Englund v. First National Bank of Birmingham

Morris Bush’s will created a trust appointing the predecessor of First National Bank of Birmingham (plaintiff) as trustee. The trust directed income to Bush’s widow and his aunt for life, then to his daughter Gage Englund (defendant) for life, and then distributed the remaining assets to Gage’s children. The will allowed principal invasions to the extent the trustee deemed necessary to provide for Gage’s support, education, and comfort. The will also gave the trustee power “to determine whether any money or property coming into its hands shall be treated as a part of the principal of this trust estate, or a part of the income therefrom, . . . as to it may seem just and equitable.” When Bush died in 1932, his residuary estate funded the trust and consisted primarily of stock. By 1971, Bush’s widow and aunt had died, leaving Gage sole life beneficiary of a trust worth over $10.5 million. In 1977 the trustee sold the stock for over $31 million, realizing about $17.6 million in net proceeds. Gage requested that the trustee allocate to income and distribute $900,000 of the proceeds. The trust already paid Gage about $1 million in income annually, so she did not need additional funds for support. Instead, Gage wanted to create a separate estate for her husband and repay a $300,000 interest-free debt to the trust. The trustee decided it could allocate the distribution as income and petitioned the court for approval. The court appointed a guardian ad litem to represent the interests of Gage’s children as remaindermen and found the will did not authorize allocations to income unless the character of the receipts to be allocated was questionable. Because proceeds from selling stock held in a trust corpus are ordinarily treated as principal, the trial court concluded the proposed allocation would constitute abuse of the trustee’s discretion. Gage appealed, and the trustee appealed on other grounds.