Schenebeck v. Schenebeck

Gerald SCHENEBECK, Executor of Estate of J.
Eric Schenebeck, Deceased v. Dorothy F.
SCHENEBECK

96-1438                                            ___ S.W.2d ___

                    Supreme Court of Arkansas
                 Opinion delivered June 23, 1997


1.   Courts -- jurisdiction -- testamentary trust -- probate court has no
     jurisdiction to administer. -- Although probate courts clearly have
     jurisdiction over the probate of a will, the construction,
     interpretation, and operation of trusts are matters that lie
     within the jurisdiction of chancery courts; the probate court
     also has authority to order distribution of assets of the
     probate estate to a trust; however, a probate court has no
     jurisdiction to administer a trust created by a will; chancery
     courts, on the other hand, have no jurisdiction to probate a
     will or distribute an estate; in sum, the probate court has no
     authority to make certain that the parties comply with the
     terms of a testamentary trust beyond the normal process of
     probating the will and overseeing the distribution of assets.

2.   Appeal & error -- de novo review of probate cases. -- The supreme
     court reviews probate cases de novo on appeal and will not
     reverse the probate court unless the court's findings were
     clearly erroneous; due deference is given to the trial judge's
     position to ascertain the credibility of the witnesses.

3.   Courts -- jurisdiction -- testamentary trust -- prorated rent due estate -
     - probate court had authority to enforce collection of. -- Where the
     testamentary trust at issue was created but not funded, the
     probate court was simply collecting the assets of the estate
     and distributing them to the proper entity when it ordered the
     prorated rental payment due the estate to be paid into a
     special account established for the benefit of trust
     beneficiaries; this action did not constitute administration
     of the testamentary trust; hence, jurisdiction over the rent
     payment owed to the estate lay in probate court, and the
     probate court had the authority to enforce collection of it;
     without proof that a prorated payment was a duplication of
     rent already paid, the probate court was correct in its
     ruling.

4.   Courts -- jurisdiction -- testamentary trust -- distribution of trust
     income -- probate court lacked jurisdiction to decide. -- Where the
     probate court ordered an increase in appellant's rental
     payments to the estate for leased farmland, the supreme court
     concluded that the probate court's action fell into the
     category of trust administration, which lies wholly within the
     jurisdiction of the chancery court, and held that the probate
     court lacked jurisdiction to decide distribution of trust
     income as between appellant and appellee; the matter was
     reversed on the point and remanded with directions to transfer
     to chancery court.

5.   Courts -- jurisdiction -- testamentary trust -- costs attributable to trust
     -- probate court was without jurisdiction to determine. -- Where the
     probate court ruled that it was a breach of fiduciary duty for
     appellant as trustee to credit irrigation repair costs against
     trust income rather than as costs that should be borne by
     himself as lessee, the supreme court concluded that although
     the testamentary trust had yet to be funded at the time of its
     ruling, the probate court had intruded upon the domain of
     chancery court and was without jurisdiction to determine
     proper costs attributable to the trust and whether appellant
     had breached his fiduciary duty as trustee of the trust; the
     matter was reversed on the point and remanded with directions
     to transfer to chancery court.

6.   Courts -- jurisdiction -- testamentary trust -- removal of trustee --
     probate court had no jurisdiction to remove appellant from duties. --
     Where the probate court removed appellant as trustee for
     breach of fiduciary duty, the supreme court held that the
     probate court had no jurisdiction to remove a trustee of a
     testamentary trust from his duties, even though the trust, at
     that juncture, had yet to be funded; the matter rested solely
     within the judgment and discretion of chancery court, and the
     supreme court reversed on the point with directions to
     transfer to chancery court.

7.   Wills -- specific legacies do not bear interest. -- Under Ark. Code
     Ann.  28-53-112 (1987), general legacies bear interest at the
     rate of six percent or the then prevailing legal rate,
     beginning fifteen months after commencement of probate
     administration; specific devises of property, however, only
     include income or increments accruing to the property while in
     the hands of the personal representative; no interest
     provision is included by statute for specific legacies, which
     ordinarily do not bear interest.

