ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE:
JEFFREY A. MODISETT DONALD J. TRIBBET
Attorney General of Indiana SCOTT L. STARR
STARR AUSTEN TRIBBET & MYERS Logansport, Indiana
KATHRYN SYMMES KIRK
ANDREW L. HEDGES
Deputy Attorney General
DEPARTMENT OF STATE REVENUE, ) Inheritance Tax Division, ) ) Appellant, ) ) v. ) Cause No. 09T10-9710-TA-00180 ) ESTATE OF AVIS HARDY, ) ) Appellee. ) _____________________________________________________________________The Honorable Julian L. Ridlen, Judge Cause No. 09C01-9508-ES-00041
ON APPEAL FROM THE CASS CIRCUIT COURT
inheritance tax due. The sole issue to be decided is whether the probate court properly
concluded that the surviving joint tenant owed no inheritance tax upon exercising his
right of survivorship to real property because he had contributed 100% of the purchase
price of the property.
tribunal. See Department of Revenue v. Estate of Phelps, 697 N.E.2d 506, 509 (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 legal conclusions of
the probate court de novo. See id. (citing Haseman v. Orman, 680 N.E.2d 531, 533
price of the subject property means that 100% of the property belonged to him,
thereby making his exercise of the right of survivorship not subject to Indiana
inheritance tax. The Department argues that prior to the decedent's death, Dale, as a
joint tenant, held the property by the half and by the whole. Estate of Roberts, 571
N.E.2d at 1336 (quoting Clausen v. Warner, 118 Ind. App. 340, 344, 78 N.E.2d 551,
552 (1948), trans. denied.). Consequently, 50% of the subject property belonged to
the decedent and 50% belonged to Dale. Under section 6-4.1-2-5, this means that
the transfer of the decedent's interest to Dale would be taxed based on 50% of the
value of the subject property.
The resolution of this dispute turns on the meaning of belonged to as it is used in section 6-4.1-2-5. In George, the Indiana Supreme Court had occasion to evaluate the operation of Ind. Code § 6-4-1-1 (1971) (repealed 1976),See footnote 1 which was a predecessor
to section 6-4.1-2-5. In George, the decedent received real property from his parents.
Fourteen years prior to the decedent's death, the decedent conveyed the property to
himself and his sister, Elsie, as joint tenants with right of survivorship. When the
decedent died, Elsie exercised her survivorship right and took title to the property in fee
simple. Elsie claimed that 50% of the value of the property was not subject to taxation
because she had given good and valuable consideration for her one-half interest in the
The Indiana Supreme Court agreed. In reaching its conclusion, the George Court noted that the inheritance tax law excluded transfers for which good and valuable consideration had been given. George, 401 N.E.2d at 683. Therefore, because Elsie had given good and valuable consideration for her one-half interest in the property, the George Court held that she was only subject to taxation on 50% of the value of the property.See footnote 2 It is important to note that nowhere in the George Court's analysis is there any mention of the fact that, at the time of the decedent's death, Elsie held the subject property by half and by the whole and that half of the property, as a matter of real property law, belonged to her.
between Roberts and George, the Roberts Court distinguished George in that in
George, the decedent had previously owned the property in fee simple and reconveyed
the property to himself and the surviving joint tenant. Id. at 1336. The Roberts Court
also limited its holding to the facts of the case. Id. at 1337 n.2.
This particular case is not on all fours with either George or Roberts. As a result, this Court does not have the liberty of simply following either George or Roberts, assuming, of course, that Roberts is not inconsistent with George. Instead, this Court must choose between looking to the factual circumstances of this case and looking to the formalities of real property law to determine how much of the property at issue in this case belonged to Dale.
At the outset of its analysis, this Court notes that there are two basic situations with respect to jointly held real property and the inheritance tax. The first is where the joint owners contribute towards the purchase of the jointly owned property; the other is where a owner of property in fee simple reconveys the property, either for consideration or not, to himself and someone else as joint tenants with rights of survivorship. The Roberts Court recognized this distinction when it distinguished George. However, the Roberts Court did not state why, if at all, the distinction was important and why the meaning of belonging to would change based on the how the property came to be held jointly with rights of survivorship.
