Opinion ID: 1704012
Heading Depth: 1
Heading Rank: 1

Heading: Accumulation

Text: It also seems clear that the provisions of Item Four of the will which commands that the annual excess of income be made a permanent addition to the permanent corpus, never to be spent for any purpose, violates not only our own statute, but the common law, against accumulations. In Thurlow v. Berry, 247 Ala. 631, 25 So.2d 726, 729, the following observation had the unanimous approval of the court: Authorities seem to agree that after the ten year limit under § 146, supra [of Title 47, Code], has expired, the accumulations cannot ordinarily be made a permanent addition to the corpus. The excess thus commanded to be added to the corpus cannot be used for the paying of the individual bequests to collateral kin, since the will stipulates for their payment only out of each year's income, but if the income of any one year is insufficient to pay them all in full, all bequests fail and lapse for that year. The income so accumulated in prior years cannot be used. The accumulated income cannot be used for any purpose but must remain forever a part of the inviolate corpus. This limitation, therefore, requiring that all excess income be added permanently to the corpus is a trust of estate for the purpose of accumulation only. The fact that the will creates several trusts independent of each other and each complete in itself, some of which are lawful and others unlawful, and which may be separated from each other, is no impediment to sustaining the valid and avoiding the invalid. The legal ones may stand, while the illegal may be cut off and declared invalid. Lyons v. Bradley, 168 Ala. 505, 53 So. 244. The several trusts set up were: (1) a trust for the widow, payable from a separate tax-free fund; (2) a trust for the sister, payable similarly; (3) a trust for collateral kin not exceeding $8,600 annually; (4) the main and remaining trust of the entire balance of the income, requiring that each year's excess be added irrevocably and irretrievably to the corpus. This last mentioned trust contains over ninety percent of the estate and the accumulated income, now more than $137,000 a year, can never be used for any purpose, but must remain forever a part of the inviolate corpus. There can be no doubt that the testator intended that this trust should be for accumulation only. We need only to quote the following provisions of the will: The corpus of the estate should increase, especially with the provision that when any of the bequests mature, either from death of the beneficiary or otherwise, the amount of such beneficiary's bequest shall remain and become a part of the corpus of the estate after each year when the bequests have been paid and all expenses with taxes have been satisfied, that whatever remains from the income of that particular year shall be entered as part of the corpus of the estate and subject to the same treatment thereafter as the original corpus of the estate. Item Five After said association has been fully formed, the corpus of the estate, including what has been added to the corpus since my death, shall be held intact by the trustee    Item Six    The watchword shall be that nothing but the income from the estate must be used from year to year, but sums added to the corpus each year should be striven for. Not only do the foregoing quotations show an intent to accumulate, but are specific directions for accumulation and the conclusion is manifest that said provision in Item Four is void under our statute against accumulations. Pearce v. Pearce, 199 Ala. 491, 74 So. 952; Campbell v. Weakley, 121 Ala. 64, 25 So. 694; Henderson v. Henderson, 210 Ala. 73, 97 So. 353. Analogous rationale also establishes that the provisions in the will so limiting the expenditures of income to the particular year, covering all unused annual income into the trust to become a part of the inviolate corpus, violates the common law rule against accumulations. During each year from the testator's death, forever, the trustee is commanded to add all excess annual income irrevocably to the corpus. This violates the common law rule against accumulations. An unlawful accumulation, as touching the common law rule against perpetuities, is defined as (1) the withholding, preventing or prohibition of the present enjoyment or present expending of such rent, income, or interest; and (2) the adding of such rent, income, or interest so gathered together over a period of time to the principal of a fund or the capital. In re Hartman's Estate, 126 Misc. 862, 215 N.Y. S. 802, 806. Our own court, in speaking of the term, stated in Henderson v. Henderson, 210 Ala. 73, 97 So. 353: `The meaning which the word accumulation has in course of time come to have in our law is stated    as follows: The adding of the interest