Tax court: Man can leave estate to non-biological ‘children’

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Although he had no biological children, an Illinois man who spent the latter part of his life in Indiana can legally leave his estate to a couple who he considered his children under the doctrine of an in loco parentis relationship, the Indiana Tax Court decided Monday.

When Orville Rauch died in October 2010, he left the majority of his estate to Robert and Claudia Wandless. Although the Wandlesses were not his biological children, Rauch had befriended them individually when they were children, and when the two got married and started a family, their children referred to Rauch as “grandpa.”

Throughout his life, Rauch, who never married and had no children, treated the Wandlesses as his children and provided for them financially in the same way he would have provided for biological children. They, in turn, cared for Rauch as a father figure until his death.

In September 2011, Rauch’s estate filed its inheritance tax return and reported that the Wandlesses were his children in loco parentis and, as a result, treated them as Class A transferees in computing the inheritance tax liability. The inheritance tax return was accepted by the probate court the same month.

However, the Inheritance Tax Division of the Indiana Department of Revenue filed a petition for rehearing in January 2012, asserting that Rauch’s estate had not shown that Orville took the place of the Wandlesses’ biological parents or that he had the rights, duties and responsibilities of a parent, as is required for an in loco parentis relationship. The couple should have been classified as Class C transferees, the department said, which meant the estate owed an additional $512,919.68 in inheritance tax, plus interest.

But the probate court denied the department’s petition in May 2012, writing that “Rauch considered himself in the role of the father to (Robert) and Claudia Wandless – and discharged a natural obligation above and beyond the duty of a parent by financially providing for (them), and leaving his legacy, farmland, to them as if they were his children whom would normally inherit the land.”

After a subsequent motion to correct error was denied, the department brought its argument before the Indiana Tax Court. But Judge Martha Blood Wentworth upheld the judgment of the probate court Monday, writing that an in loco parentis relationship is based on intent, not legalities.

Wentworth wrote that the Indiana Supreme Court had defined the test for in loco parentis relationships 150 years ago as “whether the circumstances, taken in the aggregate, amount to moral certainty that a testator considered himself in the place of the child’s father, and as meaning to discharge that natural obligation which it was the duty of a parent to perform.”

“The Court does not find a requirement that the natural parents be dead or that a testator must assume all the obligations and duties of a natural parent to have an in loco parentis relationship,” Wentworth wrote.

But the department further argued that Rauch’s relationship with the Wandlesses was that of a friend, a statement it evidenced by the fact that the couple never lived with Rauch as children and maintained close relationships with their parents even as they grew closer with Rauch.

Wentworth, however, said such an argument required the weighing of evidence, a role that falls to the probate court, not to her. Because the probate court had already established facts that evidenced Rauch’s intent to be a father figure to the couple, there was enough evidence to support the judgment in favor of the in loco parentis relationship, she said.

The case is Indiana Department of State Revenue, Inheritance Tax Division v. The Estate of Orville J. Rauch, 49T10-1207-TA-00038.

 

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