[303]*303OPINION OF THE COURT
Bloom, J.
These appeals present us with the nettlesome task of interpreting the Uniform Principal and Income Act (EPTL 11-2.1). Deceased, Philip Grove, married his first wife, Harriet Flaherty Grove, on July 17,1926. By decree dated June 11, 1973 and entered in the office of the Clerk of Tioga County on that date, the marriage was dissolved because of the incurable insanity of Harriet for a period of more than five years (Domestic Relations Law, § 140, subd [fl).
Somewhat less than one year prior to the entry of the judgment of dissolution Philip executed his last will and testament. In it he provided for his then wife, Harriet, created a trust in the principal amount of $200,000 for the benefit of five designated relatives with remainder over to his three daughters by Harriet, Barbara Grove Simoni, Jane Grove Pritchard and Elizabeth Grove Schweizer, and to Birgit Bengston, in equal shares. He further directed that the rest, residue and remainder of his estate be divided into 20 equal parts. Three of those parts were left outright to each of his three daughters. He directed that the remaining 11 parts be held in trust for Birgit with remainder over to his four children by Harriet, the three daughters hitherto named, and a son, Winthrop D. Grove, in equal shares.
On July 14, 1973 Philip and Birgit were married. Five days prior thereto the two entered into an antenuptial agreement in which they acknowledged that title to the house and land theretofore owned by Philip and located at 112 East Genesee Street, Skaneateles, New York, had been transferred to Birgit on December 26, 1972. Additionally, Philip, by the agreement, made a gift to Birgit of all of the furniture, furnishings, equipment and improvements at the Skaneateles house and undertook to make Birgit the irrevocable beneficiary of specified life insurance policies having a combined value of approximately $200,000. In return Birgit agreed to waive any rights arising by operation of law in all realty and personalty owned by Philip.
[304]*304During all of this period the primary asset of Philip was his major interest in three closely held corporations, Grove Shepherd Wilson & Kruge, Inc. (Grove, Shepherd); Grove Group, Inc., and MacLean Tunnel Corporation.
Harriet died on June 29, 1974. On July 27, 1975, Philip, then 70 years of age, was involved in an automobile accident. On August 16, 1975, as a result of the injuries received in that accident, he died. Birgit was 49 years old on the date of Philip’s death. On that date Barbara Grove Simoni was 47, Jane Grove Pritchard was 46, Winthrop was 43 and Elizabeth Grove Schweizer was 34.
On April 25, 1977, some 20 months following the death of Philip, the liquidation of the three closely held corporations in which he was the principal actor was begun. Rather obviously, little or no income was derived from these corporations during the period of the winding down of their affairs. Moreover, for the five-year period antedating Philip’s death all profits of the corporations had been ploughed back into the corporations to supply needed additional working capital. By consequence, no dividends had been paid during that period.
Following the death of Philip and continuing into 1976 Birgit received a small salary from Grove, Shepherd. The total for the two years aggregated $15,000. Additionally, and from the time of Philip’s death through April, 1976, a period of some eight months, she continued to occupy, rent free, the co-operative apartment in the Sherry Netherland which she and Philip had occupied during the life of their marriage. Title to the apartment was in the name of the estate of Harriet Grove and the monthly maintenance charge of $2,000 was paid by Grove, Shepherd. From February, 1978 through January, 1980, her income from the trust exceeded $115,000. In 1977 and 1978 the income received by her from the estate of Philip Grove (as distinguished from the trust) totaled $20,568.89. Thus, her total income from the trust and the estate during this four-year period exceeded $135,000.
Inasmuch as there was a period during which a portion of the trust corpus was largely nonincome producing because of the liquidation of the three closely held corpora[305]*305tions, the trustee brought this proceeding to settle his intermediate account and to determine whether an equitable apportionment between capital and income was appropriate. The learned Surrogate concluded that, under EPTL 11-2,1 (subd [k]), that portion of the trust corpus represented by the closely held corporations was underproductive property during the period of liquidation and that surrounding conditions and relationships prior to the date the trust became effective were not to be considered in determining the applicability of the doctrine of equitable apportionment. He held that some unspecified portion of the liquidating dividends was delayed income necessitating an apportionment of such dividends between capital and income. Two of the remaindermen, Simoni and Schweizer, appeal from that ruling.
