DOCTRINE OF ACCUMULATION

INTRODUCTION
A property owner is thinking of making a will or creating a trust. How far into
the future should the law allow him or her to reach when tying up that property? Can
he or she control the devolution of that property indefinitely? For a lifetime? For a
fixed period of years? How far should one generation be given freedom to dispose of
property in ways that will restrict the freedom of the next? These fundamental
questions, which are the substance to be analysed , are ancient ones, and different
answers have been given to them at different times.
The Rule Against Perpetuities is not the only rule of property law that bears on
trust duration. Another, the rule against accumulations of income, limits the time
during which a settlor may direct the trustee to accumulate and retain income in trust
to the applicable perpetuities period. In the typical case, compliance with the Rule
Against Perpetuities ensures compliance with the rule against accumulations. Hence,
for 200 years, the rule against accumulation, the Rule Against Perpetuities.
With the erosion of the Rule Against Perpetuities, however, the rule against
accumulations of income may have newfound relevance. Perpetual trusts are more
likely than ordinary trusts to prescribe accumulations of income, and such trusts are
designed to endure beyond the traditional perpetuities period of lives in being plus
twenty-one years.
Income from trust assets must either be distributed, retained as income or
accumulated.If it is accumulated it becomes additional capital of the trust, in turn
(usually) generating future income. It has long been accepted that the rule restricting
accumulation, and particularly the restriction on the period for which income may
lawfully be accumulated, is an important aspect of trust administration and law, with
potentially serious consequences for any breach. However, until the Accumulations
Act 1800, the law in this area barely seems to have been the subject of note or
litigation. Questions relating to accumulations, to the extent that they ever arose, were
simply considered under the umbrella of the wider question of whether the trust itself

was lawful. In English law, this almost invariably involved consideration of what has
become known as the rule against perpetuities.
We were told that the rule against excessive accumulations works a similar
mischief in relation to trusts. It long predates the emergence of the modern
discretionary trust, in which powers to accumulate are an important element. The
reasonable wishes of settlors will often be incapable of fulfilment or will run the risk
of being defeated by an absolute rule that cannot be side-stepped.
THE MEANING OF AN ACCUMULATION
For the purposes of the rule, the meaning of the term accumulation is
tolerably clear. In the leading modern case, Re Earl of Berkeley, Harman LJ
expressed the view that
Accumulation to my mind involves the addition of income to capital thus
increasing the estate in favour of those entitled to capital and against the interests
of those entitled to income.
Where income was retained to meet potential obligations or liabilities, it did not
lose its character as income, and had to be applied as such to the extent that it was
not in fact needed. Thus there is no accumulation where
(1) a fund is charged with the payment of annuities and income is retained as a
precaution against future deficiencies; or
(2) money is retained against against possible liabilities under a lease, for example in
relation to repairs
DIRECTION FOR ACCUMULATION
Section 17 of the Act speaks about the Accumulation of Income of property or
Direction for Accumulation. A direction for the accumulation of income of property
amounts to limiting the beneficial enjoyment of property. Such direction is void as per
S.11 of the Act but S.17 is an exception.S.11 is applicable where there are absolute
transfers whereas S.17 applies to all kinds of transfer. e.g., A settler by deed directs
accumulation for 25 years and himself lives for 40 years, from the date of transfer. The
accumulation for 25 years is good. This Section is akin to Section 117 of Indian
Succession Act, 1925.
Permissible period for Accumulation is as per law:
i) Life of the transferor; or
ii)Period of 18 years, whichever is longer. Any condition beyond this period is void
and not operative. The direction can be for the whole or part of the income.