8.   Wills -- legacy to appellee was general -- statutory interest rate
     applicable -- probate court's assessment reversed. -- Where the $20,000
     legacy to appellee was not tied to a precise source but was
     payable out of the estate generally, the supreme court
     concluded that it constituted a general legacy; because the
     appellate court could discern no proof of the then prevailing
     legal rate of interest from the record, it reversed the
     probate court's assessment of an eight percent interest rate
     and directed that interest should accumulate at the rate of
     six percent, with accrual beginning fifteen months after the
     date of commencement of probate administration, in accordance
     with Ark. Code Ann.  28-53-112(a) (1987).


     Appeal from Lonoke Probate Court; Charles A. Walls, Jr.,
Judge; affirmed in part; reversed in part and remanded.
     Pike & Bliss, by: George E. Pike, Jr., and Deborah Pike Bliss,
for appellant.
     Wright, Lindsey & Jennings, by:  Isaac A. Scott, Jr., Nancy
Bellhouse May, and J. Betsey Meacham, for appellee.

     Robert L. Brown, Justice.
     This appeal involves the interpretation of a will and a
testamentary trust.  James Eric Schenebeck died on October 4, 1993,
at age 70.  His last will and testament was dated April 4, 1991,
and in his will he named his son, appellant Gerald Schenebeck,
executor of the estate.  After Schenebeck's death, Gerald
petitioned to open his probate estate.  The petition showed the
testator's surviving spouse to be appellee Dorothy Schenebeck.  It
further showed the estimated value of real property to exceed
$1,000,000 and personal property to exceed $100,000.
     Under the will, Gerald was left specific bequests of household
goods and furniture, with Dorothy receiving the remaining
furnishings in the home.  The will also provided that Dorothy could
live in the house for one year, although the testator added that it
was his request, but not his direction, that she live there longer,
if she maintained the property.  The will further contained a
legacy of $20,000 to Dorothy.  Two other children were left
legacies of $5,000 each.  Gerald was to receive the remainder of
the estate.
     The will, in addition, created a testamentary trust.  The
testator ordered his executor to transfer approximately 400 acres
of land located on two plots to the trust.  The land was used for
a fish farm.  The two beneficiaries of the trust were Gerald and
Dorothy.  Gerald was named trustee of the trust.  The testator
directed that the trustee distribute $36,000 per year to Dorothy
from the income of the trust so long as she lived, with the
remaining income from the trust going to Gerald.  The trust was to
terminate at Dorothy's death, with Gerald receiving the corpus of
the trust.
     Probate of the estate ensued, and it consisted of a series of
squabbles between Gerald and Dorothy.  The disputes involved
allegations of Dorothy's auctioning furnishings at the house,
Gerald's failure to file an adequate accounting for the estate,
debts and rental owed the estate by Dorothy, Dorothy's failure to
maintain the property, and, of primary importance, the failure of
Gerald to pay the $20,000 legacy and the $36,000 annual income from
the testamentary trust.  Litigation also developed around a 1972
premarital agreement between James Eric Schenebeck and Dorothy,
where he agreed to leave a life estate in his property to Dorothy. 
Dorothy sought to enforce the premarital agreement in chancery
court, but her claim was denied.
     During the probate of the estate, it came to light that on
April 1, 1987, James Eric Schenebeck entered into a 15-year lease
of farmland with Gerald where Gerald was to pay $75 an acre as
annual rent with incremental increases of five percent every five
years.  Dorothy signed this lease on April 15, 1991.
     On July 3, 1995, matters came to a head with Dorothy's motion
entitled Motion For Proof of Respondent's Fulfillment of Duties as
Trustee and Requirement of Remittance of Income Owed to Petitioner. 
In the motion, Dorothy asked for payment of the $20,000 legacy, her
$36,000 annual income under the testamentary trust, proof that the
testamentary trust had been funded, and an accounting of income
from the 400 acres, including income from Gerald's subleases of the
leased farmland.
     The probate court ordered that Gerald file an inventory for
the estate and that estate taxes be paid.  Gerald filed the updated
accounting and inventory of assets and liabilities as well as the
federal estate tax return.  In connection with the federal estate
tax return and in order to qualify Dorothy's life interest in the
testamentary trust as a Qualified Terminable Interest Trust, Gerald
disclaimed all interest in the property and income from the
testamentary trust for the balance of Dorothy's life.  Because of
Gerald's disclaimer, Dorothy claimed as hers all of the income from
the farmland which formed the res of the testamentary trust,
including income from the subleases.
     In a motion filed with the probate court, Gerald conceded that
he made annual lease payments to the estate for the leased
farmland, which totaled $63,000 for 1994 and 1995.  Of that lease
payment he used $37,434.70 to repair the irrigation system and pay
other expenses, leaving Dorothy the balance of $25,565.30.  Dorothy
complained that these expenses should be borne by Gerald as lessee
of the farmland under the lease agreement and not by the
testamentary trust.
     At a hearing held on May 8, 1996, Gerald admitted that Dorothy
had not been paid the $20,000 bequest and testified that the
testamentary trust had not been funded because the 400 acres of
farmland had not been deeded to the trust.  He also admitted that
he disclaimed his right to trust income so that the estate would
get the marital deduction for estate tax purposes.  He further
agreed that there was no separate accounting for the testamentary
trust, since the trust did not yet exist.
     The probate court filed a detailed letter opinion followed by
an order.  The salient points of the order for purposes of this
appeal follow:
         Gerald had a conflict of interest in serving as executor,
          lessee, sublessor, trustee, and remainderman of the trust
          and should be removed as trustee.  It was suggested by
          the court that a financial institution replace him as
          trustee.
         Certain repairs to the irrigation pipes and pump were not
          a proper expense to be charged to the testamentary trust
          but were the responsibility of Gerald as lessee of the
          farmland.
         Dorothy was entitled to the full income of the
          testamentary trust or else the estate would lose the
          benefit of the marital deduction trust.
         Gerald was directed to pay the $20,000 legacy with eight
          percent interest from the date that Dorothy's right to
          take against the will expired.
         The filed accountings are insufficient with respect to
          the farmland, and an accountant should be appointed to
          file a new accounting.