or income of a fund to the principal, pursuant to the provisions of a will or deed preventing its being expended   ' 210 Ala. 83, 97 So. 361. We observe the following explanation of the operation of the rule against accumulations from the following authorities: The most explicit provision fitting the description of [an accumulation] exists when a trustee is directed or empowered to reinvest the income of a trust as and when received. Such provision may apply to the whole income of the trust, or to a specified fraction of the income during each year, or to a specified sum out of the income during each year, or to income in excess of current authorized payments therefrom    Restatement, Property, Vol. IV, § 439, p. 2563.    `When an executor or other trustee masses the rents, dividends or other income which he receives, treats it as capital, invests it, makes a new capital of the income derived therefrom, invests that, and so on, he is said to accumulate the fund. And the capital and accrued income constitute accumulations   ' Hussey v. Sargent, 116 Ky. 513, 75 S.W. 211, 215, quoting Black, Law Dictionary. In any case where it is made the duty of the trustee to treat as principal the income of the trust property, instead of distributing in the ordinary course, there is an accumulation       These trusts for accumulation have always been regarded with disfavor by the law, and the courts at an early day limited the time of accumulations to correspond with the period of the rule against perpetuities, and more recently statutes have been enacted in some jurisdictions still further restricting the exercise of this right, in respect to both the beneficiaries and the period of accumulation. 22 Am. & Eng.Encyc. of Law (2d Ed.), p. 728.    It is also said, that the act is one of restraining force, and cannot give validity to trusts for accumulation, which are in themselves void, as transgressing the commonlaw limits of a perpetuity. Thus a direction to accumulate beyond the time allowed by the statute, but within the time allowed by the common law, will be good for the actual time allowed by the statute, and void only for the excess; but a direction to accumulate, beyond the rule of common law against perpetuity, is wholly void notwithstanding the statute. Consequently, in England a trust for accumulation may verge almost upon the outside of the limit of a perpetuity, and yet be void only for the excess beyond the time established in the statute; but if a trust for accumulation transcends in the slightest degree the boundary of a perpetuity, it is wholly void, and will fail without regard to the actual course of events. Perry on Trusts, Vol. 1, § 395. A provision for accumulation which violates the Rule against Perpetuities is wholly void; but a provision which is good so far as the Rule against Perpetuities is concerned, but violates the Thellusson Act, is void only for the excess. Thus, if there be a direction in a will to accumulate income during the life of A., it can be accumulated for twenty-one years from the testator's death. Gray, The Rule Against Perpetuities, § 687. But the Thellusson Act does not render valid, pro tanto, a provision for accumulation which violates the Rule against Perpetuities; such provision is bad altogether. Gray, supra, § 688. The provisions for accumulation are clearly against the letter and spirit of this common law rule. Finally, I think the costs should be taxed against the estate. Presumably, the theory of the trial court, and sought to be sustained here, is that because in the opinion of the court the plaintiffs, appellants here, did not sustain their position, the court should exercise its discretion in taxing them with the costs. The case, however, is not so simple. The bill was for a construction of the will and a declaration as to the validity of certain provisions thereof. The case raised vital questions necessary of solution and the estate is not and and should not be interested on behalf of any one particular party litigant under a situation as here prevailing, where there were doubtful provisions of the will, and a declaration would benefit all concerned. Evidently, neither the executor and trustee, nor any others but the heirs, would invoke the jurisdiction of the court for a declaration. Some one certainly should have. I think, therefore, the estate should bear the entire costs of the proceeding. Costs were taxed against the estate in the construction of the Woodward will (Thurlow v. Berry, supra), where a minority of the trustees filed a bill and the contest was resolved against the minority. The instant case is even more to be regarded as for the benefit of the entire estate. On the basis of these considerations, therefore, I respectfully dissent. I am authorized to say that BROWN, J., concurs in the foregoing.