which named his wife, Mary Agnes Cassner, beneficiary. In addition to the face amount of the policies, there existed accumulated dividends, post-mortem dividends and termination dividends totaling $1,623.30.

None of these policies are included in the Record.

On March 22, 1973, the learned judge of the Marion Probate Court entered an Order determining the net value of the estate, which amount did not include the dividends, thereby entitling the beneficiary to receive these dividends as 'proceeds' of life insurance free of Indiana Inheritance Tax.

The contested amount of Inheritance Tax involved is $45.00.

The State appeals that determination.

ISSUE ¹

Are termination, accumulated, and post-mortem dividends of life insurance policies payable other than to a decedent's estate part of 'proceeds of life insurance' and therefore not subject to Indiana Inheritance Tax?

The State contends that the term 'proceeds of life insurance policies' is the face value amount of such policies only and excludes all dividends because a life insurance policy is a risk-shifting the investment mechanism.

The Executor argues that accumulated, post-mortem and termination dividends

have never been subject to the Indiana Inheritance Tax and the State is seeking judicial legislation via statutory construction interpreting the Indiana law contrary to existing Federal Taxation Statutes which treat insurance proceeds as including such dividends.

DECISION

CONCLUSION--It is our opinion that 'proceeds of life

insurance' as used in the Indiana Inheritance and

Estate Tax Statute includes accumulated,

post-mortem and termination dividends.

The essence of this controversy is to determine whether the word 'proceeds' of life insurance policies is to be narrowly defined so as to include only the face value of the policy. The State's interpretation is that dividends from the policy are not part of the 'proceeds' payable to a person(s) other than the decedent's estate and are therefore subject to Inheritance Tax.

I.C.1971, 6--4--1--1, Ind.Ann.Stat. § 7--2401 (Burns' Code Ed.) (the Statute), specifically excludes or exempts ² from Inheritance Tax 'proceeds' of life insurance policies payable for the use of a person(s) other than the estate. In pertinent part it provides:

'Inheritance and transfers tax.--A tax is hereby imposed, under the conditions and subject to the exemptions and limitations hereinafter described, upon all transfers, in trust or otherwise, of the following property, or any interest therein or income therefrom:

'Proceeds of life insurance policies on the life of a decedent payable in such a manner as to be subject to claims against his estate and to distribution as a part thereof shall be hereunder held to be a part of the estate, but payable either directly or in trust for the use of any person or persons other than the estate so that it does not become a part thereof or subject to such claims, said proceeds shall not be taxed.' (Emphasis supplied.)

The first paragraph of the above-quoted Statute is part of Section 1 of Chapter 75 of Acts of 1931. This first paragraph entitled 'Inheritance and Transfers Tax' sets the tone of this legislative enactment. It evidence an intent to impose a transfer tax upon 'all transfers' of property or 'any interest therein or income therefrom'.

The next part of the quoted portion of the Statute is the seventh paragraph of Section 1 of Chapter 75 of Acts of 1931, and carries forward the intent to tax transfers of proceeds of life insurance policies on the life of a decedent payable to his estate or in such manner that such proceeds are subject to claims of the estate and then it creates an exemption from taxation those life insurance policies proceeds payable to a named person or persons so as not to be subject to claims against the estate.

Reading the two paragraphs together, one could reasonably conclude that if the income is to be included in the property subject to tax, then the income from property exempted from tax would likewise be included in the exemption. A sword that cuts both ways.

The all-inclusive intent expressed by the first paragraph would also seem to be consistent with a broad definition of the word 'proceeds' as the seventh paragraph treats proceeds only on the basis of whether the life insurance policies are payable ³ directly to the estate or for the benefit of a person other than the deceased and so not subject to the claims of creditors.

There is no indication in these two or other parts of the Inheritance Tax law which supports a narrow definition of 'proceeds'. To the contrary, from the language used, the intent of the Legislature appears to express a desire to tax all transfers of property or any interest therein or income therefrom, and likewise to exclude all 'proceeds' of life insurance payable other than to the decedent's estate . . . all without reference to finespun distinctions. A meat axe, not a scalpel, was used. So we can see no basis for narrowly construing the word 'proceeds' on the face of the Statute.

