delivered the opinion of the court.
The questions in this case arise between tenants for life, and remaindermen.
The will of W. C. Hite provides;
1. “I nominate and appoint my friend, Thomas L. *261Barret, and my son, William W. Hite, my executors and trustees, and devise and bequeath to them my entire estate, real, personal, and mixed, in possession, remainder, or reversion, and wherever situated, for the purposes and upon the trusts herein indicated. I give them full power and authority to sell, convey, and reconvey in their discretion, any real estate which I may own, or any which they may purchase for my estate. I give them full power and authority to sell, transfer, and deliver any or all of my stocks, bonds, and securities of every kind, and full power and authority to invest and re-invest, from time to time, the proceeds of such sales in other stocks, bonds, and securities and improved real estate, whether situated in this State or elsewhere.
“ Whenever sales are made by my said trustees the title shall pass, and the purchaser need not look to the application of the purchase money. It is my will, and I give to my said trustees all power and authority which may be necessary and proper to carry out the purpose and trusts as herein indicated; and I do not desire that they be required to give bond with security, either as executors or trustees; nor do I wish them to file any inventory of my estate in the county court.
“ The estate devised and bequeathed to my said trustees is for the use and benefit of my wife, Mary E. Hite, and my children and their descendants, and my devisees as indicated in this my will.”
8. “ After the payment of my funeral expenses and just debts, and the payment of and provision for the legacies and bequests as directed in this will, I desire and direct my trustees to manage, control, invest, and dispose of the balance of my estate, of every kind and description, *262including, after my wife’s death, that part of my estate which has been set aside for her annuity, in their discretion, so as to be safe and produce income.
“ My trustees shall, ten (10) years after my death, if my trust estate in their hands be sufficient for that purpose, pay over to each of my children ten thousand ($10,000) dollars, and if any of my children be dead, leaving children then alive, they shall be paid their parent’s part; but should, any of my children be dead without issue living, that child’s share remains as part of the trust fund. * * *
“ My trustees shall, between the time of my death and the payment of said sums of $10,000, pay over the net income arising from said general trust estate to my wife, Mary E. Hite, and my children, Mary-E. Winston, Nannie T. Hite, Wm. W. Hite, Louis Hite, and Allen R. Hite, one sixth to each. * * *
( If there should be any of my estate remaining after-the payment of said sums directed to be paid my children, I desire it to be kept together by my trustees and made productive of income.
“ This estate shall remain undivided, and continue in trust during the lives of my wife and children, and during the life of the longest liver of them. At the death of the longest liver, the trust shall cease, and the trust estate be divided and distributed among the descendants of my children, according to the provisions of the Statutes of Descents and Distributions as then existing in the State of Kentucky.
“ The net income arising from said trust estate shall be divided annually between my wife and children, one sixth to each.”
*263It is contended for the life tenants that, under these provisions, the unproductive real estate of the testator should be treated as converted as of the day of his death; and that as the trustees sold it from time to time, the entire purchase money realized should not be treated as •a part of the principal of the trust fund, but such a sum only as with six per cent, interest per annum from the time of his death would amount to the purchase money ; and that the difference between the two amounts should go to the life tenant. In other words that, under the doctrine of equitable conversion, such a portion of the purchase money as would equal this interest must be regarded as income, and not as capital. The lower court, erroneously as we think, accepted this view.
The intention of the testator must govern. He undoubtedly intended that the trustees should so change and invest the estate as to make all of it productive of income. This is evident from the eighth clause of the will, which directs them to invest and dispose of it “so as to be safe and produce income.” He must have known, however, that this could not probably be done at once without sacrifice. This doubtless led to his giving them a broad discretion in the matter; and while he provided that the life tenants should have any net income from his ■estate, yet he no doubt had in view income actually realized. The estate was large. Much of it at his death was already productive, and it can not well be supposed he ■expected a part of the principal would be given to the life tenant to compensate for the delay which he knew. must occur before the remainder of it could be made so.
