Dept. of State Revenue v. Estate of Riggs, 33T10-9902-TA-11.

• Decision Date: 20 September 2000
• Docket Number: No. 33T10-9902-TA-11.,33T10-9902-TA-11.
• Citation: 735 N.E.2d 340
• Parties: INDIANA DEPARTMENT OF STATE REVENUE, INHERITANCE TAX DIVISION, Appellant-Petitioner, v. ESTATE OF Robert E. RIGGS, Appellee-Respondent.
• Court: Indiana Tax Court

735 N.E.2d 340

INDIANA DEPARTMENT OF STATE REVENUE, INHERITANCE TAX DIVISION, Appellant-Petitioner, v. ESTATE OF Robert E. RIGGS, Appellee-Respondent.

No. 33T10-9902-TA-11.

Tax Court of Indiana.

September 20, 2000.

Karen M. Freeman-Wilson, Attorney General of Indiana, Kathryn Symmes Kirk, Deputy Attorney General, Indianapolis, IN, Attorneys for Appellant.

Stephen W. Cook, Cook & Cook, Noblesville, IN, Attorney for Respondent.

FISHER, J.

Appellant Indiana Department of State Revenue, Inheritance Tax Division (Department) appeals the probate court's order denying its petition to redetermine the inheritance taxes owed by the transferees of the real and personal property of the decedent, Robert E. Riggs (Robert). The sole issue for the Court's consideration is whether transferees of a decedent dying before the effective date of an amendment increasing an exemption to the state's inheritance tax are entitled to the larger exemption.

FACTS AND PROCEDURAL HISTORY

The relevant facts are not in dispute. Robert died testate on November 26, 1996, while residing in Henry County, Indiana. Robert's Last Will and Testament bequeathed or devised his entire estate to his three children (Children), the transferees. On August 26, 1997, Robert's Estate was opened.

The Estate on November 25, 1997 petitioned the probate court for a hearing to determine the inheritance tax due. Specifically, the Estate sought a determination as to whether the Children were entitled to the $100,000 exemption (Exemption) provided for by IND.CODE ANN. § 6-4.1-3-10 (West 2000). The probate court conducted a hearing on February 25, 1998. On March 10, 1998, the probate court entered an order allowing the requested exemption.

On July 6, 1998, the Department filed a petition pursuant to IND.CODE ANN. § 6-4.1-7-1 (West 2000) requesting that the probate court grant a rehearing for the purpose of redetermining the amount of inheritance tax due. The probate court conducted a rehearing on July 23, 1998. On October 28, 1998, the probate court entered its order denying the Department's petition.

Additional facts will be supplied as needed.

ANALYSIS AND OPINION

Standard of Review

This Court has jurisdiction to review an appeal from a probate court's redetermination concerning the amount of Indiana inheritance tax due. See IND.CODE ANN. § 6-4.1-7-7 (West 2000). In its review, the Court acts as a true appellate tribunal. See Department of State Revenue, Inheritance Tax Div. v. Estate of Hardy, 703 N.E.2d 705, 706 (Ind. Tax Ct.1998)

. Accordingly, the Court affords the probate court's factual findings a great deal of deference. See id. However, the Court reviews the probate court's legal conclusions de novo. See id. Accord Montgomery v. Estate of Montgomery, 677 N.E.2d 571, 574 (Ind.Ct.App.1997) (noting that Court of Appeals reviews questions of law and trial court's conclusions de novo, "substituting [the Court's] judgment for the trial court's if necessary").

Discussion

The Department argues that the Children are not entitled to the Exemption as amended, because Robert died in 1996 and the amendment to the Exemption was not effective until July 1, 1997. According to the Department, the date of death controls a transferee's entitlement to the Exemption. The Estate counters that the General Assembly intended to apply the amended Exemption retroactively. This intent, the Estate asserts, is evidenced by the large increase in the Exemption's value as well as by the "legislature's declaration of an emergency and its deviation from its normal practice of specifically declaring the amendment to be applicable to the estates of decedents dying after a particular date." (Appellee's Br. at 10-11.)

Indiana's inheritance tax statutes impose, at the time of a decedent's death, a tax on the privilege of succeeding to certain property rights of deceased persons. See IND.CODE ANN. §§ 6-4.1-2-1 to -7 (West 2000); see also Estate of Hardy, 703 N.E.2d at 706. The inheritance tax is not imposed on the property itself but, rather, is imposed on the transfer of ownership of the property. See Estate of Hardy, 703 N.E.2d at 706. Moreover, the inheritance tax is a lien on the property transferred by the decedent; the tax accrues and the lien attaches at the time of the decedent's death.¹See IND.CODE ANN. § 6-4.1-8-1 (West 2000). The inheritance tax statutes are based upon the ownership theory, which has two requirements for imposition of the tax: (1) a transfer from a decedent (2) of an interest in property that the decedent owned at death. See Indiana Dep't of State Revenue, Inheritance Tax Div. v. Estate of Morris, 486 N.E.2d 1100, 1101 (Ind.Ct.App.1985),

trans. denied.

