ATTORNEYS FOR APPELLANT: ATTORNEYS FOR RESPONDENT:
KAREN M. FREEMAN-WILSON STEPHEN W. COOK
ATTORNEY GENERAL OF INDIANA COOK & COOK
Indianapolis, IN Noblesville, IN 46060
KATHRYN SYMMES KIRK
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
INDIANA DEPARTMENT OF STATE )
REVENUE, INHERITANCE TAX DIVISION, )
v. ) Cause No. 33T10-9902-TA-11
ESTATE OF ROBERT E. RIGGS, )
APPEAL FROM THE HENRY SUPERIOR COURT I
The Honorable Michael D. Peyton, Judge
Cause No. 33D01-9708-ES-029
September 20, 2000
Appellant Indiana Department of State Revenue, Inheritance Tax Division (Department) appeals the probate
courts 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 Courts consideration is whether transferees of
a decedent dying before the effective date of an amendment increasing an exemption
to the states 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. Roberts Last Will and
Testament bequeathed or devised his entire estate to his three children (Children), the
transferees. On August 26, 1997, Roberts 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 Departments 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 courts 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 courts factual findings a great deal of deference.
See id. However, the Court reviews the probate courts 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 courts conclusions de novo, substituting [the Courts]
judgment for the trial courts if necessary).
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 transferees 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 Exemptions
value as well as by the legislatures 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. (Appellees Br.
Indianas inheritance tax statutes impose, at the time of a decedents 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 decedents death.
See 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 Dept 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.
Ind. Code Ann.
§ 6-4.1-3-10 (West 2000). At the time of Roberts death, adult children
were entitled to a $5000 exemption.
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
The Court may only construe and interpret a statute if it is unclear
and ambiguous. See Shoup Buses, Inc. v. Indiana Dept 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.
See 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 Roberts assets. If the transfer of
property took place before the effective date of the Exemptions amendment, then only
the pre-amendment amount is available to the Children.
In Indiana, a decedents 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 . . . .
See 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 decedents 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. Dept of
Treasury, 281 N.W.2d 119, 120 n.1 (Mich. 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, Roberts 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. Atty 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
Despite the clearly established law in Indiana that transfers of a decedents 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 Commrs, 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. Oslo Sch. Corp., 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 defect or mischief existing in
a prior statute. In short, no evidence suggests that the General Assembly
intended to make the Exemptions amendment retroactive.
The Estate points to the large increase ($98,000) in the Exemption as proof
that the General Assembly intended to eliminate the inheritance tax in an extremely
large number of transfers from parents to their children and grandchildren. (Appellees
Br. at 11.) Admittedly, the legislature made a policy decision to shield
transfers of a substantially higher amount of a decedents property from the inheritance
tax. However, this fact alone does not indicate that the prior version
of the Exemption was in some manner defective or caused mischief.
The Estate correctly notes that, in passing the amendment, the General Assembly declared
an emergency. See P.L. 254-1997(ss), § 38. That an emergency is
declared means that the act in question becomes effective at the same time
as the earliest date that any other provision in the act takes effect.
Ind. Code Ann. § 1-1-3-3(d) (West Supp. 2000). The provisions of
P.L. 254-1997(ss) all became effective July 1, 1997. This was an earlier
effective date than would have otherwise been allowed under Ind. Code Ann. §1-1-3-3(c)
(West Supp. 2000).
See footnote Thus, while an emergency declaration moves up an acts
effective date, it says nothing about whether the act should be applied retroactively.
In addition, the Estate contends that the presumption of prospective application of amendments
in the present case has been overcome in part by the General Assemblys
historical practice of limiting the amendments application by specific language . . .
