Judge reverses probate court in first opinion

Judge Martha Wentworth has handed down her first opinion as Indiana’s Tax Court judge. In her decision, she reversed the probate court’s finding that an estate didn’t have to file an inheritance tax return on checks issued to a deceased woman’s brother on an annuity contract.

In Indiana Dept. of State Revenue, Inheritance Tax Division v. In the Matter of the Estate of Deloras J. Biddle, No. 49T10-1007-TA-35, the Department of State Revenue appealed the probate court’s ruling that the estate of Deloras Biddle didn’t have to file an inheritance tax return and pay the appropriate amount of tax due on two checks issued to her brother by Metropolitan Life Insurance Co. The checks, which totaled more than $26,000, indicated they represented the amount of death claim proceeds from an annuity contract held by Biddle.

When she died intestate, Biddle’s son was appointed personal representative of her estate. As sole heir, he received a distribution that was less than the exemption to which he was entitled, so no inheritance tax return was filed. The Department of State Revenue learned of the checks two years after the probate court approved the closing statement and released her son from his duties as personal representative.

The probate court denied the department’s motion to correct error.

Proceeds from life insurance on the life of a decedent are exempt from inheritance tax. So are annuity payments, but only “to the same extent that the annuity … is excluded from the decedent’s federal gross estate under Section 2039 of the Internal Revenue Code,” wrote Judge Wentworth. An annuity payment received by a beneficiary is subject to the inheritance tax if the annuity contract was entered after March 3, 1931; and it was payable to the decedent, or the decedent possessed the right to receive the payment either for his life, for any period not ascertainable without reference to his death, or for any period which doesn’t in fact end before his death, she wrote.

The probate court erred when it determined the checks issued by MetLife were life insurance proceeds and not annuity contract payments. The evidence in this case on its face doesn’t support the lower court’s findings. The checks even clearly say they were from proceeds from an annuity contract.

She remanded with instructions to order the estate to provide a copy of the MetLife contracts so that the probate court may determine whether the estate was required to file an Indiana inheritance tax return and pay inheritance tax on the transfers to Biddle’s brother.