The General Assembly has provided for various exemptions to the inheritance tax, including the one at issue. See IND.CODE ANN. §§ 6-4.1-3-1 to -12 (West 2000). The Exemption provides that the "first one hundred thousand dollars ($100,000) of property interests transferred to a Class A transferee under a taxable transfer or transfers is exempt from the inheritance tax."² IND.CODE ANN. § 6-4.1-3-10 (West 2000). At the time of Robert's death, adult children were entitled to a $5000 exemption.³ The General Assembly, during the first special session in 1997, increased the Exemption to its current level. See P.L. 254-1997(ss), § 9. The legislation increasing the Exemption states that the amendment is effective July 1, 1997. However, it does not state whether the Exemption as amended is effective for transfers of decedents dying before the effective date.

The Court may only construe and interpret a statute if it is unclear and ambiguous. See Shoup Buses, Inc. v. Indiana Dep't of State Revenue, 635 N.E.2d 1165, 1167 (Ind. Tax Ct.1994)

. There is no need for the Court to interpret the Exemption, because it is neither unclear nor ambiguous. In both its current and pre-amendment forms, the Exemption clearly is applicable at the time property interests are "transferred ... under a taxable transfer or transfers."⁴ IND.CODE ANN. § 6-4.1-3-10. Therefore, for purposes of applying the Exemption, the probate court must ascertain the time of transfer of Robert's assets. If the transfer of property took place before the effective date of the Exemption's amendment, then only the pre-amendment amount is available to the Children.

In Indiana, a decedent's death marks the point when his property transfers to his beneficiaries. INDIANA CODE ANN. § 29-1-7-23 (West 1999) provides "When a person dies, his real and personal property[ ] passes to persons to whom it is devised by his last will ...; but it shall be subject to the possession of the personal representative...."⁵See also National City Bank of Evansville v. Oldham, 537 N.E.2d 1193, 1197 (Ind.Ct.App.1989)

(stating that generally "legal title to real property devised by will vests in the devisee upon the decedent's death by operation of law") (citing Section 29-1-7-23), trans. denied. Other jurisdictions take this approach. As noted in 42 AM.JUR.2D Inheritance, Estate, and Gift Taxes § 180 (2000), "Inheritance taxes are assessed against the donee, and the `date of transfer,' as used in said statutes is the date of death, although the extent of the inheritance cannot be known until the estate has been administered." Cf. National Bank of Detroit v. Revenue Div., Mich. Dep't of Treasury, 406 Mich. 534, 281 N.W.2d 119, 120 n. 1 (1979) ("The date of transfer is the date of death[,] ... because it is on that date that any interest in the estate passes from the decedent to the beneficiaries."). Thus, Robert's death marked the point when his property interests transferred to his Children. The Children may claim only the pre-amendment value of the Exemption. Cf. 40 Op. Att'y Gen. 224 (1963) (concluding, upon analysis of similar issue, that a "transfer would have been made and the liability for the [inheritance] tax fixed at the moment of death, and such liability could only be determined in accordance with the statute in effect at the time of death").

Despite the clearly established law in Indiana that transfers of a decedent's property interests occur at his death, the Estate maintains that the legislature intended to apply the amended Exemption retroactively. The Estate is mistaken. Indiana does not favor retroactive application of statutes and amendments. "Our courts have observed a strict rule of construction against retrospective operation, and indulge in the presumption that the legislature intended statutes and amendments to operate prospectively only, unless the intention is unequivocably and unambiguously shown [otherwise] by necessary implication." Turner v. Town of Speedway, 528 N.E.2d 858, 863 (Ind.Ct. App.1988). See also Mahan v. State Bd. of Tax Comm'rs, 622 N.E.2d 1058, 1062 (Ind. Tax Ct.1993)

(noting general rule that statutes and amendments are to be given prospective effect only). "To apply an amendment retroactively without a clear legislative indication requires that strong and compelling reasons exist." Estate of Robinson by Robinson v. C & I Leasing, Inc., 691 N.E.2d 474, 476 (Ind.Ct. App.1998),

trans. denied. Exceptions to the general rule exist, and retroactive application may be permitted where the new legislation only changes a mode of procedure, see Estate of Robinson, 691 N.E.2d at 476, or where a statute is remedial, see State ex. rel Ind. State Bd. of Dental Examiners v. Judd, 554 N.E.2d 829, 832 (Ind. Tax Ct.1990). In deciding whether a statute is remedial, the Court will examine, among other things, the alleged defect or mischief that a statute or amendment seeks to cure. See id. (citing W.H. Dreves, Inc. v. Osolo Sch. Tp., 217 Ind. 388, 391, 28 N.E.2d 252, 254 (1940)).

The amendment to the Exemption should only be applied prospectively, as it is neither procedural nor remedial in nature. The amendment does not change a mode of procedure. Moreover, the Estate provides no evidence indicating that the amendment is designed or intended to cure a...