                  I. Probate Court Jurisdiction
     Gerald first contends that the probate court lacked
jurisdiction to enter the orders that affect the administration of
the testamentary trust.  Dorothy responds that the probate court
merely undertook the administration of the probate estate,
including marshalling assets of the estate, and did not improperly
exercise control over the trust because the trust, though created
by the will, had yet to be funded.
     The Arkansas Constitution provides that probate courts have
"exclusive original jurisdiction in matters relative to the probate
of wills, the estates of deceased persons, executors,
administrators, guardians, and persons of unsound mind."  Ark.
Const. art. 7,  34.  Although probate courts clearly have
jurisdiction over the probate of a will, the construction,
interpretation, and operation of trusts are matters that lie within
the jurisdiction of chancery courts.  Thomas v. Arkansas Dep't of
Human Servs., 319 Ark. 782, 894 S.W.2d 584 (1995); Anna Flippin
Long Trust v. Holk, 315 Ark. 112, 864 S.W.2d 869 (1993).  The
probate court also has authority to order distribution of assets of
the probate estate to a trust.  See Ark. Code Ann.  28-1-104
(1987).  However, a probate court has no jurisdiction to administer
a trust created by a will.  Clement v. Larkey, 314 Ark. 488-A, 863 S.W.2d 578 (1993); Alexander v. Alexander, 262 Ark. 612, 561 S.W.2d 59 (1978).  Chancery courts, on the other hand, have no
jurisdiction to probate a will or distribute an estate.  Gaylor v.
Gaylor, 224 Ark. 644, 275 S.W.2d 644 (1955).  In sum, the probate
court has no authority to make certain that the parties comply with
the terms of a testamentary trust beyond the normal process of
probating the will and overseeing the distribution of assets.  In
Alexander v. Alexander, supra, for example, this court held that
the probate court lacked jurisdiction to order that all future
sales and dispositions of the trust property must have the assent
of all the beneficiaries -- "if it was an attempt [by the probate
court] to administer the trust."
     Bearing these principles in mind, we turn to Gerald's specific
claims that the probate court lacked jurisdiction or,
alternatively, erred in ruling as it did with respect to certain
aspects of its order.  We review probate cases de novo on appeal,
and the probate court will not be reversed unless the court's
findings are clearly erroneous.  Wells v. Estate of Wells, 325 Ark.
16, 922 S.W.2d 715 (1996).  Due deference is given to the trial
judge's position to ascertain the credibility of the witnesses. 
Id.

