Estate of Hibbs v. Indiana Dept. of State Revenue, Inheritance Tax Div.

• Citation: 636 N.E.2d 204
• Decision Date: 17 June 1994
• Docket Number: No. 49T10-9310-TA-00086,49T10-9310-TA-00086
• Parties: ESTATE OF Eugene B. HIBBS, Appellant (Respondent Below), v. INDIANA DEPARTMENT OF STATE REVENUE, INHERITANCE TAX DIVISION, Appellee (Petitioner Below).
• Court: Tax Court of Indiana

Page 204

636 N.E.2d 204

ESTATE OF Eugene B. HIBBS, Appellant (Respondent Below), v. INDIANA DEPARTMENT OF STATE REVENUE, INHERITANCE TAX DIVISION, Appellee (Petitioner Below).

No. 49T10-9310-TA-00086.

Tax Court of Indiana.

June 17, 1994.

Robert S. Hulett, Vicki L. Anderson, Hackman McClarnon Hulett & Cracraft, Indianapolis, for appellant.

Pamela Carter, Atty. Gen. of Indiana, Kathryn Symmes Hall, Deputy Atty. Gen., Indianapolis, for appellee.

FISHER, Judge.

Bank One Indianapolis, N.A. (Bank One), as personal representative of the Estate of Eugene B. Hibbs (the Estate), appeals the Marion County Superior Court, Probate Division's (the Probate Court) October 1993 judgment redetermining the Estate's Indiana inheritance tax liability.

ISSUE

Whether the Probate Court erred in finding that the Estate failed to make a qualified terminable interest property (QTIP) election under IND.CODE 6-4.1-3-7.

STANDARD OF REVIEW

The Indiana Tax Court has jurisdiction to review appeals from the final determinations of a probate court concerning the amount of Indiana inheritance tax due. IND.CODE 6-4.1-7-7. In its review of those final determinations, the tax court acts as a true appellate tribunal. See Indiana Dep't of State Revenue v. Estate of Puschel (1991), Ind.Tax, 582 N.E.2d 923, 925. Accordingly, the tax court will affirm the probate court's judgment upon "any legal theory supported by evidence introduced at trial." See Vanderburgh County Bd. of Comm'rs v. Rittenhouse (1991), Ind.App., 575 N.E.2d 663, 666 (citing United Farm Bureau Mut. Ins. Co. v. Blanton (1983), Ind.App., 457 N.E.2d 609, 611) trans. denied. More specifically, the tax court will reverse the probate court's judgment only if there is no substantial evidence of probative value to support the judgment. See In re Paternity of Tompkins (1989), Ind.App., 542 N.E.2d 1009, 1013 (citing Rubsam v. Estate of Pressler (1989), Ind.App., 537 N.E.2d 520; Cole Real Estate Corp. v. Peoples Bank & Trust (1974), 160 Ind.App. 88, 310 N.E.2d 275). The court will not reweigh the evidence, nor will it assess witness credibility. Id. See also Vanderburgh, 575 N.E.2d at 666 (citing DeHaan v. DeHaan (1991), Ind.App., 572 N.E.2d 1315, 1320).

FACTS AND PROCEDURAL HISTORY

Eugene B. Hibbs (the Decedent), died testate on October 27, 1991, at the age of eighty. He was survived by his wife and two adult children.

Pursuant to the Decedent's instruction in his Last Will and Testament, and the Probate Court's appointment, Bank One assumed its duties as the Estate's personal representative on November 6, 1991. In that capacity, Bank One timely filed an Indiana Inheritance Tax Return Form IH-6 (the Return) for the Estate on January 25, 1993. With the Return, it attached copies of the following: 1) the Decedent's Last Will and Testament dated August 16, 1991; 2) the Decedent's revocable trust dated August 16, 1991; 3) the Estate's U.S. Federal Estate Tax Return Form 706 (Form 706) filed with the Internal Revenue Service (the IRS) on October 17, 1992; and 4) an amended Form 706 filed with the IRS on or about January 25, 1993. In computing the inheritance tax, the Estate treated the property passing from the Decedent to his surviving spouse as QTIP property and took the exemption provided in IC 6-4.1-3-7(c).

The county inheritance tax appraiser reviewed the Return, pursuant to IND.CODE 6-4.1-5-2, and then forwarded it to the Probate Court. On February 25, 1993, the Probate Court entered its "Order Determining Inheritance Tax Due" in the amount of $59,985.60.

The Return was then submitted to the Department for review. On April 8, 1993, the Department notified the Estate that it owed an additional $246,748.36 in inheritance taxes, alleging that the Estate failed to properly elect QTIP treatment as provided in IC 6-4.1-3-7(c). Consequently, on June 23, 1993, the Department filed a "Petition for Rehearing, Reappraisement and Redetermination of Inheritance and Transfer Tax" with the Probate Court. The Probate Court held a hearing on the Department's petition on September 15, 1993, and, on October 20, 1993, entered an "Order Redetermining Inheritance Tax" for an additional $246,748.36. The Estate paid the additional inheritance tax plus interest, and initiated this appeal. The Estate now seeks a refund of the Indiana inheritance tax it claims the Department erroneously collected. Additional facts will be provided as necessary.

