Legal Definitions - Statute of Accumulations

The Statute of Accumulations refers to a historical type of law that placed limits on how long the income generated from property, established through a will or a legal deed, could be continuously reinvested and added to the principal fund, rather than being distributed to beneficiaries.

These statutes were designed to prevent wealth from being tied up indefinitely within trusts or estates, ensuring that assets eventually become available for use and distribution rather than growing perpetually without direct benefit to living individuals or active charitable purposes for an excessively long period.

• Example 1: A Long-Term Family Inheritance Plan

  Imagine a wealthy individual, Ms. Eleanor Vance, who creates a will stating that upon her death, all the income generated by her substantial investment portfolio must be reinvested back into the principal for 75 years. After this period, the entire accumulated sum is to be distributed among her then-living descendants. A Statute of Accumulations would likely invalidate the portion of her will requiring accumulation for such an extended duration. Instead, it would mandate that the income be distributed or used for the beneficiaries after a legally permissible shorter period (e.g., 21 years), preventing the wealth from being locked away for generations without active use.

• Example 2: A Foundation's Initial Growth Strategy

  Consider a philanthropist who establishes a new foundation via a legal deed, endowing it with a significant sum. The deed specifies that for the first 40 years, 80% of the foundation's annual investment income must be accumulated and added to the principal, with only 20% available for charitable grants. The goal is to dramatically increase the endowment's size before making substantial disbursements. A Statute of Accumulations would challenge this plan. It would likely limit the period of mandatory accumulation to a shorter, legally defined term, compelling the foundation to begin distributing a larger portion of its income for its charitable purposes sooner than originally intended, ensuring the funds are put to active use rather than solely growing in perpetuity.