A son who inherited the family business from his father must make his assets available for an appraisal after the Indiana Court of Appeals determined he may have received a “gift” subject to an abatement.
In November 2015, Cletus Schaefer executed the third codicil to his will providing, among other things, that his son Kenneth Schaefer would receive “(a)ll of my interest and ownership in Schaefer and Schaefer, LLC,” the family business, including “any and all farm machinery, tools and farm vehciles … .” Kenneth would receive the bequest only after he paid $1,000 per acre into his father’s estate – an amount that would then be equally distributed to Cletus’ other son, Donald, and his two daughters, Joy Brock and Jill Mehling.
Cletus died in June 2016, and Kenneth paid $277,500 into the estate within five months, per the instructions in Section D(2) of the third codicil. Then in 2017, Cletus’ daughters, who were the personal representatives of his estate, submitted an inventory showing that the items referenced in Section D(2) totaled $1,043,802.
In July 2019, the sisters petitioned for Kenneth to disclose assets and permit an appraisal, alleging their brother “has knowledge of and/or is in possession of certain oil production equipment … that was owned by the decedent and which may not be fully known or identified to them, and which should be included in the estate’s assets.” Kenneth objected, claiming he purchased the assets in question under the terms of the third codicil after his father’s death. But his sisters argued his payment under Section D(2) was not an “‘option to purchase’ the assets identified” but rather was “a condition precedent to the vesting of a specific bequest of the stated assets.”
The Spencer Circuit Court agreed with the sisters, entering declaratory judgment in April 2020 and finding that the language in Section D(2) was not an option to purchase, so the assets were “potentially” subject to abatement and the personal representatives could conduct discovery of the property. The proceedings were stayed pending appeal, and the Indiana Court of Appeals partially reversed Wednesday in Kenneth J. Schaefer v. Estate of Cletus P. Schaefer, Deceased, 20A-ES-1007.
Specifically, Judge Melissa May wrote for a unanimous appellate panel that the language giving Kenneth the option to pay $1,000 per acre was an option to purchase.
“However,” May continued, “the amount Kenneth paid pursuant to that language, $277,500, was not the market value of the personal property at the time he purchased it.” Rather, “According to the Amended Inventory, the personal property was possibly worth more than that amount.”
“Here, while Kenneth gave consideration for a portion of the items he purchased under Cletus’ will, he possibly received a portion of it without providing compensation therefor. An appraisal would quantify the property Kenneth received that was a gift — that is, anything valued in excess of $277,500,” May wrote for the panel. “… Based thereon, we hold that the value of any personal property owned by Kenneth by virtue of the exercise of his option to purchase pursuant to Section D(2) that exceeds the $277,500 he paid was a gift or a legacy and is subject to abatement for the payment of the Estate’s debts, charges, and legacies.”
The case was remanded for further proceedings.