Walter v. Balogh
| Decision Date | 22 December 1992 |
| Docket Number | No. 57A05-9112-CV-400,57A05-9112-CV-400 |
| Citation | 604 N.E.2d 1226 |
| Parties | Alwilda WALTER, and Fort Wayne National Bank, Guardian of the Estate of Alwilda Walter, Appellants-Defendants, v. Mark S. BALOGH, Diana L. Balogh, Barry Hoeppner & Janet Hoeppner, Appellees-Plaintiffs, and Howard Hoeppner and B & H Producers, Inc., Appellees-Third Party Defendants. 1 |
| Court | Indiana Appellate Court |
Eric E. Snouffer, Charles W. McNagny, Fort Wayne, for appellants-defendants.
John M. Haecker, Grimm & Haecker, Edward L. Murphy, Jr., Miller Carson & Boxberger, Fort Wayne, Edward J. Liptak, Miller Carson & Boxberger, Bloomington, for appellees-plaintiffs.
Alwilda Walter, and the Fort Wayne National Bank, Guardian of the Estate of Alwilda Walter, appeal the judgment after a bench trial in favor of Mark and Diana Balogh, Barry and Janet Hoeppner, Howard Hoeppner, and B & H Producers, Inc. Walter raises three (3) issues on appeal. We reverse and remand with instructions, addressing two (2) restated and consolidated issues.
The facts in the light most favorable to the trial court's judgment indicate that Alwilda Walter was seventy-nine (79) years old in 1983 when her husband, Martin, died. Martin and Alwilda never had children. They were quite wealthy and owned approximately 1200 acres of farmland. After Martin's death, Alwilda was left rich in land and money, yet impoverished in terms of human companionship and relationships.
Howard Hoeppner had been a close friend of the Walters for many years. He had been quite helpful to the Walters, having performed many services and favors for them. After Martin's death in 1983, Alwilda executed a Durable General Power of Attorney naming Howard Hoeppner as her attorney-in-fact. Alwilda also named Howard as the personal representative of her estate under her will executed in 1983. The residuary clause of this will left the vast majority of Alwilda's estate, including several valuable farms, to the Purdue Alumni Foundation and Trust to be held and administered as part of the Purdue Agricultural Alumni Trust for scholarships and educational purposes.
Howard Hoeppner's son, Barry, became a tenant farmer of the Walters in 1974. Over time, Barry and his business partner, Mark Balogh, became responsible for farming approximately 600 acres of the Walters' land. Barry and Mark operated their farming business as B & H Producers. Barry and Mark also formed a close friendly relationship with Alwilda. Alwilda depended upon Barry and Mark to bring her mail to her, take care of her dog, look after her oil furnace, run errands, and furnish companionship.
Alwilda decided to give substantial farm holdings to the tenant farmers who had farmed her land over the years. She decided to give Bruce and Minnie Provine the 285 acres they had farmed since 1957. The Provines are not involved in this litigation. Alwilda also wished to give approximately 600 acres to Mark Balogh and Barry Hoeppner, ultimately the subject of the instant litigation.
In order to minimize federal gift tax liability, the intended gifts to the Provines, Baloghs, and Hoeppners, were structured as contracts for the conditional sale of real estate (land contracts). For the purpose of reporting 1984 gift taxes, the value of these gifts was to have been calculated by computing the difference between the value of the real estate in question and the contract prices which were set far below their fair market values. On March 29, 1984, the land contract pertaining to the 600 acres which were to be given to the Baloghs and Hoeppners was executed. The contract price of this real estate was set at $250,000.00. Thereafter, in order to minimize gift tax liability, Alwilda intended to forgive contract indebtedness over time, constituting further gifts to the plaintiffs. It was intended that Alwilda would forgive the amount of $10,000.00 per person per year, ($40,000.00 per year to the two couples), matching the annual gift tax donee exclusion under federal gift and estate tax provisions in order to avoid gift tax liability. The contract provided that at Alwilda's death, all amounts still owing under the contract would be forgiven, resulting in the transfer of ownership of the farms to the Baloghs and Hoeppners.
The 600 acre farm appraised for $596,000.00. In March of 1985, Jeanne Miller, the attorney who was handling these transactions, became concerned about the gift tax consequences of the 1984 land contract. She determined that the substantial difference between the value of the farm and the contract price ($596,000.00 - $250,000.00 = $346,000.00) would exhaust Alwilda's unified gift and estate tax credit and result in approximately $49,000.00 in gift tax liability for the year of 1984 alone. Miller suggested that the transaction be restructured in order to avoid these gift tax consequences.