Illustration: X transfers his property to Z with a direction that the income of the said
properties shall accumulate during Xs life and shall be given to M. The direction here
is valid only up to the life of Z and not after his death.
EXCEPTIONS
1. Payment of Debts. This rule is not applicable where the purpose for accumulation
is the payment of debts incurred by the transferor or any other person having an
interest in the transfer.
For example A makes a gift of his house to B with a direction that form the rents of
the house B shall pay Rs 500 per months towards the satisfaction of a debt of Rs on
Lac incurred by A. The direction of the accumulation of income is valid even it
continues after the life of A or expiry of period of 18 years.
2. Accumulation for raising portions. It means providing a share of the income for
maintenance. It does not apply to cases where accumulation of income is for providing
portions to children or for some remote issue of the transferor or any other person
interested in the transfer.
3. Maintenance of property. Accumulation for the proper maintenance and
preservation of the property shall not be void even if it exceeds the life of the
transferor or 18 years from the date of transfer.
SAVINGS OUT OF INCOME: These are not within the operation of the section and
therefore Trustees are not prevented by reason of this section from making
accumulations on saving.
The basis underlying this principle that as Land is to be enjoyed by the profit
that arise out of such a land and just as law prevent the restraint on alienation, so also
law disfavour any attempt to prevent the income being enjoyed by the owner of the
land and for the time being. So such accumulation of income is not allowed by law
under section 17 . It means direction of accumulation of income is valid if it is first up
to the life of transferor or second upto period of 18 years from the date of the transfer.
ILLUSTRATION
1. A transfer his properties to B for life with a direction that the income of the said
properties shall accumulated during As life and shall be given also to C. The direction
for the accumulation of income is valid , upto life of B

A transfers a property to B for life and thereafter to Bs such son who first attains the
age of 25 years with a direction for accumulation of income till Bs first son attains 25
years . The direction of the accumulation of such income is void, reason it is beyond
the permissible limit ( life or 18 years).
A transfers property to B in 1960 with a direction for the accumulation of its benefits
upto 1990. A dies in 1985 thus the transferor lives for 25 years which is more than 18
years . The direction for accumulation is valid upto 1985 ( for 25 years) because it is
the longer period.
2. A transfers property to B in 1940 which is with the direction that the income arising
out of property is to be accumulated till 1970. i.e. for 30 years. A dies in 1965 . The
period during which the transferor is alive is more than 18 years from the date of the
transfer but being the longer of the two periods, the direction is valid till 1965. if
however the transferor dies in 1950. Then longer period would be 18 years and
accordingly the direction would remain valid till 1958.
The leading case is Bassil v Lister, where the dry question that Turner V-C had
to resolve, was whether a direction in the testators will that his trustees should pay
out of the income of his residuary estate the premiums on a policy of insurance on the
life of his son fell foul of the Thellusson Act. Turner V-C held that it did not. It was
not the function of the legislation to strike at bargains or contracts entered into for
other purposes than the mere purpose of accumulation. The payment of insurance
premiums did not naturally fall within those words. Indeed, he did not consider that
the payment of such premiums was an accumulation in any event, because the money
became the property of the insurance company and could not be attributed to a
particular premium. Turner V-C gave further illustrations of arrangements that fell
outside the scope of the Act, such as partnership agreements and insurance policies on
the lives of debtors; and a settlement of insurance policies with shares transferred to
pay the premiums out of the dividends.
Exceptions
However Such direction for accumulation of the income is valid even beyond the
above stated period under section 17( 1) if the direction is for the purpose of
(a) The payment of the debts of the transferor , or

(b) The provision of portion for the children or ramoter issue of transferor ,or of any
other person taking interest under the transfer ,or
(c) The provision for maintenance of property transferred, or
(d) where the property is transferred for the benefit of public or any other object
beneficial to mankind for example charitable purposes.
In short the direction for accumulation of the income is a particular mode of
restraining the enjoyment of the property. According to the principal laid down in
Section 17 such direction for accumulation would be void and inoperative but this
section provides an exception and permits a direction for accumulation of income to
operate in certain cases. This Section allows accumulation of income upto the life of
transferor ,or up to the period of 18 years, from the date of the transfer, whichever is
longer.
EFFECT OF AN ACCUMULATION
The effect of an excessive accumulation depends upon whether the direction
merely breaches the rule against excessive accumulations of income or whether
it also contravenes the rule against perpetuities. The latter has more serious
consequences than the former.
First, a direction to accumulate that not only exceeds the relevant accumulation
period but also contravenes the rule against perpetuities is wholly void. For
example, a direction to accumulate income until the first grandchild of A
reaches the age of 21, where A is alive and unmarried at the relevant date, is
void for perpetuity at common law. It is not certain that the first grandchild of
A to attain 21 will do so within 21 years of As death. That grandchild might,
for example, be the offspring of a future born child of A. In these
circumstances, it appears that the common law test alone applies. It is far from
certain that Act extended the principle of wait and see to directions to
accumulate. If it has not, in the example given, the direction to accumulate
income is wholly void, like any breach of the rule against perpetuities at
common law.
Secondly, the direction to accumulate may comply with the common law rule
against perpetuities but breach the statutory rule against excessive
accumulations. An example would be a direction to accumulate income until
5