DISCUSSION AND DECISION

"An inheritance tax is imposed at the time of a decedent's death on certain property interest transfers made by him." IND.CODE 6-4.1-2-1. The tax is not imposed on the property itself, "but [rather] on the transfer of ownership of either the legal or beneficial interest in the property." Estate of Puschel, 582 N.E.2d at 925 (citing Conway's Estate v. State ex rel. Klaus (1918), 72 Ind.App. 303, 314, 120 N.E. 717, 720) (emphasis in original). "For determining inheritance tax, therefore, the critical time is the date of the decedent's death." Id. at 925 (and cases cited therein).

The Indiana inheritance tax is imposed on the fair market value of the interest as of the date of a decedent's death or the date used to value the property interest for federal estate tax purposes. IND.CODE 6-4.1-2-1; IND.CODE 6-4.1-5-1.5. If a beneficiary receives less than a fee interest in the property transferred by reason of a decedent's death (i.e. the interest is future, contingent, defeasible, or a life interest), however, the inheritance tax is calculated pursuant to actuarial tables as of the date of the decedent's death. IND.CODE 6-4.1-6-1. Thus, when a life estate with a remainder is created, both the life tenant and the remainderman will pay Indiana inheritance tax on their proportionate interests, based on the interests' values at the date of the decedent's death. See id.

Property interests that pass from a decedent to a surviving spouse, however, are exempt from the Indiana inheritance tax. More specifically, IC 6-4.1-3-7(c) allows property to qualify for an Indiana inheritance tax marital exemption (the Exemption) if it is QTIP. QTIP is property in which a deceased spouse passes to a surviving spouse a "qualifying income interest for life." 26 U.S.C. § 2056(b)(7)(B)(i). ¹ The surviving spouse has a qualifying income interest for life if he/she is entitled to all of the income for life and if, during his/her lifetime, no one has the power to appoint any part of the property to any person other than him/her. 26 U.S.C. § 2056(b)(7)(B)(ii). Thus, "[t]he entire property, the life interest as well as the remainder, is treated as passing to the surviving spouse and, therefore, the entire property qualifies for the marital [Exemption]." Estate of Higgins v. Commissioner (6th Cir.1990), 897 F.2d 856, 859. Thus, the net effect of making a QTIP election is that the payment of inheritance tax is deferred until the death of the surviving spouse. See IND.CODE 6-4.1-2-4(d). In other words, the remainderman will pay the inheritance tax on the value of the entire property at the date of death of the surviving spouse.

To obtain QTIP treatment, the personal representative of an estate must elect QTIP treatment. The only guidance to making a QTIP election for the Exemption is IC 6-4.1-3-7:

(c) The personal representative of the decedent's estate or the trustee or transferee of property transferred by the decedent may, for the purpose of the exemption ... elect to treat property passing from the decedent in which the surviving spouse has a qualifying income interest for life as a property interest which a decedent transfers to his surviving spouse....

(d) The election ... shall be made in writing and shall be attached to the inheritance tax return, if one is required to be filed. The election, once made, is irrevocable.

(Emphasis added).

"[S]tatutory words and phrases are given their plain, ordinary, and usual meaning...." Shoup Buses, Inc. v. Indiana Dep't of Revenue (1994), Ind.Tax, 635 N.E.2d 1165, 1168 (citing Knauf Fiber Glass, GmbH v. State Bd. of Tax Comm'rs (1994), Ind.Tax, 629 N.E.2d 959, 961). The verb "attach" is defined as "to make fast or join (as by string or glue): bind, fasten, tie." WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 140 (1981). Thus, the plain meaning of the language in IC 6-4.1-3-7(d) requires that the election to treat property as QTIP be made on a separate document or documents Because there is no statute, case law, regulation, or any other rule explaining what documents can, and what documents cannot, be used as an attached writing for purposes of IC 6-4.1-3-7(d), the Estate attached copies of the Decedent's Last Will and Testament dated August 16, 1991; the Decedent's revocable trust dated August 16, 1991; a Form 706 filed with the IRS on or about October 17, 1992; and an amended Form 706 filed with the IRS on or about January 25, 1993. The Estate contends that these four documents are sufficient to qualify as writings attached to the return under IC 6-4.1-3-7(d), and that, consequently, the Estate made a valid QTIP election.

fastened to the Indiana inheritance tax return by some method. ²

Both parties acknowledge that the Decedent's will explicitly cites IC 6-4.1-3-7. Transcript at 248, 271. It provides in relevant part:

ITEM SIX

My Executor is directed to elect to qualify the property in the trust referred to in ITEM FIVE hereof, (to the extent and manner set forth in the trust agreement referred to in said item) as qualified terminable interest property for purposes of Marital Deduction and as a property interest which a decedent transfers to his or her surviving spouse and exempt from Indiana death tax as provided in I.C. § 6-4.1-3-7 ...

Record at 3-4. Likewise, Article Seven, section II of the Decedent's trust provides:

My personal representative has been directed in my Last Will and Testament to elect to treat all of the trust property in the Trust (and the trust over such property) as qualified terminable interest...