The doctrine of equitable apportionment of underproductive trust property between life tenant and remaindermen has a long, if uncherished history. The applicable law with respect to apportionment of the proceeds of a trust between the life tenant and remaindermen has been set forth quite simply: “1. Ordinary dividends, regardless of the time when the surplus out of which they are payable was accumulated, should be paid to the life beneficiary of the trust. 2. Extraordinary dividends, payable from the accumulated earnings of the company, whether payable in cash or stock belong to the life beneficiary, unless they entrench in whole or in part upon the capital of the trust fund as received from the testator or maker of the trust or invested in the stock, in which case such extraordinary dividends should be returned to the trust fund or apportioned between the trust fund and the life beneficiary in such a way as to preserve the integrity of the trust fund”. (Matter of Osborne, 209 NY 450, 477.) To this an additional caveat was added: “Third. When a corporation is liquidated, its assets sold, and the proceeds distributed among its stockholders, an apportionment must be made between the capital of the trust fund and the income, and so much of the sum received by the trustee as represents profits accumulated since the creation of the trust must be attributed to income and paid to the life tenant; otherwise, there would [306]*306result an increase in the corpus of the fund by accumulations of income, which, except for the benefit of infants, is against public policy and expressly condemned by statute”. (Matter of Schaefer, 178 App Div 117,120-121, affd 222 NY 533; see, also, Matter of Davis, 54 Misc 2d 1065, 1070.)
The simplicity with which the rule was formulated is belied, however, by the difficulty encountered in its application (see, e.g., Furniss v Cruikshank, 230 NY 495; Spencer v Spencer, 219 NY 459; Lawrence v Littlefield, 215 NY 561). While these cases deal in the main with unproductive or underproductive realty, the same problems were encountered in dealing with personal property. Indeed, so grave were the problems encountered in dealing with specific fact situations that the rules were subjected to in-depth examination by the Temporary State Commission on the Modernization, Revision and Simplification of the Law of Estates
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[303]*303OPINION OF THE COURT
Bloom, J.
These appeals present us with the nettlesome task of interpreting the Uniform Principal and Income Act (EPTL 11-2.1). Deceased, Philip Grove, married his first wife, Harriet Flaherty Grove, on July 17,1926. By decree dated June 11, 1973 and entered in the office of the Clerk of Tioga County on that date, the marriage was dissolved because of the incurable insanity of Harriet for a period of more than five years (Domestic Relations Law, § 140, subd [fl).
Somewhat less than one year prior to the entry of the judgment of dissolution Philip executed his last will and testament. In it he provided for his then wife, Harriet, created a trust in the principal amount of $200,000 for the benefit of five designated relatives with remainder over to his three daughters by Harriet, Barbara Grove Simoni, Jane Grove Pritchard and Elizabeth Grove Schweizer, and to Birgit Bengston, in equal shares. He further directed that the rest, residue and remainder of his estate be divided into 20 equal parts. Three of those parts were left outright to each of his three daughters. He directed that the remaining 11 parts be held in trust for Birgit with remainder over to his four children by Harriet, the three daughters hitherto named, and a son, Winthrop D. Grove, in equal shares.
On July 14, 1973 Philip and Birgit were married. Five days prior thereto the two entered into an antenuptial agreement in which they acknowledged that title to the house and land theretofore owned by Philip and located at 112 East Genesee Street, Skaneateles, New York, had been transferred to Birgit on December 26, 1972. Additionally, Philip, by the agreement, made a gift to Birgit of all of the furniture, furnishings, equipment and improvements at the Skaneateles house and undertook to make Birgit the irrevocable beneficiary of specified life insurance policies having a combined value of approximately $200,000. In return Birgit agreed to waive any rights arising by operation of law in all realty and personalty owned by Philip.
[304]*304During all of this period the primary asset of Philip was his major interest in three closely held corporations, Grove Shepherd Wilson & Kruge, Inc. (Grove, Shepherd); Grove Group, Inc., and MacLean Tunnel Corporation.