the first child of A (who is alive and unmarried at the relevant date) should
attain the age of 21. In those circumstances, the direction to accumulate is void
only to the extent that it exceeds the appropriate statutory period.
TERMINATING AN ACCUMULATION
The general rule
There is a well-known situation where an accumulation can be brought to an
end. The principle was stated in Re Trevanion by Joyce J
Where there is an absolute vested interest, it is well settled that the Court will not
enforce a trust for accumulation in which no person has any interest except the owner
of the property the rents of which are to be accumulated.
The leading case on this principle is Saunders v Vautier, which has given its
name to the wider rule stated in that case by Lord Langdale MR by which where a
legacy is directed to accumulate for a certain period, or where the payment is
postponed, the legatee, if he has an absolute indefeasible interest in the legacy, is not
bound to wait until the expiration of that period, but may require payment the moment
he is competent to give a valid discharge.
As a result, where one or more persons of full age and capacity are absolutely
and indefeasibly entitled to the capital and income of a gift under these circumstances,
they may terminate the accumulation at any stage and require that the property be
transferred to them, thereby overriding the direction to accumulate. Where the
direction to accumulate contravenes the rule against perpetuities and is therefore
wholly void, the rule in Saunders v Vautier cannot apply.
Re Burns
In this case the issue was the application of the rule in a situation where the
testator directed certain annuities be paid, and that the capital and surplus income be
distributed after the death of one beneficiary in part to named people and in part to
charities. An application was brought to challenge the continuing accumulation more
than 21 years after the death of the testator.
It was held that the rule applied, but that the court could invoke its equitable
jurisdiction to resettle the funds for the charities and then to distribute the remainder.
The significance of the case is that the rule applies to charitable donees as well as
persons but that the court can remedy the application of the rule for the benefit of the
charities.
Re Ellis
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Here the executors sought the courts direction in respect of surplus funds that
were established to make support payments and to fund remainder interests. The
foundational rule in such cases is that the surplus should be accumulated in each fund
with the remainder, after the various obligations have been satisfied, to be distributed
in accordance with the testators wishes (or, in default, falling back into the residue of
the estate).
To ascertain the testators intent, the court should look to the nature of the obligation
and any residuary dispositions thus, here, the obligations were in respect of spousal
support and maintenance of a disabled child. In either situation, the income should
accumulate to satisfy the obligations with the remainder to go as intended by the
testator.
Re Struthers
This was a case of an implied accumulation of funds set aside from the general
assets of the estate to pay annuities and claims against the estate. Here, the testator
died in 1950, left his wife a life interest in the estate, and then left certain remainder
interests including a $75,000 fund to be used to pay a $5000 annuity.One issue
involved the accumulation of income on that fund. It was held that the income on the
$75,000 fund that was in excess of that needed to fund the annuity due to a change in
market circumstances (higher rates of interest on investment than that anticipated by
the testator) resulted in the rule requiring the surplus accumulation to be distributed to
the holders of the remainder interest
RULE AGAINST ACCUMULATION SECTION 17- IT IS EXCEPTION OF
S11
Section 11: Where, on a transfer of property, an interest therein is created absolutely
in favour of any person, but the terms of the transfer direct that such interest shall be
applied or enjoyed by him in a particular manner, he shall be entitled to receive and
dispose of such interest as if there were no such direction.
Where any such direction has been made in respect of one piece of immoveable
property for the purpose of securing the beneficial enjoyment of another piece of such
property, nothing in this section shall be deemed to affect any right which the
transferor may have to enforce such direction or any remedy which he may have in
respect of a breach thereof.