The doctrine of equitable conversion is at best an artificial, arbitrary one. It will not be applied, unless it is *264made the duty of the trustee to sell. Conceding, as we think is true, that this is so in this instance, and that the discretion given relates only to the time when it shall be done, yet in view of the character of the entire estate, and the will itself, which says the proceeds of the sales are to be re-invested, it is clear to us the testator did not intend income to be paid to the life tenant on account of property from which none was realized.
If it be said, if this be so, then the trustees could by delay enrich the remainderman at the expense of the life tenant; yet the testator, as is evident from the will, did not intend the condition of the latter to be better than his own; arid if he had lived no income might have come to him for years from this portion of his estate, or from some of his stocks; and nothing should be allowed the life tenant save actual income arising from the testator’s estate, because this was his evident intention and expectation. If, however, any taxes upon, or sums by way of improving, the unproductive real estate, have been paid out of the income of the other estate, the same should be allowed the life tenant out of the sales of the unproductive estate. The testator never intended the life tenant to thus protect and add to the value of the real estate from which he was receiving no benefit. The fair presumption is .that the testator intended such a re-imbursement.
Since the testator’s death certain stock dividends, based upon earnings and profits, have been declared upon some of the stocks. It is claimed by the remaindermen that they belong to the principal of the estate, while 'the life tenants assert they are entitled to them as income. The question is beset with difficulties. It is urged by the-former that the mere declaration as “ a stock dividend ” *265by the company is conclusive in their favor; that being stock it must be treated as a part of the capital, and that the conclusion of the company to turn all their profits into capital is a matter in its discretion, and conclusive upon the courts.
As between the company and the shareholder the action of the directors in determining whether the earnings shall be capitalized in stock dividends, or paid out in cash, is. conclusive; but when once declared, although in the form of stock, it is the province of the law to determine-whether they belong to the corpus of an estate and are= to benefit the remainderman, or whether they shall go to-the life tenant as income. It is the rule as settled by the current of authority that dividends, whether of stock or ■ payable in money, are non-apportionable, and must be considered as accruing in their entirety as of the date-when they are declared. If, for instance, the life tenancy has begun when a cash dividend is declared, it belongs to the life tenant, although it may result in part from profits • previously earned. It goes to him irrespective of the-time when it was earned. No inquiry will in such a case be made as to what portion of the profit upon which the dividend was based was earned before or after the death of' the testator for the purpose of apportioning it between the tenant for life and the remainderman.
The difficulty attending such an inquiry, the impossibility of attaining accuracy, and of ascertaining the many sources from which the profit has been derived, are the ■ reasons for this rule ; but it does not also follow that the declaration of the company, as to the character of the-dividends, determines its legal'status and to whom it shall belong. It is the law which says that the'time when it *266is declared shall be deemed the date of its accrual, and so it is for the law, when .it' is once declared, to determine its ownership. .