Harriet died on June 29, 1974. On July 27, 1975, Philip, then 70 years of age, was involved in an automobile accident. On August 16, 1975, as a result of the injuries received in that accident, he died. Birgit was 49 years old on the date of Philip’s death. On that date Barbara Grove Simoni was 47, Jane Grove Pritchard was 46, Winthrop was 43 and Elizabeth Grove Schweizer was 34.
On April 25, 1977, some 20 months following the death of Philip, the liquidation of the three closely held corporations in which he was the principal actor was begun. Rather obviously, little or no income was derived from these corporations during the period of the winding down of their affairs. Moreover, for the five-year period antedating Philip’s death all profits of the corporations had been ploughed back into the corporations to supply needed additional working capital. By consequence, no dividends had been paid during that period.
Following the death of Philip and continuing into 1976 Birgit received a small salary from Grove, Shepherd. The total for the two years aggregated $15,000. Additionally, and from the time of Philip’s death through April, 1976, a period of some eight months, she continued to occupy, rent free, the co-operative apartment in the Sherry Netherland which she and Philip had occupied during the life of their marriage. Title to the apartment was in the name of the estate of Harriet Grove and the monthly maintenance charge of $2,000 was paid by Grove, Shepherd. From February, 1978 through January, 1980, her income from the trust exceeded $115,000. In 1977 and 1978 the income received by her from the estate of Philip Grove (as distinguished from the trust) totaled $20,568.89. Thus, her total income from the trust and the estate during this four-year period exceeded $135,000.
Inasmuch as there was a period during which a portion of the trust corpus was largely nonincome producing because of the liquidation of the three closely held corpora[305]*305tions, the trustee brought this proceeding to settle his intermediate account and to determine whether an equitable apportionment between capital and income was appropriate. The learned Surrogate concluded that, under EPTL 11-2,1 (subd [k]), that portion of the trust corpus represented by the closely held corporations was underproductive property during the period of liquidation and that surrounding conditions and relationships prior to the date the trust became effective were not to be considered in determining the applicability of the doctrine of equitable apportionment. He held that some unspecified portion of the liquidating dividends was delayed income necessitating an apportionment of such dividends between capital and income. Two of the remaindermen, Simoni and Schweizer, appeal from that ruling.
The doctrine of equitable apportionment of underproductive trust property between life tenant and remaindermen has a long, if uncherished history. The applicable law with respect to apportionment of the proceeds of a trust between the life tenant and remaindermen has been set forth quite simply: “1. Ordinary dividends, regardless of the time when the surplus out of which they are payable was accumulated, should be paid to the life beneficiary of the trust. 2. Extraordinary dividends, payable from the accumulated earnings of the company, whether payable in cash or stock belong to the life beneficiary, unless they entrench in whole or in part upon the capital of the trust fund as received from the testator or maker of the trust or invested in the stock, in which case such extraordinary dividends should be returned to the trust fund or apportioned between the trust fund and the life beneficiary in such a way as to preserve the integrity of the trust fund”. (Matter of Osborne, 209 NY 450, 477.) To this an additional caveat was added: “Third. When a corporation is liquidated, its assets sold, and the proceeds distributed among its stockholders, an apportionment must be made between the capital of the trust fund and the income, and so much of the sum received by the trustee as represents profits accumulated since the creation of the trust must be attributed to income and paid to the life tenant; otherwise, there would [306]*306result an increase in the corpus of the fund by accumulations of income, which, except for the benefit of infants, is against public policy and expressly condemned by statute”. (Matter of Schaefer, 178 App Div 117,120-121, affd 222 NY 533; see, also, Matter of Davis, 54 Misc 2d 1065, 1070.)
The simplicity with which the rule was formulated is belied, however, by the difficulty encountered in its application (see, e.g., Furniss v Cruikshank, 230 NY 495; Spencer v Spencer, 219 NY 459; Lawrence v Littlefield, 215 NY 561). While these cases deal in the main with unproductive or underproductive realty, the same problems were encountered in dealing with personal property. Indeed, so grave were the problems encountered in dealing with specific fact situations that the rules were subjected to in-depth examination by the Temporary State Commission on the Modernization, Revision and Simplification of the Law of Estates
On the other hand, EPTL 11-2.1 (subd [k], par [1]), which deals with underproductive property, provides, in pertinent part: “a portion of the net proceeds of any transaction [307]*307with respect to any part of principal which consists of property, other than securities listed on a national securities exchange or traded in over the counter, which has not produced an average net income of one per cent per annum of its inventory value for more than one year (including as income the value of any beneficial use of the property by the income beneficiary) shall be treated as delayed income to which the income beneficiary is entitled as provided in this paragraph”.