Thus Exception1. Necessity of Beneficiary Enjoyment of property adjacent to property. (Which

has been established in Tulk v Moxhay 1848,41 ER 1143- and call the
RESTRICTIVE COVENANTS).
2. The condition has been imposed by the transferor himself.
Tulk v Moxhay
Brief Fact Summary. The Plaintiff, Tulk (Plaintiff), had sold Leicester Square by
deed containing. The Defendant, Moxhay (Defendant), a subsequent purchaser sought
to

build

upon

the

land.

Plaintiff

brought

bill

for

injunction.

Synopsis of Rule of Law. Since a covenant is a contract between the vendor and the
vendee, it may be enforced against a subsequent purchaser who has notice of the
contractual obligation of his vendor, even though it does not run with the land.
Facts. The Plaintiff sold Leicester Square with the restriction that it be maintained in a
certain form as a public pleasure ground. The deed restriction was covenant for
heirs and assigns requiring that the land be maintained as a square garden. The
Plaintiff continued to own homes and live around the square after its sale. In 1808, the
person who originally purchased Leicester Square from the plaintiff had notice of the
covenant contained in the deed. Forty years later, the property was sold to the
Defendant, Moxhay. Moxhal sought to build upon the land on the square. Plaintiff
brought

bill

for

injunction

to

stop

any

construction.

Issue. Can a covenant restricting a property to a specific use be enforced against a

subsequent purchaser?
Held. Whether or not the covenant runs with the land, such an agreement could
properly be enforced in equity because the one who purchases the land from Tulk had
notice of that covenant. Defendant, Moxhal could not stand in a different situation
from the owner from whom he purchased the property. An equitable servitude is
enforceable by injunction with no regard to privity, so long as the promise is intended

to run and the subsequent purchaser has actual or constructive knowledge of the
covenant.

CONTENT OF THE RULE

A clear distinction can be drawn between the Rule against Perpetuities and the
rule against accumulations. The rule against accumulations is concerned not with the
vesting of trust property, but with income generated therefrom. In the bulk of
settlements, trustees will be bound, by the terms of the settlement, to distribute such
income to the beneficiaries on a regular basis. However, a direction might be made "to
the effect that the income is not to be paid to the beneficiaries as it arises, but instead
should be accumulated as a fund until the happening of some particular event." It is
against such a possibility that the rule against accumulations is directed. Stated simply,
the common law rule states that such a direction is inoperable if the accumulation of
income might persist beyond the perpetuity period, and the period is defined in the
same way as for the Rule against Perpetuities, namely a life and 21 years.
HISTORY OF RULE OF ACCUMULATION
The rule against accumulations of income originated in Thellusson v.
Woodford a decision of the House of Lords rendered in 1805. At issue was the will of
Peter

Thellusson, an enormously rich merchant and financier who died In

1797.Thellussons will provided that the bulk of his considerable estate, plus all the
income it would earn during the lives of his nine surviving male descendants, should
be accumulated for the ultimate benefit of hisoldest surviving male descendant at the
end of that period.Thellusson thus deviated substantially from the normal practice in
which the father left his estate either to the oldest son or to all the sons equally.16 As
Patrick Polden explains, This placed the family in an unprecedented and disturbing
situation. Like some perverted tontine, it left some of them, who were themselves
unable to enjoy any of the money, postponing by their continuing existence its
distribution to those golden lads for whom it seemed destined. Thellussons family
challenged the will. Eventually the case made it to the House of Lords. Speaking
through Lord Eldon, the House of Lords conclude that there was no violation of the
Rule Against Perpetuities. The interest in Thellussons oldest male descendant would
9

