## Facts

- A testator’s will created a testamentary trust and appointed a corporate fiduciary as executor and trustee.
- The will provided life income to the testator’s wife for her “support and comfort,” with discretionary authority in the trustee to distribute principal if needed for those purposes.
- After the wife’s death, the trust was to benefit the testator’s children: each child would receive the net income from a share for life, and the trustee could distribute principal as it deemed necessary or desirable for the child’s “support, education and comfort.”
- The will also contained an “allocation” clause authorizing the trustee to determine whether money or property received should be treated as principal or income as the trustee considered “just and equitable.”
- By the time relevant events occurred, the wife and another prior income beneficiary had died, leaving the testator’s daughter as the sole life beneficiary; her minor children were remaindermen.
- The trust’s principal included substantial stock holdings; the trustee sold stock and realized significant net proceeds.
- The life beneficiary requested that $900,000 of the sale proceeds be allocated to income and distributed to her, despite already receiving roughly $1 million annually in income and without claiming need for support.
- The trustee sought a declaratory judgment approving the proposed allocation; a guardian ad litem was appointed for the minor remaindermen.
- The trial court held that stock-sale proceeds were principal and that allocating $900,000 to income would be an abuse of discretion; it denied the distribution and awarded the guardian ad litem $50,000 in fees.
- The life beneficiary appealed the construction of the will and denial of the distribution; the trustee cross-appealed only the amount of the guardian ad litem fee.

## Issues

1. Whether the will’s allocation clause permitted the trustee to treat a portion of capital-gain proceeds from the sale of trust stock as income distributable to the life beneficiary absent any demonstrated need for “support, education and comfort.”
2. Whether the trial court’s $50,000 guardian ad litem fee award was unreasonable and excessive.

## Decision

- The court affirmed the judgment denying the requested allocation and distribution.
- The court held that the trustee’s allocation power did not authorize recharacterizing clearly principal receipts (stock-sale proceeds) as income to benefit the life tenant in circumstances inconsistent with the trust’s purposes and the remaindermen’s interests.
- The court reversed the guardian ad litem fee award as excessive and remanded for entry of a reduced fee consistent with reasonableness standards.
- Disposition: affirmed in part, reversed in part, and remanded.

## Legal Principles

- Proceeds from the sale of trust corpus, such as stock held as an investment, are ordinarily treated as principal rather than income under traditional trust accounting rules.
- A trustee’s discretionary clause permitting classification of receipts as principal or income “as … just and equitable” is construed in context and does not confer unlimited authority to reclassify plainly principal receipts to favor one class of beneficiaries.
- Trustee discretion must be exercised in good faith, consistent with the settlor’s intent as expressed in the instrument, and with due regard for both income beneficiaries and remaindermen; courts may restrain an abuse of discretion.
- Where a trust instrument separately authorizes discretionary invasions of principal for specified purposes (e.g., “support, education and comfort”), an allocation clause cannot be used to circumvent those limits by recharacterizing principal as income for non-specified purposes.
- Guardian ad litem compensation is assessed under the same general criteria used to determine reasonable attorney’s fees; large fee awards are subject to appellate review and reduction if unreasonable.

## Conclusion

The court held that a broadly worded allocation clause did not permit the trustee to convert capital-gain proceeds from the sale of trust stock into distributable income for a life beneficiary’s non-support objectives, and it reduced an excessive guardian ad litem fee under standard attorney-fee reasonableness factors.


Englund v. First Nat’l Bank of Birmingham, 381 So. 2d 8 (Ala. 1980)