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Indiana Department of State Revenue v. Estate of Rauch

Tax Court of Indiana

November 7, 2016

INDIANA DEPARTMENT OF STATE REVENUE, INHERITANCE TAX DIVISION, Appellant,
v.
THE ESTATE OF ORVILLE J. RAUCH, Appellee.

         ON APPEAL FROM THE JASPER CIRCUIT COURT The Honorable John D. Potter, Judge Cause No. 37C01-1011-EU-000688

          ATTORNEYS FOR APPELLANT: GREGORY F. ZOELLER ATTORNEY GENERAL OF INDIANA EVAN W. BARTEL DEPUTY ATTORNEY GENERAL Indianapolis, IN

          ATTORNEY FOR APPELLEE: DONALD W. SHELMON ATTORNEY AT LAW Rensselaer, IN

          WENTWORTH, J.

         The Indiana Department of State Revenue, Inheritance Tax Division appeals the Jasper Circuit Court's (Probate Court) order determining the inheritance tax liability of The Estate of Orville J. Rauch. The Department asserts that the Probate Court erred when it decided that beneficiaries Robert and Claudia Wandless were Class A transferees because they had an in loco parentis relationship with the deceased. The Court affirms.

         FACTS AND PROCEDURAL HISTORY

         Orville J. Rauch was born on December 22, 1930. He never married and had no children. He owned farmland in Illinois and farmed most of his life. Orville lived with his parents until their deaths, but other family members were not evident in his life, although two of his cousins attended his funeral. When Orville was in his 40's, he had a stroke after which he had a hard time walking.

         Around or about the early 1970's, Orville met and befriended two young neighbor children: Robert Wandless and Claudia L'Ecuyer. Orville met Robert when Robert was about 10 years old, visiting him at Robert's home while he was farming with his father. Robert lived with his natural parents, but Orville gave him advice, direction, and even discipline, treating him just the same as did Robert's natural parents. Indeed, Orville referred to Robert as his son in the presence of others, and he took Robert out to eat a couple of times a week. Sometimes Orville would pay Robert to do tasks, but Orville expected Robert to help him fill planters and do other tasks without compensation. Nonetheless, Orville was never Robert's legal guardian, never claimed Robert as a dependent for tax or census purposes, and had no legal authority to control Robert's actions.

         Orville met Claudia when she was about 12 years old. Claudia lived with her natural parents, and Orville regularly visited her at her home "to see how everybody was" as often as five times a week. (See Hr'g Tr. 6, Mar. 7, 2012.) Orville drove over to her house in his truck, but he did not get out a lot because he used a walker - so she went out to see him. Orville attended every one of Claudia's family affairs, birthday parties, and holiday events. At least a couple of days a week, he had supper with Claudia and her family, and he always gave her gifts. Throughout their relationship, Orville often gave Claudia advice, direction, and correction. Indeed, Orville treated her no differently than her parents did, and she treated him "just like a parent . . . if he needed something, we took care of him." (Hr'g Tr. 8.) Although Orville told "[p]retty much everybody" that Claudia was his daughter "[t]o the day he died[, ]" he was never her legal guardian nor did he have any legal authority over her. (See Hr'g Tr. 9.) Claudia called him "Buddy, " because calling him that made him laugh, and she considered him "just as much a parent [to her] as [her] own." (See Hr'g Tr. 7, 13.)

         Robert and Claudia married when they were 19 years old. At that time, Orville provided for them "in much the same manner a father would for his children by turning over farming operations to them on very favorable terms." (Appellant's App., Vol. I at 4.) In return, they took care of all his financial matters and farmed his land under a 50/50 crop sharing agreement until his death.

         Orville referred to Robert and Claudia's children as "his grandchildren[.]" (Hr'g Tr. 12.) In fact, he gave, or attempted to give, his belongings to Claudia, Robert, and their children throughout his life, making specific requests that their children get certain of his possessions that were passed down from his family. Moreover, one of their children lived with Orville for a two-year period between 2003 and 2005.

         Orville wanted to give Claudia and Robert his interest in his Illinois farmland, but Robert refused because he did not want any of Orville's extended family to say that he and Claudia were taking Orville, his belongings, and all his possessions away from them. While Orville was living in a nursing home in Illinois, he decided to sell his Illinois real estate and invest the proceeds in farmland where the parcels would be all together in the same vicinity. He would not sign the papers for the sale of his Illinois property, however, until Claudia and Robert promised to take him with them wherever they went. Upon the purchase of farmland in Indiana, Orville, Claudia, Robert, and their children all moved to this state.

         Orville spent the last twenty years of his life in nursing homes. When he was in a nursing home in Illinois, Claudia visited him "two or three days a week; when [they all] moved to Indiana, [Claudia] actually worked at the [Indiana] nursing home, so [they] had lunch [together] every day and [she] stay[ed] with him in the afternoon . . . watch[ing] his favorite movies[.]" (Hr'g Tr. 11.) Robert did not visit him as much as Claudia, but did so as much as he could. "Nursing home staff noted that Orville treated [Robert] and Claudia as his children, and vice versa." (Appellant's App., Vol. I at 4.) Furthermore, relatives, neighbors, and business associates of Orville testified that he had a fatherly relationship with Robert and Claudia, and "in turn, [they] took care of him as adult children would an elder parent." (Appellant's App., Vol. I at 4-5.)

         When Orville passed away on October 25, 2010, Robert and Claudia made all of his funeral arrangements. Their children placed a pillow with the word "Grandpa" on it inside his casket. Upon his death, Orville left the majority of his estate to Robert and Claudia.

         On September 29, 2011, Orville's Estate filed its inheritance tax return reporting, among other things, that Robert and Claudia were his children in loco parentis. (See Appellant's App., Vol. II at 25-44.) As a result, the Estate treated Robert and Claudia as Class A transferees in computing its inheritance tax liability. (See Appellant's App., Vol. II at 26.) On September 30, 2011, the Probate Court accepted, as filed, the Estate's inheritance tax return. (Compare Appellant's App., Vol. I at 2 with Appellant's App., Vol. II at 45.)

         On January 27, 2012, the Department filed a "Petition for Rehearing and Redetermination of Inheritance Tax" with the Probate Court. (Appellant's App., Vol. I at 8-9.) In its Petition, the Department asserted that the Estate had not shown that Orville took the place of Robert and Claudia's natural parents or that he had the rights, duties, and responsibilities of a parent as required for an in loco parentis relationship under Indiana Code ยง 6-4.1-3(e) and 45 Indiana Administrative Code 6-4.1-10 ("45 IAC 6-4.1-10"). (Appellant's App., Vol. I at 9.) Accordingly, the Department claimed that Robert and Claudia should have been classified as Class ...


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