vest at the end of the specified measuring lives. It mattered not that none of the
measuring lives was a beneficiary.
Lord Eldon then turned to the question of whether the bequest violated a
separate rule against excessive accumulations of income:[A]nother question arises out
of this Will; which is a pure question of equity: whether a testator can direct the rents
and profits to be accumulated for that period, during which he may direct, that the title
shall not vest, and the property shall remain unalienable; and, that he can do so, is
most clear law. Thus the House of Lords held that, under the common law, a direction
to accumulate income during the period of the Rule Against Perpetuities is valid.
Although sanctioned by the House of Lords in 1805, Thellussons accumulation plan
was both sensational and quite unpopular. Given the magic of compound interest,
[t]he English public was shocked at the possibilities of accumulating large fortunes
after the manner of the Thellusson will.
One well-known estimate projected that Thellussons accumulation would
grow from 600,000 to somewhere between 19 and 38.4 million. The Lord
Chancellor who heard the case prior to its appeal to the House of Lords called
Thellussons plan unkind and illiberal. Tapping into these intuitions, the familys
counsel came up with the phrase posthumous avarice, which has attached itself to
Thellussons will ever since. Thellussons accumulation plan was so unpopular that
soon after the Lord Chancellor uppeal, Parliament enacted the Thellusson Act. The
Act limited accumulations of income to (1) the life of the settlor; (2) twenty-one years
from the death of the settlor; (3) the minority of any person living (or in gestation) at
the time of the settlors death; or (4) the minority of any person who, upon majority,
would be entitled to the income being accumulated. This statutory rule against
accumulations remains good law in England today.
Just as the fear of compounding interest and exponentially growing trust funds
inflamed passions about the dead hand in England, Peter Thellussons posthumous
avarice was likewise met with hostility in this country. Indeed, one Pennsylvania
judge expressed fear that such a trust might draw into its vortex all the property in the
state.Several states adopted statutes similar to the Thellusson Act or, in the case of
New York and a few other states, an even more restrictive one. History, however, has
proved the worry over Peter Thellussons accumulation scheme to have been
10

misplaced. When his grandson Charles died in 1856, Thellussons trust came to an
end, but the predicted vast fortune had not materialized. As Polden aptly observed,
nearly sixty years of accumulation had not produced one million pounds let alone
thirty. From being a public menace, Peter Thellusson had become a laughing stock.
For an accumulation trust to amass a concentration of disproportionatewealth, its
investment portfolio must outperform all other investmentsanearly impossible feat.
Indeed, until recently trust investment law encouragedoverinvestment in long-term
fixed-return obligations such as mortgages and bonds. Moreover, as compared to
outright ownership, the trust form introduces additional fees and commissions
particularly where, as in Thellussons case, the trust is a testamentary trust that
remains subject to court supervision.
Not surprisingly, other accumulation plans have also failed. Perhaps the most
famous, the design of which (but not the result) was probably known to Thellusson
when he executed his will, is Benjamin Franklins. When Frank-held it, before the
House of Lords rendered its decision on ap-to accumulate income with no payouts for
100 years, then to spend most of the principal for the benefit of public purposes in
Boston and Philadelphia, and then to accumulate again for another 100 years. Both
trusts performed relatively poorly, with the Boston trust drawing less than $5 million
into its vortex by 1990 and the Philadelphia trust sucking in less than half that amount.
As David Hayton puts it: The economic and social fears of accumulation have
proved groundless. In the twentieth century, the tide turned in this country against
the strict type of legislation for which the Thellusson Act was a model. Today, in
country with a statutory rule against accumulation of income in private trusts, the
accumulation period is typically the same as the period of the Rule Against
Perpetuities. Under such statutes Thellussons will would be upheld The rule against
accumulations was Therefore recognized as a doctrine independent from the Rule
Against Perpetuities, though the accumulations rules durational limit was that of the
applicable perpetuities period. Because the durational limit under the two rules is the
same, compliance with the Rule Against Perpetuities typically ensures compliance
with the rule against accumulationsbut not always. Here is an example of a transfer
that is valid under the Rule Against Perpetuities but offends the rule against
accumulations:
11

