Grainger's Ex'rs and Trustees v. Pennebaker

• Decision Date: 16 December 1932
• Citation: 56 S.W.2d 1007,247 Ky. 324
• Parties: GRAINGER'S EX'RS AND TRUSTEES v. PENNEBAKER et al.
• Court: Kentucky Court of Appeals

56 S.W.2d 1007

247 Ky. 324

GRAINGER'S EX'RS AND TRUSTEES v. PENNEBAKER et al.

Court of Appeals of Kentucky

December 16, 1932

As Extended on Denial of Rehearing March 7, 1933.

Appeal from Circuit Court, Jefferson County, Chancery Branch, Second Division.

Action by the Fidelity & Columbia Trust Company and another, as executors and trustees under the will of Jeannie M. Grainger deceased, against Jane Grainger Pennebaker and others for a declaratory judgment. From the judgment rendered, plaintiffs appeal.

Reversed.

Bruce &amp Bullitt, Wm. Marshall Bullitt, and Leo T. Wolford, all of Louisville, for appellants.

David R. Castleman, of Louisville, for appellees.

RICHARDSON J.

The Fidelity & Columbia Trust Company and the Liberty Bank &amp Trust Company were named executors and trustees in the will of Jeannie M. Grainger. The will was probated by the county court of Jefferson county. They were by its order appointed and qualified as executors and trustees of her will; they assumed the control and possession of her estate, immediately paid all of the debts of the testatrix, and, within nine months after the date of her death, paid the inheritance taxes on the estate and the interest of the several beneficiaries under the will, to the commonwealth of Kentucky, the federal taxes to the United States, and certain specific pecuniary legacies which they were directed to pay by clauses 2 and 3. The nature and value of the estate are not disclosed by the record, except inferentially. There has accumulated interest or income on the estate, and now in their possession, $10,000. By the first clause of the will, the testatrix directed the payment of her debts and funeral expenses. Clause 2 devised $20,000 to Mary J. Ferguson. Clause 3 bequeathed $20,000 to Elizabeth B. Henderson. Clause 3 also directed the executors and trustees to set aside out of the residue of the estate, mentioned in clause 8, a sufficient amount of first-class securities owned by her at the time of her death, or a sufficient sum of money which, when invested in first-class securities, will net an income of $100 per month, and that this $100 be paid monthly to Elizabeth B. Henderson, for and during her natural life. Clause 4 devised to the executors and trustees in trust, first-class securities owned by her at the time of her death, of the value of $75,000, or in lieu thereof the sum of $75,000 be invested in such securities and held by them in trust for her, and the net income therefrom paid to Mrs. Jane G. Wilhite for and during her natural life; the income from this trust, paid to her either quarterly or semiannually or annually as she may elect, to be used by her as she may desire. The eighth clause devised "all the rest, residue and remainder" of her estate, real, personal, and mixed, and wherever situated, to the executors and trustees, to be held by them in trust for Jane Grainger Pennebaker, for and during her natural life; the net income therefrom be paid to her.

The executors and trustees filed this action to obtain a declaratory judgment on the questions we shall hereafter consider.

The circuit court decreed that the $100 per month devised to Elizabeth B. Henderson and the net income from the $75,000 devised to Jane G. Wilhite were specific pecuniary legacies within the meaning of section 2065, Ky. St., and only the income accruing one year after the death of the testatrix was to be paid to them; that Jane Grainger Pennebaker, as life beneficiary under clause 8 of the will, was entitled to all of the income received after testatrix' death, from every source, during the administration of the estate, including the income from property subsequently used by the executors for the payment of debts, legacies, and similar charges; and that such income did not become a part of the corpus of the residuary estate. It was further decreed that the costs of administration, including ad valorem taxes, and the fees of the executors and attorney, should be paid out of the corpus of the estate and not out of the income, adjudged to Jane G. Pennebaker, the beneficiary for life of the residuary estate. As to the inheritance taxes, the court applied subsection 5 of the section 4281a-7 and required the same to be paid out of the corpus of the trust estate, i. e. that the inheritance taxes against the life interest of Jane G. Wilhite should be paid out of the corpus of the trust estate directed by the will to be set up and held for her, and not out of the income therefrom, and the inheritance taxes against the life interest of Jane Grainger Pennebaker, and the remainder interest, after her life estates in the trust, should be paid out of the corpus of the trust and not out of the income arising therefrom. As to the $100 per month for the life of Elizabeth B. Henderson, all inheritance taxes and other taxes (except income taxes) and costs of administration should be paid out of the residuary estate.

