Lofgreen v. Lofgreen (In re Estate)

312 Neb. 937

981 N.W.2d 585

IN RE ESTATE OF Denzel R. LOFGREEN, deceased.

Jon C. Lofgreen and Denzel H. Lofgreen, Copersonal Representatives of the Estate of Denzel R. Lofgreen, deceased, appellees,

v.Constance Lofgreen, appellant.

In re Estate of Ruth M. Lofgreen, deceased.

Jon C. Lofgreen and Denzel H. Lofgreen, Copersonal Representatives of the Estate of Ruth M. Lofgreen, deceased, appellees,

v.Constance Lofgreen, appellant.

Nos. S-21-1008

S-21-1009.

Supreme Court of Nebraska.

Filed November 18, 2022

Susan J. Spahn, of Fitzgerald, Schorr, Barmettler & Brennan, P.C., L.L.O., Omaha, for appellant.

Jeffrey M. Cox, of Dier, Osborn & Cox, P.C., L.L.O., Holdrege, for appellees.

Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke, Papik, and Freudenberg, JJ.

Freudenberg, J.

INTRODUCTION

In two parallel probate cases, the county court denied a petition to assess state inheritance tax under Neb. Rev. Stat. § 77-2002(1)(b) (Reissue 2018 & Cum. Supp. 2020) on real property that Denzel R. Lofgreen and Ruth M. Lofgreen (decedents) had deeded to their daughter decades earlier while continuing to exercise control over, receive income from, and pay taxes on the property up until their deaths. On appeal, the daughter argues § 77-2002(1)(b), which states that "[a]ny interest in property ... shall be subject to tax ... if it shall be transferred by deed ... and ... intended to take effect in possession or enjoyment, after his or her death," applies whenever a transfer is intended in fact to take effect in possession and enjoyment after death, whether or not that intent is formalized in the transfer documents. We agree and reverse the judgment of the probate court.

BACKGROUND

Jon C. Lofgreen and Denzel H. Lofgreen, corepresentatives of decedents’ estates and decedents’ sons (collectively corepresentatives) filed inventories of Nebraska assets and a petition for determination of inheritance tax in two probate cases before the county court. Decedents’ wills had been submitted to probate in another state where decedents were domiciled at their death. The inventory did not include Nebraska farmland (hereinafter the property) decedents had conveyed to their daughter, Constance Lofgreen, by a series of deeds from 1992 to 1995.

Constance objected to the petition for determination of inheritance tax, because it failed to include the property as subject to inheritance tax under § 77-2002. Constance's objection filed with the court described that she had been "deeded" a 30-percent ownership interest in the subject property by each of three separate deeds, after which she was deeded the remaining 10-percent ownership interest through a fourth deed. Constance set forth in the objection that she did not know about the deeds until several years later and that decedents’ intent when they executed the deeds was for Constance not to have possession of the property until after they were both deceased.

STIPULATED FACTS

The corepresentatives and Constance filed a joint motion to submit the petition and objection to the court on stipulated facts. At a hearing, the county court received the stipulated facts into evidence. No other evidence was submitted.

The parties stipulated decedents "deeded" the property to Constance by a series of deeds from 1992 to 1995. They did not otherwise describe the verbiage of the deeds. They stipulated that although Constance "owned" the property by 1995, decedents "did not intend for Constance to have possession and enjoyment of the [p]roperty until after their deaths."

The parties further stipulated decedents continued to control and farm the property, and receive income from the property, until their deaths in 2019. In 2012, decedents leased the property to their son Jon, who farmed the property for decedents under a crop-share agreement whereby Jon received two-thirds and decedents received one-third of the produce. Decedents paid their one-third share of expenses for the property, reported the property acres to the U.S. Department of Agriculture Farm Service Agency, maintained and received proceeds from crop insurance on the property, and reported farm income from the property on their income taxes. Additionally, decedents paid all real estate taxes for the property, although in some years, Constance paid the taxes and decedents reimbursed her.

The parties stipulated Constance received no income from the property and paid no expenses for the property (unless later reimbursed by decedents) until after decedents’ deaths. In 2020, after decedents’ deaths, Constance, for the first time, entered into a farming agreement with Jon, purchased crop insurance on the property, received a one-third share of the property income, paid one-third of property expenses, and assumed responsibility for taxes on the property.