It is plain that the two provisions are compatible, i.e., that while the end result of the corporate liquidation process is capital under EPTL 11-2.1 (subd [e], par [6]), it also may be property which is underproductive during the period of liquidation under EPTL 11-2.1 (subd [k], par [1]). However, our inquiry does not end on that point. EPTL 11-2.1 (subd [a], par [1]) provides the rules by which the trust shall be administered. In the circumstances of this case we are of the opinion that the rule enunciated in EPTL 11-2.1 (subd [a], par [1], cl [C]) requiring administration of the trust “in accordance with what is reasonable and equitable in view of the interests of those entitled to income as well as those entitled to principal and in view of the manner in which men of ordinary prudence, discretion and judgment would act in the management of their own affairs” is the appropriate rule here to be applied. In so doing we must give due heed to the circumstances , and relationships surrounding the execution of Philip’s will. We must not lose sight of the fact that it is a trust created by Philip which we are required to construe. It is his intent which must be effectuated insofar as it can be ascertained from the instrument, the relationships and the surrounding circumstances. (Furniss v Cruikshank, 230 NY 495, supra; 61 NY Jur, Trusts, § 425.) These cannot be defeated by sterile rules.
These circumstances and relationship demonstrate that some six months prior to the marriage of Philip to Birgit, and obviously in anticipation thereof, Philip made a gift of the Skaneateles house and land. By the antenuptial agreement entered into five days before their marriage Philip transferred to Birgit ownership of all the furniture, furnishings, equipment and improvements at that house. [308]*308Additionally, he undertook to make her the irrevocable beneficiary of life insurance of the face value of $200,000. All of this followed the making of his will and was plainly part of a testamentary pattern. By his will Philip constituted Birgit as remainderman of one quarter of a $200,000 trust created for the benefit of relatives. Additionally, the trust of which Birgit was the life tenant was comprised of substantially more than the stock of three closely held corporations. This is evidenced by the substantial payments made to Birgit as life tenant. To this must be added the salary drawn by Birgit from Grove, Shepherd in 1975 and 1976 and her occupancy of the Sherry Netherland apartment, rent free, for a period of time. While there is nothing to show that Philip arranged for these two latter items, they could not have taken place without the consent of the trustee and remaindermen. It is a reasonable inference that, in so doing, they were following a wish, expressly or impliedly, indicated by Philip. Finally, Philip’s will, the instrument by which the trust was created, expressly conferred upon the trustees the authority “[t]o continue to hold such shares and interest, if any, in Grove Shepherd Wilson & Kruge, Inc. * * * together with any shares or interests in any other corporation of which I may be a stockholder notwithstanding the fact that said shares or interest may constitute all or the greater part of my estate or the trust or trusts in which they are held” (emphasis supplied). This provision was included notwithstanding the fact that for five years prior to his death and for some two years prior to the execution of the will, the three closely held corporations had not paid any dividends.
Reading this will sympathetically and in its entirety in order to understand and give effect to the testator’s intent (Matter of Fabbri, 2 NY2d 236) and interpreting it in light of Philip’s acts, the instruments executed by him and the antenuptial agreement entered into with Birgit, we conclude that it was Philip’s purpose that these closely held corporations or, if liquidated, the funds thereby represented, would at all times remain capital and would not be apportioned between capital and income.
Accordingly, the orders of the Surrogate’s Court, New York County (Midonick, S.), entered June 30, 1981 are [309]*309reversed, on the law and the facts, and the objection of Birgit Bengston Grove seeking equitable apportionment should be dismissed, with costs to all parties filing briefs payable out of the trust estate.
The commission’s reports commonly referred to as the “Bennett Commission Reports”, derives its name from Nassau County Surrogate John D. Bennett, chairman of the commission.