Bound as we are in ascertaining the meaning of a statute to effectuate the intent of the Legislature, we must do so by looking at the whole act and not merely an isolated word or phrase. Thus the intent cannot be determined:

'. . . by taking words on a selective basis from various portions of a statute and implying to these words special meaning out of context from the remainder of the statute . . ..' Abrams v. Legbrandt (1974), Ind.App., 312 N.E.2d 113, 118.

See also, Morgan Co. REMC v. Indianapolis Power & Light Co. (1973), Ind.App., 293 N.E.2d 237; Engle v. City of Indianapolis (1972), Ind.App., 279 N.E.2d 827; State ex rel. Baker v. Grange (1929), 200 Ind. 506, 165 N.E. 239; Garvin v. Chadwick Realty Corp. (1937), 212 Ind. 499, 9 N.E.2d 268; Bash et al. v. Evans (1872), 40 Ind. 256; 26 I.L.E. Statutes § 123.

The State focuses on the word 'proceeds' as being an insurance term involving risk-shifting and investment common to insurance contracts. In particular, the State relies on Cahen Trust v. United States, 292 F.2d 33 (7th Cir. 1961), and In re Hamilton's Estate (1945), 113 Colo. 141, 154 P.2d 1008. In Cahen the court was construing a trust and by way of dicta indicated that the insurer was bound to pay the face of the policy on the death of the insured. More to the point is In re Hamilton's Estate--in which the Colorado Supreme Court construed a similar but not identical inheritance tax statute as excluding from the proceeds of life insurance policies accumulated disability payments. In doing so it stated a naked conclusion without benefit of reasoning or authority . . . and then went on to the main point of the case which related to the incidence of ownership on certain life insurance policies.

It is true that in the area of insurance law the State's assertions have some merit in that interpretation of life insurance policies for purpose of payment of the proceeds have defined proceeds in terms of a risk-shifting contract. See 46 C.J.S. Insurance § 1179, pp. 88--89. However, our concern here is primarily with tax law, i.e., the applicability of principles of taxation which incidentally touch and concern insurance law. The State does not cite, nor are we aware of, authority that dictates application of insurance law only. To the contrary, a large body of law surrounds state and federal taxation, including the interpretation of state taxing statutes . . . and the application of certain of these princiles in our opinion overbalances court decisions deciding the essential nature of the life insurance policy and the payment of proceeds thereunder in disputes between private parties. City of Muncie v. Campbell (1973), Ind.Ann., 295 N.E.2d 379; State ex rel. State Bd. of Tax Comm'rs v. Davies Circuit Court (1967), 249 Ind. 580, 230 N.E.2d 761; Board of Comm'rs of Marion County v. Board of School Comm'rs of City of Indianapolis (1960), 130 Ind.App. 506, 166 N.E.2d 880; State v. Doversberger (1972), Ind.App., 288 N.E.2d 585; Wayne Township v. Brown (1933), 205 Ind. 437, 186 N.E. 841; Merchants' National Bank of Muncie v. Delaware School Tp. of Delaware Cty. (1916), 185 Ind. 658, 114 N.E. 450; Conn v. Board of Comm'rs of Cass Cty. (1898) 151 Ind. 517, 51 N.E. 1062; Adkins v. Indiana Employment Sec. Div. (1947), 117 Ind.App. 132, 70 N.E.2d 31.

Such considerations are pertinent but not controlling. State ex rel. Martin v. Graham (1915), 183 Ind. 53, 108 N.E. 111; Starr v. City of Gary (1934), 206 Ind. 196, 188 N.E. 775; W. H. Dreves, Inc. v. Osolo School Tp. of Elkhart Cty. (1940), 217 Ind. 388, 28 N.E.2d 252; Thompson v. Thompson (1972), Ind., 286 N.E.2d 657; State Bd. of Tax Comm'rs v. Oliverius (1973), Ind.App., 294 N.E.2d 646; Murray v. Zook (1934), 205 Ind. 669, 187 N.E. 890; Walgreen Co. v. Gross Income Tax Div. (1947), 225 Ind. 418, 75 N.E.2d 784; State ex rel. Clemens v. Kern (1939), 215 Ind. 515, 21 N.E.2d 141.

As neither party finds Indiana authority directy in point, nor do we, the issue must be resolved by reference to rules of statutory...