bequeaths a fund in trust to T to pay so much of the income to A during As

life as T may determine, then to pay so much of the income to As children for
their lives as T may determine, then to pay the remainder to B. At Os death,
A has no children.
As life estate is vested in possession upon Os death; the life estate in As children
will vest in possession or, if there are no children, fail, upon As death; and Bs
remainder is vested in interest upon Os death. Because all interests will vest or fail
within lives in being plus twenty-one years, the transfer is valid under the Rule
Against Perpetuities.
However, T has discretion to accumulate income in the trust after the
perpetuities period for this trust, which is twenty-one years after the death of the
survivor of A and B. This could happen, for example, if A has a child C who survives
A and B by more than twenty-one years. In some states, the accumulation is void as to
the excess; in others, the accumulation is void in its entirety.
THE RULE AGAINST PERPETUITIES
In order to understand Accumulation it is necessary to brief perpetuity . The
rule against perpetuities is better thought of as the rule against remoteness of
vesting; it acts to set the maximum time between {the grant of an interest in property}
and {the time that same interest does or might vest} in some person.The Rule Against
Perpetuities is a rule against remote vesting. The classic formulation is that of John
Chipman Gray: No interest is good unless it must vest, if at all, not later than twentyone years after some life in being at the creation of the interest. The period of the
Rule reflects a common law policy that a transferor should be allowed to tie up
property only for as long as the life of anyone possibly known to the transferor plus
the period of the next generations minority (hence lives in being plus twenty-one
years).
The Rule is said to have two purposes: (1) to keep property marketable, and (2)
to limit dead hand control. Preventing indefinite fracturing of property ownership
implements the first purpose. The idea is that ownership of land periodically will be
reconstituted into fee simple because all contingent future interests in the property
must vest or fail within the perpetuities period sell the trust property, as is typical, the
trust form overcomes the concern with marketability.

12

The dead-hand rationale for the Rule is best understood as a response to the
disagreeable consequences that can arise from unanticipated circumstances. The Rule
implements this anti-dead-hand policy by curbing future interests that, after some
period of time and change in circumstances, tie up the property in potentially
disadvantageous arrangements. As Brian Simpson explains, given that one can, to a
limited extent only, foresee the future and the problems it will generate, landowners
should not be allowed to tie up lands for periods outside the range of reasonable
foresight. Forever is a long time.
In a jurisdiction that has retained the Rule Against Perpetuities, the identity of
all persons with a claim to the underlying trust property will be ascertained within the
perpetuities period. Once all the beneficiaries are ascertained, they can terminate the
trust when the perpetuities period expires. The settlor cannot prevent this. If the
beneficiaries do not terminate the trust, the trust corpus will be distributed to the
principal beneficiaries when the preceding life estates expire.
The Rules in Edwards v Edwards
Here the testator left property in trust (she could not take directly) for his wife for life,
and thereafter to his three children, with the provision that: if any of my children shall
die, and leaving no children, his or her share shall be equally divided between the
other two. The widow died; the three children survived her, but subsequently a son
died without issue. The Court held that his share did not pass to his brother and sister,
but became absolute in him when he survived his mother even though he subsequently
died without issue. The interpretation arises based on the (presumed) intention of the
testator.
The Court pointed out four classes of cases in which questions of this description
arise.
First, to A, but if he shall die, then to B. There is no contingency arising from if
because A is certain to die. Thus, it is presumed the testator intended that A should not
take if he died before the testator, but that the property should go to B in that event,
thus preventing a possible lapse. Rather than cut down the absolute estate in A and
make it a life estate with remainder to B, the clause is given a substitutionary
construction; i.e. if A outlives the testator, he takes; if not, B takes.
Second, to A, but if he dies without issue, then to B. Here, a real contingency is
expressed without reference to the time of death, and it would seem that the ordinary
13

