Two distinct meanings: (1) The person who authorizes another (an agent or attorney-in-fact) to act on their behalf, typically through a power of attorney; or (2) The capital or corpus of a trust or estate—the original assets as opposed to income, interest, or gains generated by those assets. Different rules often govern distribution of principal versus income.
Meaning 1: If you give someone power of attorney, YOU are the principal—the person granting the authority. Meaning 2: In a trust, the principal is the main pot of money or assets (also called the corpus). If you put $100,000 in a trust and it earns $5,000 in interest, the $100,000 is the principal and the $5,000 is income.
⏱ When you'll encounter this term
- Signing a power of attorney (you're the principal)
- Trust documents distinguishing principal from income
- Investment returns and preservation of capital
- Trust accounting showing principal and income separately
- Beneficiary rights to principal vs income
"Dad's trust gives Mum the right to all income during her life, but the principal must be preserved for us kids to inherit after she dies. So she gets the dividends and interest, but not the original $500,000 in assets."
💡 Did you know?
The distinction between principal and income matters enormously in trusts. A common arrangement: the surviving spouse gets all income for life (to support themselves), but the principal is preserved for children to inherit when the spouse dies. This balances the spouse's need for income with protecting children's inheritance, but can create tension if the spouse needs capital for major expenses.