Without objection, all parties agreed to rescind the 1984 land contract and enter into a promissory note and mortgage arrangement. The stated purchase price for the 600 acre farm was increased to $500,000.00. The Baloghs and the Hoeppners each executed a note in favor of Alwilda in the amount of $250,000.00 with interest set at 9%. The notes called for payments of $20,000.00 per year from both the Baloghs and the Hoeppners ($40,000.00 per year total), which were intended to be forgiven by Alwilda, matching the annual gift tax donee exclusion. Under this arrangement, the Baloghs and the Hoeppners were obligated to pay the property taxes on the real estate. The description of the real estate was amended to exclude Alwilda's residence which had inadvertently been included in the real estate to be conveyed under the 1984 contract. As a part of this restructuring arrangement, Alwilda executed the Second Codicil to her will which contained the provision regarding the forgiveness of remaining debt upon her death. The restructuring of the transaction reduced (or perhaps eliminated) any federal gift or estate tax liability that could have arisen out of the transaction. However, the $40,000.00 annual forgiveness of debt was insufficient to satisfy the interest accruing on the notes; 9% of $500,000.00 = $45,000.00 per year.
Alwilda made several other gifts to the Provines, Baloghs, and Hoeppners over the years. In 1984, she pledged some of her real estate as collateral in order that the Baloghs and Hoeppners could obtain an increased line of credit. Also in 1984, she gave cattle, and grain worth over $40,000.00 to the Baloghs and the Hoeppners. After the arrangement was restructured in 1985, Alwilda continued to pay the real estate taxes on the farm even though the Baloghs and Hoeppners were obligated to do so. (The Baloghs and the Hoeppners nevertheless deducted these taxes as expenses on their federal income tax returns.) In August of 1985, Alwilda released her mortgage as to approximately seven acres of land in order that B & H Producers could obtain a $43,000.00 loan. In February of 1987, she loaned B & H Producers $25,000.00 cash and later forgave the debt.
Alwilda was concerned about being required to execute so much paperwork when all she wanted to do was give the farm to the Baloghs and the Hoeppners. She was afraid that she might forget to forgive the indebtedness owed under the notes to effect her gift-giving intent. In 1986, Alwilda executed a durable special power of attorney (as well as another general power of attorney) in favor of Howard Hoeppner which gave him the authority to give gifts up to $10,000.00 per year to the Baloghs and the Hoeppners ($40,000.00 per year).
In June of 1988, Alwilda, then age 84, started becoming confused and forgetful. Alwilda's niece, Ellen Bates, became involved in Alwilda's financial affairs. Alwilda appointed Bates as her attorney-in-fact and revoked Howard Hoeppner's 1983 power of attorney. (Howard's 1986 powers of attorney remained in effect). Alwilda also executed the Seventh Codicil to her will which, in part, revoked the provision in her Second Codicil which related to the forgiveness of the balance of the Baloghs' and the Hoeppners' indebtedness under the 1985 promissory notes upon Alwilda's death.
On August 1, 1988, a guardianship was established over the Estate of Alwilda Walter and the Fort Wayne National Bank [Bank] was appointed as Alwilda's guardian. On August 23, 1988, Balogh and Hoeppner filed a request for special notice of hearings in Alwilda's guardianship proceedings alleging that they were entitled to such special notice as mortgagors. On August 26, 1988, Howard Hoeppner filed a petition in the guardianship proceedings requesting the court to adjudicate Alwilda's competency.
As Alwilda's guardian, the Bank issued a Notice of Default to the Baloghs and the Hoeppners with respect to their obligations under the 1985 mortgages. The Hoeppners and the Baloghs filed the present action for declaratory judgment requesting the trial court to enter a judgment to the effect that the 1985 notes and mortgages were null and void and that the 1984 land contract was binding and enforceable. Alwilda and the Bank answered the complaint asserting duress, undue influence, failure of consideration, no consideration, and estoppel. Alwilda and the Bank also filed a counterclaim naming Howard Hoeppner as a third party defendant and sought the rescission of the transactions in question, an accounting, and damages; or in the alternative, a foreclosure of the mortgages.
Trial was held over four (4) days. On September 3, 1991, the trial court entered its Decision, Findings of Fact, Conclusions of Law, and Judgment which, reproduced in an appendix to the appellants' brief, spans sixteen (16) pages. In pertinent part, the trial court found and concluded as follows:
The Court concludes that the evidence adduced at the trial of this cause makes it clear that Alwilda Walter was a competent person who understood that she was giving away valuable land and large...
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