meaning should be given the words, so that upon A's death without surviving issue,
whenever his death occurs, B should be entitled to take the property.
Third, to W for life, remainder to A, but if A dies, then to B. Since there is no real
contingency expressed, one assumes that the testator intended the gift over to take
effect on the death of A before the period of possession or distribution; and here, as
distinguished from the first class, the period of distribution is at the termination of the
life estate, rather than at the death of the testator. Therefore, if A survives the life
tenant, the gift to him becomes absolute, and only upon his death be-fore the death of
the life tenant can the alternative remainder to B take effect.
Fourth, to W for life, remainder to A, but if A die without issue, then to B. The
contingency must be construed to mean the occurrence of the contingent event before
the period of distribution, and thus only upon the death of A without issue in the
lifetime of the life tenant can the alternative remainder to B operate. If A survives the
life tenant, his interest becomes absolute, even though he may subsequently die
without issue. The principle is said allow vesting as soon as possible.
OPERATION OF RULE OF ACCUMULATIONS UNDER 1800 ACT
Therefore In English law, prior to the Accumulations Act 1800 it was lawful to
provide for the accumulation of income for any period falling within the perpetuity
period.
Selected provisions of the Accumulations Act 1800
The Accumulations Act provides:
No disposition of any real or personal property shall direct the income thereof to be
wholly or partially accumulated for any longer than one of the following terms:
1. The life of the grantor.
2. Twenty-one years from the date of making an inter vivos disposition.
3. The duration of the minority or respective minorities of any person or persons
living or conceived but not born at the date of making an inter vivos disposition.
4. Twenty-one years from the death of the grantor, settlor or testator.
5. The duration of the minority or respective minorities of any person or persons
living or conceived but not born at the death of the grantor, settlor or testator.
6. The duration of the minority or respective minorities of any person or persons who,
under the instrument directing the accumulations, would, for the time being, if of full
age, be entitled to the income directed to be accumulated.
This is illustrated by a passage from Lord Chancellor Eldon's speech on the
Thellusson litigation, discussed more fully later in this Part: "If the law is so as to
14