. (Appellees Br. at 11.) Basically, the Estate maintains that past
inheritance tax amendments have expressly limited their applications to individuals dying after certain
dates and that, because no similar language of limitation is listed for the
amendment at issue, the amendment should apply retroactively. This argument also
The Indiana Court of Appeals has addressed a similar argument. In
v. Roof, 665 N.E.2d 7 (Ind. Ct. App. 1996), the Court of Appeals
considered whether the General Assembly intended to apply an amendment to the Comparative
Fault Act retroactively. In Chesnut, the plaintiff-passenger filed suit following her injury
in a car accident that occurred on January 11, 1993. At the
time her cause of action accrued, the plaintiffs father (the driver of the
car in which the plaintiff was traveling) could not be deemed a nonparty
pursuant to Ind. Code 34-4-33-2 (1996) (repealed by P.L. 278-1998, § 221).
Section 34-4-33-2, however, was amended in a manner allowing the father to be
named a nonparty; the amendment was made effective July 1, 1995. The
Court of Appeals observed that the General Assembly had made no express statement
that the amendment to section 34-4-33-2 applied retroactively. See Chesnut, 665 N.E.2d
at 9. The defendant argued that the act containing the amendment specifically
stated that new statutes created by the act applied to only those causes
accruing after June 30, 1995, while amendments to existing statues merely became effective
July 1, 1995. According to the defendant, because the amendment was not
expressly included in the statement of prospective application, the General Assembly intended the
amendment in question to have retroactive application. The Court of Appeals disagreed,
stating Case law teaches us that the legislature must explicitly provide for retroactive
application. Id. (citations omitted). The Court refused to adopt the defendants
suggestion that the legislatures silence with respect to the amendments is tantamount to
an explicit expression of its intention. Id. The Court ultimately concluded
that because the General Assembly did not expressly state its intention to apply
the amendment retroactively, it must presume that the legislature intended the amendment to
section 34-4-33-2 to be applied prospectively only. See id.
The Estate makes an argument similar to that asserted by the defendant in
Chesnut. As in Chesnut, the amendment at issue here involves only an effective
date, while related provisions specifically limit their application to causes accruing after certain
Assuming a pattern exists,
See footnote the Court, as did the Court of
Chesnut, refuses to accept the General Assemblys silence as an expression
of its intention to apply the amendment to the Exemption retroactively. Had
the General Assembly intended to apply the amendment retroactively, it would have used
explicit, unambiguous language to make its intention known. The Estate also fails
to demonstrate that a strong and compelling reason exists to apply the amendment
retroactively, absent a clear legislative intent to do so.
See footnote Therefore, the Court
will not apply the amendment to the Exemption retroactively.
Roberts assets transferred to the Children at the time of his death.
Robert died on November 26, 1996approximately seven months before the effective date of
the amendment increasing the Exemptions value. Therefore, the higher value was not
available to the Children in determining their inheritance taxes. The probate court
erred in denying the Departments request for a redetermination of those taxes.
For the aforementioned reasons, the probate courts decision is hereby REVERSED. This
case is REMANDED to the probate court with instructions to GRANT the Departments
request for a redetermination of the inheritance taxes owed by the Children.
The probate court shall determine the Childrens inheritance taxes in a manner consistent
with this opinion.
The inheritance tax does not always accrue at the time of the
decedents death. As provided by
Ind. Code Ann. § 6-4.1-6-6(b) (West 2000),
The inheritance tax imposed on the decedents transfer of a contingent or defeasible
interest in property accrues and is due when the transferee of the interest
obtains the beneficial enjoyment or possession of the property if the propertys fair
market value cannot be ascertained as of the statutory appraisal date. Accordingly,
the lien imposed by the inheritance tax does not attach at the time
of the decedents death under these circumstances. See Ind. Code Ann. §
6-4.1-8-1 (West 2000).
Class A transferee means a transferee who is a lineal ancestor or
lineal descendant of the transferor.
Ind. Code Ann. § 6-4.1-1-3 (West 2000).
The Children are Class A transferees, as they are all lineal descendants
Ind. Code Ann. § 6-4.1-3-9.5 (West 1989) (repealed by P.L. 254-1997(ss), §
37) provided that the first five thousand dollars ($5,000) of property interests which
a transferor transfers to each of his children, who is at least twenty-one
(21) years of age at the time of the transferors death, under a
taxable transfer or transfers is exempt from the inheritance tax. The Court
assumes that, at the time of Roberts death, the Children were at least
twenty-one years old and thus entitled to at least a $5000 exemption from
the states inheritance tax. The Court also notes, though, that the Exemption
(section 6-4.1-3-10) prior to its amendment in 1997 was $2000; however, by its
own terms, the Exemption could not be used in conjunction with the adult
child exemption found in section 6-4.1-3-9.5.
