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      ARTICLE 4. Accumulations [722 — 726]

      (Article 4 enacted 1872.)

      722. Dispositions of the income of property to accrue and to be received at any time subsequent to the execution of the instrument creating such disposition are governed by the rules relating to future interests.

      (Amended by Stats. 1991, Ch. 156, Sec. 12.)

      723. All directions for the accumulation of the income of property, except such as are allowed by this Title, are void.

      (Enacted 1872.)

      724. (a) An accumulation of the income of property may be directed by any will, trust or transfer in writing sufficient to pass the property or create the trust out of which the fund is to arise, for the benefit of one or more persons, objects or purposes, but may not extend beyond the time permitted for the vesting of future interests.

      (b) Notwithstanding subdivision (a), the income arising from real or personal property held in a trust forming part of a profit-sharing plan of an employer for the exclusive benefit of its employees or their beneficiaries or forming part of a retirement plan formed primarily for the purpose of providing benefits for employees on or after retirement may be permitted to accumulate until the fund is sufficient, in the opinion of the trustee or trustees, to accomplish the purposes of the trust.

      (Amended by Stats. 1991, Ch. 156, Sec. 13.)

      725. If the direction for an accumulation of the income of property is for a longer term than is limited in the last section, the direction only, whether separable or not from the other provisions of the instrument, is void as respects the time beyond the limit prescribed in said last section, and no other part of such instrument is affected by the void portion of such direction.

      (Amended by Stats. 1929, Ch. 143.)

      726. When one or more persons for whose benefit an accumulation of income has been directed is or are destitute of other sufficient means of support or education, the proper court, upon application, may direct a suitable sum to be applied thereto out of the fund directed to be accumulated for the benefit of such person or persons.

      (Amended by Stats. 1929, Ch. 143.)

      CHAPTER 2.6. Legal Estates Principal and Income Law [731 — 731.15]

      (Chapter 2.6 added by Stats. 1968, Ch. 193.)

      731. This chapter may be cited as the Legal Estates Principal and Income Law.

      (Added by Stats. 1968, Ch. 193.)

      731.01. Nothing in this chapter shall affect the provisions of the Personal Income Tax Law and the Bank and Corporation Tax Law.

      (Added by Stats. 1968, Ch. 193.)

      731.02. This chapter shall apply to all transactions by which a principal was established without the interposition of a trust on or after September 13, 1941, or is hereafter so established. Transactions by which a principal is held in trust are governed by Chapter 3 (commencing with Section 16300) of Part 4 of Division 9 of the Probate Code.

      (Amended by Stats. 1986, Ch. 820, Sec. 3. Operative July 1, 1987, by Sec. 43 of Ch. 820.)

      731.03. (a) “Principal” as used in this chapter means any realty or personalty which has been so set aside or limited by the owner thereof or a person thereto legally empowered that it and any substitutions for it are eventually to be conveyed, delivered, or paid to a person, while the return therefrom or use thereof or any part of such return or use is in the meantime to be taken or received by or held for accumulation for the same or another person;

      (b) “Income” as used in this chapter means the return derived from principal;

      (c) “Tenant” as used in this chapter means the person to whom income is presently or currently payable, or for whom it is accumulated or who is entitled to the beneficial use of the principal presently and for a time prior to its distribution;

      (d) “Remainderman” as used in this chapter means the person ultimately entitled to the principal, whether named or designated by the terms of the transaction by which the principal was established or determined by operation of law.

      (Added by Stats. 1968, Ch. 193.)

      731.04. This chapter shall govern the ascertainment of income and principal and the apportionment of receipts and expenses between tenants and remaindermen in all cases where a principal has been established without the interposition of a trust, except that in the establishment of the principal, provision may be made touching all matters covered by this chapter, and the person establishing the principal may himself direct the manner of ascertainment of income and principal and the apportionment of receipts and expenses or grant discretion to the tenant or other person to do so, and such provision and direction, where not otherwise contrary to law shall control notwithstanding this chapter. The exercise by the tenant or other designated person, of such discretionary power if in good faith and according to his best judgment, shall be conclusive, irrespective of whether it may be in accordance with the determination which the court having jurisdiction would have made.

      (Added by Stats. 1968, Ch. 193.)

      731.05. (a) All receipts of money or other property paid or delivered as rent of realty or hire of personalty, or interest on money loaned, or interest on or the rental or use value of property wrongfully withheld or tortiously damaged or otherwise in return for the use of principal, shall be deemed income unless otherwise expressly provided in this chapter. Dividends on corporate shares, payable in stock or otherwise, shall be deemed income except as provided in Section 731.07.

      (b) All receipts of money or other property paid or delivered as the consideration for the sale or other transfer, not a leasing or letting, of property forming a part of principal, or as a repayment of loans, or in liquidation of the assets of a corporation, or as the proceeds of property taken on eminent domain proceedings where separate awards to tenant and remainderman are not made, or as proceeds of insurance upon property forming a part of the principal except where such insurance has been issued for the benefit of either tenant or remainderman alone, or otherwise as a refund or replacement or change in form of principal, shall be deemed principal unless otherwise expressly provided in this chapter. Any profit or loss resulting upon any change in form of principal shall inure to or fall upon principal, except in the case of property referred to and defined by Section 731.14, in which case the provisions of Section 731.14 shall govern.

      (c) All income, after payment of expenses properly chargeable to it, shall be paid and delivered to the tenant or retained by him if already in his possession or held for accumulation where legally so directed by the terms of the transaction by which the principal was established; while the principal shall be held for ultimate distribution as determined by the terms of the transaction by which it was established or by law, except in the case of property referred to and defined by Section 731.14, in which case the provisions of Section 731.14 shall govern.

      (Added by Stats. 1968, Ch. 193.)

      731.06. Whenever a tenant’s right to income shall cease by death, or in any other manner, all payments theretofore actually paid to the tenant shall belong to the tenant or to his personal representative; all income actually received after such termination shall be paid to the person next entitled to income by the terms of the transaction by which the principal was established.

      (Added by Stats. 1968, Ch. 193.)

      731.07. (a) All dividends on shares of a corporation forming a part of the principal which are payable

      (1) In shares of the declaring corporation of the same kind and rank as the shares on which such dividend is paid; and

      (2) In shares of the declaring corporation of a different kind or rank to the extent that they represent a capitalization of surplus not derived from earnings, shall be deemed principal.

      Subject to the provisions of

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