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Accumulation and Maintenance Trust

Also known as: A&M Trust, Age 18-to-25 Trust

Definition

An Accumulation and Maintenance Trust (A&M Trust) is a historical trust type that allowed income to be saved or spent on a child's needs until they reached 18 or 25, with tax advantages that ended in 2006.

Many existing A&M trusts created before 2006 remain in operation, holding assets for beneficiaries who haven't yet reached the specified age.


What Does Accumulation and Maintenance Trust Mean?

Before 2006, Accumulation and Maintenance Trusts were popular for parents and grandparents providing for children while maintaining tax efficiency. Operating under Section 71 of the Inheritance Tax Act 1984, these trusts gave trustees two key powers: "accumulation" (reinvesting income) or "maintenance" (paying for beneficiaries' education and expenses). Beneficiaries became entitled to trust property between ages 18 and 25. The crucial advantage was exemption from periodic inheritance tax charges that applied to discretionary trusts.

The Finance Act 2006 fundamentally changed A&M trusts from 22 March 2006. The government removed the ability to create new tax-favoured A&M trusts, bringing existing ones into the Relevant Property Regime. Existing trusts faced a deadline: trustees had until 6 April 2008 to amend the trust so beneficiaries became entitled at age 18 (maintaining full exemption), convert to an Age 18-to-25 trust (preserving some benefits), or accept discretionary trust taxation with 10-year periodic charges. Emma's grandparents created an A&M trust in 2005 with £200,000. Her trustees converted it to an Age 18-to-25 trust by April 2008, so Emma receives the money at age 21 with an exit charge of approximately 3.6% (£7,200), far less than cumulative charges otherwise.

Today, you cannot create new A&M trusts with historical tax benefits, but many existing ones continue operating. Understanding A&M trusts remains essential for beneficiaries waiting to inherit and trustees managing existing trusts. If an A&M trust wasn't amended by 6 April 2008, it now faces 10-year periodic inheritance tax charges and exit charges.


Common Questions

"Can I still create an Accumulation and Maintenance Trust for my grandchildren?" No, you cannot create new A&M trusts with favorable tax treatment. The Finance Act 2006 abolished this from 22 March 2006. Today, you can create an Age 18-to-25 trust through your will (with some tax advantages) or use a standard discretionary trust.

"I inherited under an old A&M trust created in 2002 and I'm now 23—what happens?" It depends on whether trustees amended the trust before 6 April 2008. If amended to qualify as an Age 18-to-25 trust, you'll receive assets by the specified age with a modest exit charge. If not amended, it operates like a discretionary trust.

"What's the difference between old A&M trusts and new Age 18-to-25 trusts?" Old A&M trusts (created before 22 March 2006) could be established by anyone, allowing beneficiaries to receive assets between ages 18-25 with complete exemption from inheritance tax. Age 18-to-25 trusts can only be created under a deceased parent's will and face exit charges (capped at 4.2%).


Common Misconceptions

Myth: "Accumulation and Maintenance Trusts are completely obsolete and no longer relevant."

Reality: While you cannot create new A&M trusts, many existing ones created before 2006 remain in operation. Understanding A&M trusts remains essential for beneficiaries waiting to inherit and trustees managing existing trusts.

Myth: "If trustees didn't amend my A&M trust by April 2008, I've lost all tax benefits forever."

Reality: While trusts not amended by 6 April 2008 lost their exemption from periodic and exit charges, the practical impact varies. If trust property is under the nil-rate band (£325,000), periodic charges may not apply.


  • Trust: An A&M trust is a specific trust structure where trustees hold legal title to assets for beneficiaries' benefit.
  • Minor: A&M trusts were designed for minors (children under 18), accumulating funds until beneficiaries reached adulthood.
  • Age of Majority: This threshold defines when beneficiaries transition from minor to adult status, fundamental to understanding A&M trust age requirements.
  • Discretionary Trust: A&M trusts were a specialized form with additional tax benefits before 2006; trusts not amended by 2008 now operate like standard discretionary trusts.
  • Trustee: Trustees manage A&M trusts and made critical decisions during the 2006-2008 transition.

  • Trust Types and Structures for UK Estate Planning: Overview of trust types, including A&M trusts and modern alternatives.
  • Understanding Inheritance Tax on Trusts: Tax treatment of A&M trusts before and after 2006.

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Legal Disclaimer: This glossary entry provides general information about Accumulation and Maintenance Trusts and does not constitute legal or tax advice. The tax treatment of these trusts is complex and depends on when the trust was created, whether it was amended during the transition period, and other specific factors. For advice about your specific situation, consult a qualified solicitor or tax adviser.

Important: The rules governing Accumulation and Maintenance Trusts changed significantly in 2006 and 2008. If you are a trustee or beneficiary of an A&M trust, or if you've found A&M trust provisions in a will, seek current professional advice about how these changes affect your specific trust and what obligations or entitlements apply under current law.