The Rule Against Accumulations is a legal principle that limits the duration for which income generated by a trust can be accumulated rather than distributed to beneficiaries. This rule aims to prevent the indefinite retention of trust income, ensuring that beneficiaries receive their rightful shares in a timely manner.
In general, the Rule Against Accumulations holds that income from a trust must be distributed at certain intervals, typically within a specified period that does not exceed the lives of the beneficiaries plus a set number of years. In most jurisdictions, this period is often limited to 21 years after the death of the last surviving beneficiary who is alive at the time the trust is created.
For example, if a trust is established for the benefit of multiple grandchildren, the trustee may wish to accumulate the trust income for the grandchildren’s education. However, under the Rule Against Accumulations, the trustee must distribute that income within the allowable time frame, preventing the income from being held indefinitely.
In Texas, while the Rule Against Accumulations is recognized, there are specific statutes and exceptions that may apply, allowing for modifications under certain conditions. This can include provisions in the trust document that specify how accumulated income should be handled, as long as they adhere to the general principles of the rule.
Understanding the Rule Against Accumulations is essential for trustees and beneficiaries alike, as it affects the timing and amount of distributions, influencing financial planning and estate management strategies.
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