DECISION

The county court entered an order in both cases concluding the property should not be included in Denzel's estate for purposes of inheritance tax, because it was not, as described by § 77-2002(1)(b), "transferred by deed, grant, sale, or gift ... and ... intended to take effect in possession or enjoyment, after his or her death." Although the deeds were not entered into evidence, the court refused to consider evidence outside of the four corners of the deeds of an intent to retain possession or enjoyment in fact. It reasoned that decedents did not expressly retain a life estate in the deeds and that the written deeds were dispositive of decedents’ intent.

While Constance had pointed out that the plain meaning of § 77-2002(1)(b) focuses on intent rather than the legal effect of the deed, the court stated it could not "speculate on what the arrangement was between Constance and [decedents]." The court reiterated this reasoning in a subsequent order denying Constance's motion to alter or amend. The court stated decedents’ likely intent in executing the deeds before their deaths was to avoid federal estate tax by appearing to have given up "all incidence of ownership," and the court thought it "incongruent to now assign an intent to [decedents] which differs from [the deeds]."

Constance appealed in both cases. We consolidated the cases on appeal.

ASSIGNMENTS OF ERROR

Constance assigns that the county court erred in finding (1) that the property was not subject to Nebraska inheritance tax on the grounds that Constance had received full and complete ownership of such property, (2) that decedents did not intend to retain lifetime possession and enjoyment of the real property subsequent to deeding the property to Constance, and (3) that decedents intended to give up all incidents of ownership when they executed the deeds giving the property to Constance.

STANDARD OF REVIEW

An appellate court reviews probate cases for error appearing on the record made in the county court.¹

In a case in which the facts are stipulated, an appellate court reviews the case as if trying it originally in order to determine whether the facts warranted the judgment.²

When reviewing questions of law in a probate matter, an appellate court reaches a conclusion independent of the determination reached by the court below.³

The meaning of a statute is a question of law.⁴

ANALYSIS

We have said the broad language of § 77-2002(1) was designed to prevent evasion of Nebraska inheritance or succession taxes.⁵ Section 77-2002(1) provides, in relevant part:

Any interest in property ... shall be subject to tax ... if it shall be transferred by deed, grant, sale, or gift ... and: (a) Made in contemplation of the death of the grantor; (b) intended to take effect in possession or enjoyment, after his or her death; (c) by reason of death, any person shall become beneficially entitled in possession or expectation to any property or income thereof; or (d) held as joint owners or joint tenants by the decedent and any other person in their joint names ....

We hold that in determining whether to impose inheritance tax under § 77-2002(1)(b) on a transferred interest in property, a court must consider all the surrounding circumstances of the transfer rather than simply the form of the transferring legal documents, in order to determine if a decedent intended, as a matter of fact rather than a technical vesting of title or estates, to retain a substantial economic benefit or actual use of the property until death. A decedent's motives for failing to memorialize in the transferring document such retained interest is relevant only inasmuch as it is probative of whether the decedent actually intended to retain possession or enjoyment of the subject property.

In our decisions discussing § 77-2002, we have held that whether a transfer is subject to inheritance tax under Neb. Rev. Stat. §§ 77-2004 to 77-2006 (Reissue 2018) depends on extrinsic evidence and the surrounding circumstances rather than the language of the conveying document.⁶ We have recognized, "[T]axability does not depend upon ... the form given the transfer."⁷ "The law searches out the reality, and is not halted or controlled by the form."⁸ Thus, in In re Estate of Bronzynski , we held whether transfers of property were subject to inheritance tax because they were made in contemplation of death as described by § 77-2002(1)(a) was a question "of fact determinable from the evidence and surrounding circumstances,"⁹ regardless of the language of the deeds.

Under "possession or enjoyment" language similar to § 77-2002(1)(b), we have likewise looked to reality over the form of the transferring legal instrument when determining if the transferred property is part of a decedent's augmented estate for purposes of computing the decedent's spouse's elective share. In In re Estate of Fries ,¹⁰ we held that in determining whether the transfer was one "under which the decedent retained at death the possession or enjoyment of, or right to income from, the property," as described by Neb. Rev. Stat. § 30-2314(a)(1)(i) (Reissue 2016), the donor's retained interest in possession or enjoyment " ‘need not be reserved by the...