Prorated rental payment.
     Gerald first argues that the trial court erred in making him
pay an extra $15,435 for prorated rent due the estate under his
lease for the farmland in 1993.  He contends that he had already
made his lease payment for the entire year, that is, from April 1,
1993 to March 31, 1994, and that he owed nothing more to the estate
after James Eric Schenebeck's death on October 4, 1993.  Dorothy
answers that the record does not support Gerald's claim of payment,
and, thus, there is no proof that he made it.  Without proof, the
probate court correctly ruled as it did, according to Dorothy.
     The testamentary trust was created but not funded, and the
probate court was simply collecting the assets of the estate and
distributing them to the proper entity when it ordered the prorated
rental payment to be paid into a special account established for
the benefit of trust beneficiaries.  See Ark. Code Ann.  28-1-104
(1987).  We do not perceive this action as constituting
administration of the testamentary trust.  Hence, jurisdiction over
the rent payment owed to the estate lay in probate court, and the
probate court had the authority to enforce collection of it. 
Without proof that a prorated payment was a duplication of rent
already paid, the probate court was correct in its ruling.

Increase in rental payments.
     Gerald next argues that the trial court lacked jurisdiction to
order an increase in Gerald's rent payments.  He essentially
maintains that the testamentary trust is clear that he was to
receive all income from the farmland in excess of his annual lease
payment to the estate under the rental agreement.  He contends that
his disclaimer of income in the testamentary trust did not affect
the lease arrangement and that the income from the trust property
would include nothing more than the landlord's interest in the
trust property and not the tenant's.  Dorothy responds that
Gerald's disclaimer prevents him from accepting any portion of the
income generated from the lease and subleases of the trust
farmland.
     The essence of this issue concerns payment of income from the
testamentary trust to competing beneficiaries and the effect of
Gerald's disclaimer on the income distribution.  We have no
hesitancy in concluding that this action fell into the category of
trust administration, which lies wholly within the jurisdiction of
the chancery court.  Clement v. Larkey, supra.  We hold that the
probate court lacked jurisdiction to decide distribution of trust
income as between Gerald and Dorothy.

Payment of irrigation costs.
     Gerald contends that he had the authority as trustee to incur
the expenses for farm maintenance without the need to seek probate
court approval, when the action was in the best interest of the
estate.  He states that the extra expenses associated with dividing
larger fish ponds on the farmland into smaller ones was
commensurate with what had happened prior to his father's death. 
Dorothy responds that Gerald, as lessee, was responsible for repair
expenses under the terms of the lease agreement.
     The lease agreement provided: "It shall be the responsibility
of the Lessee [Gerald] to maintain all constructed and
reconstructed fish ponds and farm levees, as well as the
constructed and reconstructed stand pipes and well pumps in as good
a condition as furnished to Lessee ...."  The probate court ruled
that it was a breach of fiduciary duty for Gerald as trustee to
credit these irrigation repair costs against trust income rather
than as costs that should be borne by Gerald as lessee.  The
probate court did find that one expense for a well was properly
assigned to the trust under the terms of the lease.
     Again, the testamentary trust had yet to be funded at the time
of the probate court's ruling.  Nonetheless, the probate court was
without jurisdiction to determine proper costs attributable to the
trust and whether Gerald had breached his fiduciary duty as trustee
of that trust.  Had the probate court decided this point based on
Gerald's role as executor of the estate, it probably would have
passed muster.  But the court did not and manifestly intruded upon
the domain of chancery court when it determined what was an
appropriate trust expense and whether the trustee had breached his
fiduciary role.  We reverse the probate court on this point as well
for lack of jurisdiction.

