The Indiana Court of Appeals agreed Wednesday that a trial court erred in concluding a promissory note executed between a mother and son is an asset of the mother’s estate, although the panel was split as to why the court erred.
Charles Rupley executed the promissory note in 2006 with his mother, Ruth Rupley. Charles Rupley had borrowed $72,500 from his mother. She died in 2008 and 1st Source Bank, as successor personal representative, asked the trial court to determine whether the note balance transferred to Charles Rupley at his mother’s death, is an asset of her estate, or was forgiven by Ruth Rupley upon her death.
Charles Rupley argued the Indiana Transfer on Death Property Act applied retroactively to the note, so the transfer on death provision in the promissory note transferred it to him when his mother died. The trial court ordered the bank to include the note as an asset of the estate.
Judges Melissa May and Chief Judge Nancy Vaidik determined that the Act applies retroactively, citing language in it that says “transfer on death security, transfer on death securities account or pay on death account created before July 1, 2009.”
“We now turn to Ind. Code §32-17-14-4(d), which explains that a statutory transfer on death directive is accomplished in a form substantially similar to the following: 1) insert the name of the owner or owners; 2) insert transfer on death to, TOD, pay on death to, or POD, and insert the name of the beneficiary or beneficiaries. Here, the promissory note includes the name of the owner, Ruth, and the beneficiary, Charles. It includes language directing the note is payable on death to Charles. Because the promissory note meets the statutory requirements of a pay on death account, the note should have transferred directly to Charles upon Ruth’s death. It is not an asset of Ruth’s estate, and the trial court erred in so concluding,” May wrote in In re the Estate of Ruth M. Rupley, Charles A. Rupley v. Michael L. Rupley, 71A05-1306-ES-288.
Judge Patricia Riley, although agreeing that the promissory note is not an asset of the estate, disagreed that the Transfer on Death Property Act retroactively applies in this case.
“Although the majority throughout its opinion characterizes the Note as a Promissory Note and the parties did not contest its legality, the majority, now by a sleight of hand, notes that actually, by its terms, the Promissory Note is a pay on death account. However, the Note cannot be both a Promissory Note and a pay on death account as that would lead to incongruous results within the statute — an outcome never intended by our Legislature. On the one hand, a promissory note, as property, is explicitly excluded from the retroactive application of the Act whereas a pay on death account falls within the limited retroactive exceptions. As its character was never disputed until the majority ‘re-termed’ it, I necessarily conclude that the retroactive character does not apply,” she wrote.