The Department regulation currently See footnote 3 in force does not seem to make any
distinction between the factual situation presented in George and the factual situation
presented in Roberts with respect to determining what portion of the jointly held
property belonged to the surviving owners. Ind. Admin. Code tit. 45, r. 4.1-2-9(a)
The inheritance tax applies to the exercise of the rights of survivorship upon the death of (1) joint tenant of property held or deposited in joint names with rights of survivorship. Except to the extent that contribution can be shown by the surviving joint owner, the tax is imposed on the total value of the property.
Under this regulation, the surviving joint owner's contribution is the measure of how
much of the property belongs to the surviving joint owner. Therefore, under the
regulation, because Dale contributed 100% of the purchase price of the property (and
the decedent gave no consideration for her share in the property), Dale's exercise of
his survivorship right triggered no inheritance tax.See footnote
The Department has the statutory authority to issue regulations interpreting the inheritance tax laws of this state. See Ind. Code Ann. § 6-4.1-12-6(5) (West 1989).
Regulations promulgated under this authority have the force of law. See Estate of
Phelps, 697 N.E.2d at 510 (citing Roehl Transp., Inc. v. Department of State Revenue,
653 N.E.2d 539, 544 (Ind. Tax Ct. 1995)). However, the Department has no authority
to issue regulations that add to the law as enacted or extend its powers. Department
of State Revenue v. Bulkmatic Transp. Co., 648 N.E.2d 1156, 1160 (Ind. 1995) (citing
Johnson County Farm Bureau Coop. v. Department of State Revenue, 568 N.E.2d 578,
587 (Ind. Tax Ct. 1991), aff'd, 585 N.E.2d 1336 (Ind. 1992)). In addition, the
Department may not adopt a regulation that is out of harmony with a statutory
provision. See C & C Oil Co. v. Department of State Revenue, 570 N.E.2d 1376, 1381
(Ind. Tax Ct. 1991) (citing Hutchison v. State Bd. of Tax Comm'rs, 520 N.E.2d 1281,
1283 (Ind. Tax Ct. 1988)).
Under section 6-4.1-2-5, the measure of the taxability of the exercise of survivorship rights is the value of the property minus the value of the portion of the property that belonged to the survivor. By adopting Ind. Admin. Code tit. 45, r. 4.1-2- 9(a), the Department has interpreted this statutory provision as incorporating a contribution rule. Under the contribution rule, the inheritance tax is imposed on the full value of the property, except to the extent that the surviving joint owner can show contribution.See footnote 5
It is difficult to derive the Department's interpretation, in adopting Ind. Admin. Code tit. 45, r. 4.1-2-9(a), of section 6-4.1-2-5 from the plain language of that statutory
provision. An interest in real property belongs to its owner, whether the owner made a
contribution or not.See footnote
Therefore, under a strict, literal reading of section 6-4.1-2-5,
Dale's exercise of his right of survivorship should be taxed at 50% of the property's
value because only 50% of the property belonged to him prior to the decedent's death.
However, in this instance, the Court cannot adhere to such a strict reading of section 6-4.1-2-5. It is axiomatic that [t]he legislative intent as ascertained from an act as a whole will prevail over the strict literal meaning of any word or term used therein. State Natural Resources Comm'n v. Amax Coal Co., 638 N.E.2d 418, 429 (Ind. 1994); see also Indiana Eby-Brown v. Department of State Revenue, 648 N.E.2d 401, 403 (Ind. Tax Ct. 1995). It is well-settled that in adopting the inheritance tax scheme the Indiana General Assembly intended to tax transfers that take effect upon a decedent's death. See George, 401 N.E.2d at 683. Therefore, any interpretation of belongs to, as it is used in section 6-4.1-2-5, must take into account this obvious legislative intent. See Mechanics Laundry & Supply Co. v. Department of State Revenue, 650 N.E.2d 1223, 1228 (Ind. Tax Ct. 1995).