postponing alienation, another question arises out of [Mr Thellusson's] Will; which is
a pure question of equity: whether a testator can direct the rents and profits to be
accumulated for that period, during which he may direct, that the title shall not vest,
and the property shall remain unalienable; and, that he can do so, is most clear law."
The rationale was that, if it is lawful to postpone vesting of the trust fund for a certain
period, there is no reason to prevent the truster from directing that the fund contain not
only the initial assets but also the accumulated income.
Thus operation of the rule which was best illustrated by reference to the facts of
Thellusson v. Woodford. Shortly describing wherein Peter Thellusson directed the
income of his property, consisting of real estate of the annual value of about 5,000
and personal estate amounting to over 600,000, to beaccumulated during the lives of
his children, grandchildren and great-grandchildren, living at the time of his death,
and the survivor of them. The property so accumulated, which, it is estimated, would
have amounted to over 14,000,000, was to be divided among such descendants as
might be alive on the death of the survivor of those lives during which the
accumulation was to continue.
Judgment :The bequest was held valid. In 1856, there was a protracted lawsuit as to
who were the actual heirs. It was decided by the House of Lords (9 June 1859) in
favour of Lord Rendlesham and Charles Sabine Augustus Thellusson. Owing,
however, to the heavy expenses, the amount inherited was not much larger than that
originally bequeathed.
Significance To prevent such a disposition of property in the future, the
Accumulations Act 1800 (known also as the "Thellusson Act") was passed, by which
it was enacted that no property should be accumulated for any longer term than either
1. the life of the grantor; or
2. the term of twenty-one years from his death; or
3. during the minority of any person living or en ventre sa mere at the time of the
death of the grantor; or
4. during the minority of any person who, if of full age, would be entitled to the
income directed to be accumulated.
The Act, however, did not extend to any provision for payment of the debts of the
grantor or of any other person, nor to any provision for raising portions for the
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children of the settlor, or any person interested under the settlement, nor to any
direction touching the produce of timber or wood upon any lands or tenements. The
act was extended to heritable property in Scotland by the Entail Amendment Act 1848,
but does not apply to property in Ireland. The act was further amended by
the Accumulations Act 1892, which forbids accumulations for the purpose of the
purchase of land for any longer period than during the minority of any person or
persons who, if of full age, would be entitled to receive the income.
ACCUMULATIONS IN CONTEMPORARY SOCIETY
It is unlikely that the rule against accumulations will undermine the growing
perpetual trust industry. But this descriptive assessment does not speak to the
normative question whether the rule reflects sound policy. Here it is useful to draw a
distinction between discretionary and directed accumulations of income.
A. Discretionary Accumulations of Income
Although perpetual trusts are more likely than ordinary trusts to allow for
accumulation of income, professionally drafted perpetual trusts typically authorize
not directaccumulation.The distinction is significant; notice that both White and
Thellusson involved mandatory accumulations. By contrast, the trustees exercise of
permissive discretion to accumulate is subject to judicial review for abuse of
discretion. This is true even if the trust instrument gives the trustee absolute or
sole or unconstrained discretion. As a result, the current beneficiary has leverage
to pressure the trustee to disburse at least some of the income. Between these
disbursements and the higher income tax rates applicable to retained trust income,
merely keeping pace with inflation is difficult; growing an enormous fund is all but
impossible. Indeed, perhaps in recognition of these considerations, there is authority
that exempts from the rule retention of income for the purpose of preserving the trust
corpus.
B. Directed Accumulations of Income
As applied to directed accumulation schemes such as Peter Thellussons, the rule
against accumulations is said to answer accumulations of income place in the hands
of one or two persons a vast fortune, creating over-mighty subjects, and (2) that
accumulations of income would tend to distort the economy by obliging investments
of large sums to be made in land . . . or whatever other object the settlor had directed.
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It is not clear, however, that these worries have cogence in the modern economy, or if
they do, that the rule against accumulations is a good answer to them.
(1) Vast Fortunes.The first worry is that accumulation trusts could produce a vast
fortune concentrated in one or two beneficiaries. But as Jonathan Macey has observed,
unless trustees systematically are able to invest trust accumulations so as to
outperform all other investments, there is no reason that permitting such
accumulations will allow wealth to become more concentrated. And trust investments
do not outperform all other investments; trustees do not have systematically better
information than other capital market investors. Further, even after the recent
modernization of trust investment law, as compared to outright ownership the trust
form carries with it additional agency costs, an extra layer of fees and commissions,
and higher rates of federal income taxation. Each of these factors imposes drag on
trust fund performance.
(2) Investment Distortions-- The second worrythat accumulation trusts will distort
the economyreflects a zero-sum view of property that took root when land was the
primary form of wealth. But wealth today is accumulated in liquid financial assets, not
land. And accumulations of financial assets such as marketable securities do not have
the same potential for economic distortion as accumulations of land in England may
have had in 1797.
True, the modern trustee remains subject to the fiduciary duty of prudence in
making trust investments. But to assume that the trustee will therefore invest
overcautiously or unproductively reflects a dated view of trust investment law. Under
the modern law, which has been widely adopted, there are no categorical restrictions
on investing trust assets. Instead the modern law directs the trustee to craft an overall
investment strategy that reflects risk and return objectives reasonably suited to the
trust.This change in the law is significant.
In a new empirical study, Max Schanzenbach find that adoption of modern
prudent trust investment laws leads to a statistically significant shift from investment
in fixed-return obligations to investment in equity. Against this it might be argued that
a settlor could tie up vast sums of investment capital by opting out of the default law
of trust investment in favor of a mandatory, value-impairing investment strategy. But
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the rule against accumulations of income does little to solve this problem;
valueimpairing investment instructions are problematic even if all the trusts income
is distributed each year. The answer to this problem lies instead in narrow
constructions of uneconomic instructions, robust application of the principle that a
private trust must be for the benefit of the beneficiary, and judicially approved
deviation from administrative provisions.
In sum, the shift in the nature of wealth from land to financial assets and the
revolution in trust investment law, taken together, render obsolete the concern over
economic distortions stemming from accumulations in trust.
CONCLUSION
The rule against accumulations of income limits the time during which a settlor
may direct the trustee to accumulate and retain income in trust. At common law, the
accumulations period was that of the applicable perpetuities period. Thus, for two
hundred years the rule against accumulations has lurked in the shadow of its older and
more distinguished cousin, the Rule Against Perpetuities. With the erosion of the Rule
Against Perpetuities, however, the rule against accumulations of income may have
newfound relevance. Perpetual trusts are more likely than ordinary trusts to involve
accumulations of income, and such trusts are designed to endure beyond the common
law period for permissible accumulations.
Thus assessed the relevance of the rule against accumulations for the rise of the
perpetual trust. In short, because repeal of the Rule Against Perpetuities probably also
modifies the rule against accumulations, and if not the accumulations rule will likely
be abolished by legislation, there is little reason to think that the accumulations rule
will impede the rise of the perpetual trust. Thus found the continuing soundness of the
accumulations rule.

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