There is great conflict of decision, however, upon this point. The English rule seems to be that the tenant for life is entitled to cash dividends only. This was declared in the early case of Brander v. Brander, 4 Vesey, 801, but in a country where entails and perpetuities are. favored. It has, however, been followed by many of. the highest courts of this country, but the reasoning of their opinions is not satisfactory to us. They are perhaps largely the result of regard for former decision; but the question is •of first impression in this State. Where a dividend, .although declared in stock, is based upon the earnings of the company, it is in reality, whether called by one name •or another, the income of the capital invested in it. It is but a mode of distributing the profit. If it be not income, what is it ? If it is, then it is rightfully and equitably the property of the life tenant. If it be really profit, then he should have it, whether paid in stock or money. A stock dividend proper is the issue of new shares, paid for by the transfer of a sum equal to their par value from the profit and loss account to that representing capital 'Stock; and really a corporation has no right to declare a •dividend, either in cash or stock, except from its earnings ; and a singular state of case — it seems to us an unreasonable one — is presented, if the company, although it rests with it whether it will declare a dividend, can bind the courts as to the proper ownership of it, and by the mode of payment substitute its will for that of the testator, and favor the life tenant or the remainderman, -as it may desire. It can not in reason be considered that *267the testator contemplated such a result. The law regards substance, and not form, and such a rule might result not only in a violation of the testator’s intention, but it would give the power to the corporation to beggar the life tenants who, in this case, are the wife and children of the’ testator, for the benefit of the remaindermen, who may ■perhaps be unknown to the testator, being unborn when the will was executed. We are unwilling to adopt a rule which, to us, seems so arbitrary and devoid of reason and Justice.,
If the dividend be in fact a profit, although declared irL stock, it should be held to be income. It has been so held in Pennsylvania and many other States, and we think it the correct rule. Earp’s Appeal, 28 Pa, St., 368; Cook’s Law of Stocks, sec. 554. The lower court adopted this view, but it should not be held to include a dividend like that declared by the Birmingham Bolling Mill Company. It was not declared out of earnings, but out of profits made by the sale of a piece of real estate that the company owned at the decedent’s death. His interest in it was, at the time of his death, a part of the corpus of his estate, and it is properly capital and not income.
It was also error to hold that the privilege, given by a ■corporation to its stockholder to take additional stock at par when the stock is worth more, belongs to the life tenant. This right stands upon a different footing from the claim to a stock dividend. It is a mere incident of the old stock. It is a right appurtenant to it, and as such, is a part of the capital. It can not be fairly considered as income, but is inherent in the shares of stock in their •creation. While the value of the right must depend «essentially upon the success of the business of the com*268pany, this does not alter the nature of the right, and the stock is properly a part of the corpus of the estate of the owner. This incident of the stock was, at the death of the testator, a part of his estate, and the option merely-operated to increase or broaden the capital or change the-manner of the investment. It gave the right to a larger-interest in the capacity of the. company to make .profits, but not to the income itself. The life tenant should not,, however, be required to restore the stocks gotten under these options, but their value should be ascertained as of' the time when the options were given, and the life tenant-required to account for the profit as a part of the capital of the estate. Matter of Kernochan, 104 N. Y., 618; Brinley v. Grou, 50 Conn., 73.
' The lower court, in adjusting the conflicting rights of the parties, adopted what is called the “ sinking fund ”' theory; that is, it held that where the trustees purchased stocks by way of re-investment, at more than their par yalue, they must retain out of thé income from them and add to the principal of the estate a sum equal to the excess above the par yalue; else, as was said, at the maturity of the bonds or stocks the principal would be lessened, as they would then only be worth their par value. This was error, and the appellees question the correctness of the ruling by a cross-appeal.
It is urged that this is necessary to preserve the principal of the estate intact, and do substantial justice between, the life tenant and the remainderman.
The objects of investment were, however, two-fold, to-wit: safety, and the production of income. The investment must be a safe one in order to preserve the capital, and must also be an income-producing one to benefit the *269life tenant. Investments in stocks above par are not only more productive, but more secure; and both qualities must be kept in view. The bonds might be bought at a premium and then sold at a still higher one; and then, if ■enough is also taken from the income and added to the principal to balance the excess above par at which they are purchased, the remainderman will be doubly benefited.
Some investments will increase, while some will diminish, in value. Bonds might be purchased under par, but their face value collected at maturity, and all would be added to the capital. All things considered, it seems to us the safe rule is to let those matters balance themselves, as they are likely to do in time.
The testator no doubt contemplated the matter in this light, and we think intended that, where an investment was made, the cost of it was to be charged to the principal without any deduction from the income of the life tenant. The costs appear to have been fairly apportioned. The annual expenses of collecting and disbursing the ■income should come out of it; but the expenses of conversion and re-investment were for the benefit of both the remainderman and the life tenant, and it was proper to apportion them.
The judgment is reversed upon both the original and cross-appeal, and cause remanded for further proceedings consistent with this opinion.