We shall first consider and dispose of the right of the life tenants to the income accruing, and received by the executors during the period of administration, and before the end of the year after the death of the testatrix. This is not an action by the legatees to require the executors to pay over to them, before the expiration of one year following their qualification, specific pecuniary legacies, or to account to them for interest thereon before the expiration of one year after the testatrix' death. Section 2065, which guided the circuit court in his conclusions, was intended to protect an executor against the payment of specific pecuniary legacies and interest thereon before the expiration of one year after the testator's death. It was not intended to, and does not, determine the right of a devisee for life to the income arising out of the trust set aside for his benefit or that of a life tenant to the income on the residue or that of the residuary legatee, to the income on the residue, from the date of the testator's death. It was not intended and it does not operate to deprive the devisee of the life estate of the income arising from a trust fund directed by the will to be set apart and held in a trust fund for him, during the time of administration, or after the death of the testator. It does not deprive such devisee of the income therefrom for one year, or any time after the death of the testator, and thereby convert it into the corpus of the residuary estate, or into income for the use of the life tenant of the residue or remainder. It does not deal with the question whether the one or the other of such legatees shall be the beneficiary of the income of distinct trusts during the period of administration, or for one year after the death of the testator. The statute, as well as the common law (Harlan's Trustee v. Harlan, 228 Ky. 73, 14 S.W.2d 397), proceeds on the presumption that one year is a reasonable time in which an executor may ascertain the condition of the estate and administer it. Its purpose is to protect the executor during that period. Both the common law and the statute deal with a situation where no interest or income accrues during the period of administration, and from the very nature of the estate, the interest or income, if any, is paid to the life tenant of a trust or the life beneficiary of the residue is required to be paid out of the corpus of the estate, and where no interest or income is produced by the trust fund during the period of administration.

Neither section 2065 of the Statutes, nor the common law, had the effect of annulling the general rule that where the corpus or some aliquot part thereof, is directed by the will to be held in trust for the benefit of a devisee for life, the corpus to another, after the life tenant's death, the life tenant is entitled to the interest or income from the date of the testator's death, unless otherwise provided in the will. That is, the earnings--the interest, or income of a trust earned by the distinct trust fund--between the death of the testator and the end of the year recognized by the common law and the Statutes as a reasonable time for the purpose of the administration of the estate, do not go to swell the income of the life beneficiary of the residuary estate, nor to enlarge the corpus, but pass under the will to the life tenant. The fundamental reason of the rule is the presumption that, in the absence of an expressed intention to be gathered from the language of the testator's will to the contrary, the life tenant ranked first in the consideration of the testator at the time of the writing of his will, else he would not have created the trust and directed the income therefrom paid to the life tenant. To deprive the life tenant of the income, or interest arising from the particular fund, placed especially by the will in trust for his use and benefit, during the period recognized by the law for the purpose of the administration of the estate by an arbitrary rule of construction, without the expressed language of the testator so directing, operates in effect to build up the corpus or the income of the life tenant thereof. Such in effect is a diversion, without authority of the will of the testator, of the interest or income arising from such trust fund, at the expense of the life tenant, for the use and benefit of the devisee of the residuary estate, or the devisee of the income therefrom, who were second in the mind of the testator at the time of the writing of his will. If the trust fund is non-interest bearing, or non-income producing, during the period of administration, or for one year after the death of the testator, the payment to the life tenant of interest or income during such period, out of the corpus, is equivalent to converting to that extent, and for that purpose, the corpus for the...