The question involved on this appeal is the proper division, as between principal and income of a trust, of 300 shares of stock representing a stock distribution by doubling the number of shares held by each stockholder. The question is to be determined by the construction of a provision of the trust instrument governing the treatment of dividends.
The relevant provision of the trust instrument reads as follows: “During the lifetime of the Settlor all dividends, whether payable in cash or in securities or other property, and whether ordinary or extraordinary, shall be considered and treated as income; after the death of the Settlor, to the extent permitted by law, all stock dividends and dividends paid or payable in securities or other property shall be considered and treated as principal and all cash dividends, whether ordinary or extraordinary, shall be considered and treated as income.”
The facts as to the nature or character of the stock distribution here are quite clear. It is demonstrable that the 300 shares of stock involved represent a stock split-up or mere increase of shares to the extent of 200 shares and a stock dividend or capitalization of earnings to the extent of 100 *7shares. It is our conclusion, therefore, that 200 shares should be regarded as principal and 100 shares as income payable to the income beneficiary.
In our view the wording of the trust instrument and the indicated intention of the settlor do not warrant the contrary conclusion reached at Special Term that the settlor contemplated and directed that any and all additional stock issued and received in the trust should be treated as income regardless of the nature of the distribution. It would not be natural for a settlor to intend a pro tanto destruction of a trust whenever there was a stock split-up or mere multiplication of shares. Certainly such an intention should not be ascribed to a settlor unless language employed in the trust instrument compels or clearly indicates such an intention. We do not find words of such explicitness or implicitness in the instrument here.
While the settlor obviously intended a different treatment of stock dividends as between the period of his life and the period thereafter, still his language does not suggest that he intended to assimilate a stock split-up to a stock dividend. The word “ dividend ” is the touchstone and presumably he was thinking of distributions in the nature of dividends, whether by stock or otherwise, and making clear that any dividends in stock as well as in cash should be regarded as income during his lifetime. A mere stock increase or split-up which is a substitution of more shares for the number of shares outstanding is not a dividend in any ordinary or proper concept of the term. It is in no sense income but only an adjustment of capital. If the language of the trust agreement were to be interpreted as including such a stock distribution in the definition of income, we would have to say that what the settlor intended was to take down capital whenever the fortuitous event of a stock split-up occurred. If he had any such thing in mind, it could have been easily expressed. The trust instrument indicates no lack of language facility in providing for what was intended and we are unable to see that the language employed suggests an intention to treat capital as income whenever a company elects, for whatever reasons, to cast its capitalization into the form of a larger rather than a lesser number of shares.
The order appealed from should be modified to the extent of requiring the executors to return to the trustees 200 shares of the stock to be treated as principal in the trust.