In Re Estate of Grotrian

405 N.E.2d 69, 76 Ind. Dec. 331, 1980 Ind. App. LEXIS 1486

• Court: Indiana Court of Appeals
• Decided: June 3, 1980
• Docket: 3-1078A290
• Status: Published

Opinions

HOFFMAN, Judge.

This is an appeal by Irma Grotrian (Irma) from a judgment determining that the correct amount of inheritance tax due on a property transfer in 1942 was $1,395.

The facts are not in dispute. On May 22, 1941 Melvin Grotrian acquired title to a 34-acre tract of land in Allen County. He died intestate on September 20, 1941 survived by his father, Henry, his mother Katherine and his brother, Wilbur. Under the intestate succession laws in effect at that time Henry and Katherine took an undivided one-half interest in the realty as joint tenants while the other one-half interest passed to Wilbur. By a deed dated February 17, 1942 Wilbur conveyed his interest in the premises to Henry and Katherine as tenants by the entirety. On February 18,1942 Henry and Katherine conveyed by deed a fee simple remainder interest in the property to Wilbur reserving to themselves a life estate for and during their natural lives (hereinafter referred to as the 1942 transfer). On May 5,1950 Wilbur died intestate and his remainder interest passed to his spouse, Irma. On January 10, 1955 Henry died leaving Katherine as the sole surviving life tenant. She died on June 28, 1977 and it is her death which gave rise to the inheritance tax dispute in this case.

To understand the positions taken by the parties involved here it is necessary to review various inheritance tax statutes. IC 1971, 6-4.1-5-1(b) (Burns Code Ed.)¹ provides that when the net taxable value of a property interest transferred by a decedent to a particular Class A transferee is over $25,000 but less than $50,000, the inheritance tax imposed is $250, plus 2% of the net taxable value over $25,000. A Class A transferee means a transferee who is a surviving spouse, lineal ancestor or lineal descendant of the transferor. IC 1971, 6-4.1-1-3(a) (Burns Code Ed.).²

IC 1971, 6-4.1-5-1(c)³ provides that when the net taxable value of a property interest transferred by a decedent to a particular Class B transferee is less than $100,-000, the inheritance tax imposed is 5% of the net taxable value. A Class B transferee is defined to include the widow of a child of the transferor. IC 1971, 6-4.1-1-3(b)(3).

Therefore if the 1942 transfer is regarded as a Class A transfer then the tax due should have been $250, plus 2% of taxable value over $25,000. But if that transfer is considered to be a Class B transfer then the tax was properly computed at 5% of taxable value.

Irma maintains that the tax due on the transfer ought to be measured by the relationship of the transferor to the transferee under the deed. Insofar as Wilbur was the transferee under the deed and a lineal descendant of Katherine, Irma reasons that the conveyance qualifies as a Class A transfer. The State, on the other hand, insists that the tax should be determined by the relationship of the transferor to the beneficiary obtaining possession at the transfer- or’s death. It argues that Irma ought to be regarded as the person on whom the tax is imposed in that she was entitled to possession and enjoyment of the property upon Katherine’s death by virtue of her remainder interest. Since Irma was the widow of Wilbur who was a child of the transferor, she falls within the rubric of a Class B transferee.

The trial court agreed with the State and found:

“The Court having had the written objections to determination of Indiana Inheritance Tax filed by Irma Grotrian under advisement, now finds that Irma Grotri-an’s interests were properly taxed as a Class B transferee for the reason that the Court finds the intent of the Indiana Inheritance Tax is to impose the tax upon the actual beneficiary coming into possession at the donor’s death. Accordingly, the written objection to the determination of Indiana Inheritance Tax filed by Irma Grotrian is denied.”

The inheritance tax statutes are designed to tax the privilege of succeeding to property rights of deceased persons and the tax is imposed on the interest taken by the transferee and not the property itself. State v. Est. of Powell (1975), 165 Ind.App. 482, 333 N.E.2d 92; Crittenberger, Auditor v. State, etc., Trust Co. (1920), 189 Ind. 411, 127 N.E. 552; Armstrong, Admr. v. State, ex rel. (1918), 72 Ind.App. 303, 120 N.E. 717. IC 1971, 6-4.1-2-4 (Burns Code Ed.) sets forth the types of transfers subject to inheritance tax. It reads in part:

“(a) The inheritance tax applies to the following types of property interest transfers:

(1) Transfers which are made under a deceased transferor’s will or under the laws of intestate succession, as a result of the transferor’s death;

(2) Transfers which are made in contemplation of the transferor’s death;

(3) Transfers which are made in such a manner that they are intended to take effect in possession or enjoyment at or after the transferor’s death . . .

It seems apparent that this statute taxes not merely those interests which are deemed to pass at death according to the refined technicalities of the law of property but also inter vivos transfers that are too much akin to testamentary dispositions not to be subjected to the same excise. Accordingly, the tax may be imposed on certain inter vivos transfers but its collection is inevitably postponed until the death of the transferor.

As a result of the 1942 transfer Wilbur held a vested remainder in the property and this interest was alienable by him. Oldham v. Noble (1946), 117 Ind.App. 68, 66 N.E.2d 614. Thus the gift took effect in 1942 even though the tax did not accrue until the transferors had died. Wilbur was the transferee under the deed and entitled to succeed to the property. Any right to enjoyment or possession of the property which Irma obtained derived from Wilbur’s right of succession. Irma’s interest must be viewed as a conveyance from Wilbur rather than from Katherine. If Wilbur had died after Katherine there would be no doubt but that the transfer would qualify as a Class A transfer. Even though he predeceased her this fact does not compel a contrary conclusion since any interest transferred by the deed had to pass through Wilbur in order for Irma to claim an interest therein as his heir.

The inheritance tax is measured by the relationship of the transferor to the transferee under the deed. If the Legislature had intended for actual possession or enjoyment on the date of the transferor’s death to be the determining factor, it could easily have done so but there is nothing in the statutes indicating such intent. IC 1971, 6-4.1-5-l(a) refers to “property interests transferred by a decedent to a particular transferee.” Other portions of the inheritance tax code are replete with expressions similar thereto. As noted above liability for inheritance tax attaches to the right of succession. Wilbur succeeded to Katherine’s interest. Irma succeeded to Wilbur’s interest. For these reasons the 1942 transfer should have been taxed as a Class A transfer.

Judgment reversed.

Reversed.

GARRARD, P. J., concurs. STATON, J., dissents with opinion.

1 . This statute was amended by Acts 1979, P.L. 75, § 16(b) effective July 1, 1979.

2 . This statute was amended by Acts 1979, P.L. 75, § 16(b) effective July 1, 1979.

3 .The 1977 amendment substituted “7% of net taxable value” for “5% of net taxable value” in the table to subsection (c).