In addition, when the General Assembly adopted section 6-4.1-2-5, it is presumed to have been aware of the Supreme Court's decision in George. See Sangralea Boys Fund, Inc. v. State Bd. of Tax Comm'rs, 686 N.E.2d 954, 957-58 (Ind. Tax Ct. 1997) , review denied (citing Moses v. Cober, 641 N.E.2d 668, 670-71 (Ind. Ct. App. 1994); Pea v. Pea, 498 N.E.2d 110, 114 (Ind. Ct. App. 1986); Hahn v. Moore, 127
Ind. App. 149, 133 N.E.2d 900, 903-04 (1956). Accordingly, any interpretation of
section 6-4.1-2-5 must bear this in mind as well.
In general, when a joint tenant exercises a right to survivorship, a taxable transfer occurs. See Ind. Code Ann. § 6-4.1-2-4. For inheritance tax purposes, the value of this transfer must be measured. If the value of this transfer were measured by simply examining the interests of the joint owners immediately preceding the death of the decedent, some interesting results would occur. First, survivors who had previously received a joint interest with a right of survivorship without giving anything in return for that interest would escape taxation on one-half of the value of the property. This result is impossible to square with George, which predicated the exclusion of one-half the value of the property at issue on the survivor giving good and valuable consideration for her joint interest. Second, as this case demonstrates, adhering to this interpretation of the law would lead to the obvious inequity of a survivor paying inheritance tax on succeeding to something he purchased.
The Department, in adopting Ind. Admin. Code tit. 45, r. 4.1-2-9(a), recognized these problems and concluded that the rule of contribution was the best way to measure the taxability of these death transfers. In so doing, the Department did not contravene section 6-4.1-2-5. Accordingly, the Court holds that the taxability of the exercise of survivorship rights to all property is to be measured by the contribution of the survivor to the property. In this case, the parties stipulated that Dale contributed 100% of the purchase price of the subject property. There is also no evidence that the decedent contributed anything for her joint interest. Therefore, as the probate court
correctly concluded, Dale's exercise of his right of survivorship incurred no Indiana
All transfers enumerated in this section shall be taxable, if made by will; or if made by
statutes regulating intestate descent; or if made in contemplation of death of the transferor, and any
transfer of property made by a person within two (2) years prior to death, shall, unless shown to the
contrary, be deemed to have been made in contemplation of death; or if made by gift or grant
intended to take effect in possession or enjoyment at or after the death of the transferor; or if made
in payment of a claim against the estate of a deceased person arising from a contract or
antenuptial agreement made by him and payable by its terms by will or contract at or after his
death; and if any transfer falling under the foregoing provisions is made for valuable consideration,
excepting love and affection, so much thereof as is the equivalent in money value of consideration
received by the transferor shall not be taxed but the remaining portion shall be.
Whenever property is held in the joint names of two (2) or more persons or is deposited in banks, or other institutions or depositaries in the joint names of two (2) or more persons and payable to either or the survivor, upon the death of one (1) of such persons, the exercise of the right of the surviving person or persons to the immediate ownership or possession and enjoyment of such property shall be deemed a transfer taxable under the provisions of this act in the same manner as though the whole property to which such transfer relates belonged absolutely to the deceased joint owner or joint depositor and had been devised or bequeathed to the surviving person or persons, by such deceased joint owner or joint depositor by will, excepting therefrom such part thereof as may be proved by the surviving joint owner or joint owners to have originally belonged to him or them and never to have belonged to the decedent: Provided, however, that property jointly held shall not be taken to include real estate held by the entireties.
Ind. Admin. Code tit. 45, r. 4-2-1 (1992) (emphasis added) (repealed 1994) (codified in present form at Ind. Admin. Code tit. 45, r. 4.1-2-9 (1996)). The regulation then in effect gave no indication of how the situation presented in George was to be treated under the inheritance tax laws.
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