Removal of trustee.
     Gerald claims for his final jurisdictional point that the
probate court erred in removing him as trustee because he had not
breached his fiduciary duty.  Our holding here is a corollary to
the last point raised.  The probate court had no jurisdiction to
remove a trustee of a testamentary trust from his duties, even
though the trust, at that juncture, had yet to be funded.  This is
a matter that rests solely within the judgment and discretion of
chancery court.  Again, had the probate court limited its ruling to
the removal of the executor, there most likely would have been no
infringement on the chancery's jurisdiction.  See Ark. Code Ann. 
28-48-105 (1987) (allowing for removal of personal representative
when estate is mismanaged or where a duty remains unperformed).  We
reverse the probate court on this point.

                       II. $20,000 Legacy
     For his last point, Gerald claims that the estate should not
be saddled with an eight percent interest payment, or,
alternatively, should be assessed less of an interest payment than
what was ordered by the probate court.  The crux of Gerald's
argument is that the estate asserted various offsetting claims
against Dorothy and the legacy, and, as a result, there could be no
accrual of interest because the amount owed for the legacy was
uncertain.
     Under the Arkansas Probate Code, general legacies bear
interest at the rate of six percent or the then prevailing legal
rate, beginning 15 months after commencement of probate
administration.  Ark. Code Ann.  28-53-112 (a) (1987).  Specific
devises of property, however, only include income or increments
accruing to the property while in the hands of the personal
representative.  Ark. Code Ann.  28-53-112(b) (1987).  No interest
provision is included by statute for specific legacies, and we have
recognized that specific legacies ordinarily do not bear interest. 
Bransford v. Jones, 284 Ark. 121, 679 S.W.2d 798 (1984), citing
Atkinson, Law on Wills (2d ed. 1953).  The issue then is whether
the $20,000 legacy in this case was a general or specific legacy.
     The treatise, Page on the Law of Wills, has this to say about
the distinction between specific and general legacies:
          A legacy which is payable in money may be specific
     if it is not payable out of the estate generally, but if
     it is a fund or a particular thing which is described
     with sufficient accuracy, and if the legacy can be
     satisfied only by the payment of such fund.  A gift of
     money which is deposited in a specific bank, or a gift of
     cash on hand or in the bank, is a specific legacy.  A
     gift of a specific fund, or a gift of the proceeds of
     specific property, or of a sum of money payable only out
     of such proceeds, and not out of the estate generally, is
     a specific legacy as distinguished on the one hand from
     a general legacy and from a demonstrative legacy on the
     other hand.
6 William J. Bowe & Douglas H. Parker, Page on the Law of Wills  48.5, at
17-19 (3d ed. 1962).  See also Thomas E. Atkinson, Handbook of the Law of
Wills  132, at 732-34 (2d ed. 1953).  Here, the $20,000 legacy was
not tied to a precise source but was payable out of the estate
generally.  We conclude that it constitutes a general legacy. 
Because we can discern no proof of the then prevailing legal rate
of interest from the record in this case, interest should
accumulate at the rate of six percent, with accrual beginning 15
months after the date of commencement of probate administration. 
Ark. Code Ann.  28-53-112(a) (1987).
     Gerald, as executor, did claim various offsets against the
$20,000 legacy for debts owed by Dorothy to the estate.  The
probate court appeared to allow offsets for attorneys fees and the
cost of replacing locks on the house.  Nevertheless, the probate
court ordered Gerald to pay the full $20,000 legacy plus interest. 
Under these facts, we consider the amount of the legacy to be
sufficiently certain to accrue interest in accordance with  28-53-
112(a).  Any claims by the estate against Dorothy should be handled
as separate matters.

                         III. Conclusion
     The order of the probate court on the points raised in this
appeal is affirmed in part and reversed in part, and we remand with
directions to transfer the claims affecting administration of the
testamentary trust to chancery court in accordance with this
opinion.  We further reverse the probate court on the assessment of
an eight percent interest rate and direct that the appropriate
interest rate to be applied in this case is six percent as set
forth in  28-53-112(a).
     Affirmed in part.  Reversed in part and remanded.