The parties do not dispute that the property interests involved were transferred
as part of taxable transfers, see Ind. Code Ann. § 6-4.1-1-14 (West 2000).
A personal representative shall have a right to, and shall take, possession
of all the real and personal property of the decedent . . .
Ind. Code Ann. § 29-1-13-1 (West 1999). Possession, however,
does not give the personal representative title to the decedents property. Likewise,
probate of a will does not transfer title to property bequeathed or devised
therein; probate of the will merely makes the will effective for the purpose
of proving title to, or the right to the possession of, any real
or personal property disposed of by will . . . . Indiana
Code Ann. § 29-1-7-24 (West 1999). As noted in 1A John S.
Grimes, Henrys Probate Law and Practice 652-53 (7th ed. 1978), The act of
the testator gave [the will] life, his death consummated the title, the probate
only ascertains the fact that the instrument is what it purports to be.
Note that while the personal representative may not have title to the
decedents property, In addition to the lien, the transferee of the property and
the personal representative . . . are personally liable for the inheritance tax.
Ind. Code Ann. § 6-4.1-8-1 (West 2000).
Section 1-1-3-3(c) states: Except as otherwise provided in subsection (d) [which
allows earlier effective dates when an emergency is declared], each provision of each
act passed at a special session of the general assembly takes effect on
the first day of the third calendar month after the calendar month of
sine die adjournment, unless a different time is specified in the act.
Adjournment for the first special session was May 29, 1997, a date approximately
one month prior to the effective date established pursuant to the emergency declaration.
Footnote: The primary difference is that in
Chesnut, new statutes enacted as part
of a single act were at issue, while here various amendments as part
of different acts are under consideration. However, this distinction is not important
for purposes of the Courts analysis.
While the Estate does not show that a historical practice in fact
is present by referencing specific amendments with words of limitation, the Department concedes
that usually such language is present, although not always, and cites an example
thereof. (Appellants Br. at 16) (citing
Indiana Dept of State Revenue, Inheritance
Tax Div. v. Estate of Nichols, 659 N.E.2d 694, 697 n.3 (Ind. Tax
Ct. 1995) (quoting Ind. Code § 6-4.1-2-2 and language for its 1993 amendment
stating that the provision does not apply, however, to individuals who have died
before July 1, 1993)). Moreover, the probate court specifically found that the
General Assembly amendments to inheritance tax laws generally specify that such amendments are
to be effective only to those decedents who die after a specific date,
usually the date of the act. (R. at 128.)
The Estate claims that the doctrine of amelioration should be applied to
give the Children the benefit of the Exemptions increased value. This criminal
law doctrine states that a defendant who is sentenced after the effective date
of a statute providing for more lenient sentencing is entitled to be sentenced
pursuant to that statute rather than the sentencing statute in effect at the
time of the commission or conviction of the crime.
Richards v. State,
681 N.E.2d 208, 213 (Ind. 1997). Recently, the Indiana Supreme Court in
Indiana Department of Environmental Management v. Medical Disposal Services., Inc., 729 N.E.2d
577 (Ind. 2000) [MDSI] declined to apply this theory in a case involving
imposition of civil penalties. The Supreme Court reasoned As a general rule,
the law in place at the time an action is commenced governs.
Unless a contrary intention is expressed, statutes are treated as intended to operate
prospectively, and not retroactively. MDSI, 729 N.E.2d at 581. As explained
supra, where no contrary intent has been shown by the General Assembly, the
Exemption in effect at Roberts death must be used to calculate the Childrens
inheritance taxes. Applying the Supreme Courts reasoning in MSDI, this Court in
the present case will not contravene the presumption favoring prospective operation of amendments
by applying the doctrine of amelioration to give the Children an inheritance tax
exemption greater than what was otherwise available to them.