Educational & Maintenance Trusts
An Educational & Maintenance Trust (“EMT”) is similar in many respects to a family trust, but is distinguished by its more specific purpose and, as a result, is often simpler to structure.
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As the name suggests, an EMT is established with the express purpose of funding an individual’s education and/or ongoing maintenance, including living expenses. This may include private school fees, but more commonly relates to university tuition and associated costs. Most English universities currently charge tuition fees of £9,535 per annum. Scotland, Wales, and Northern Ireland operate different fee regimes depending on the student’s domicile.
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In addition to tuition fees, many students live away from home and must meet accommodation and day-to-day living expenses. Independent estimates suggest that, when tuition and living costs are taken together, the overall cost of completing a three-year degree can exceed £65,000 (https://www.savethestudent.org/student-finance/university-study-cost.html) and may be higher depending on location and lifestyle. These costs continue to rise and are often difficult to predict many years in advance.
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"Assets placed into the trust are ring-fenced..."
Although an EMT may be established by anyone, it is most commonly set up by grandparents. For those with available capital, using an EMT to meet educational and maintenance costs can form part of a structured long-term planning approach. Assets placed into the trust are ring-fenced for that purpose and may be insulated from events such as a parent’s bankruptcy or the financial consequences of divorce. Depending on the structure adopted, there may also be tax considerations.
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The underlying trust structure used for an EMT will vary according to the circumstances of the settlor and the anticipated needs of the beneficiary. It may take the form of a Discretionary Trust, which is common where multiple beneficiaries are involved, including future children not yet born; an Interest in Possession Trust, typically only where the beneficiary is expected to receive income immediately; or, in some circumstances, a Bare Trust. The appropriate structure is not fixed and will always depend on individual circumstances.
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By way of illustration, where a settlor establishes a lifetime trust for a minor grandchild and applies trust income for that child’s benefit during minority, the income may be treated as the settlor’s own for income tax purposes. However, it is possible for income to be accumulated within the trust until the beneficiary reaches adulthood. Once the beneficiary attains the age of 18, income applied to them is generally taxed on the beneficiary rather than the settlor. For many students, this income may fall within the individual personal allowance (£12,570 for the 2025/2026 tax year), meaning that no income tax is payable.
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A settlor may settle up to the IHT Nil Rate Band (£325,000 for the 2015/2026 tax year) into trust, or an amount equal to their available inheritance tax threshold without paying any immediate tax. By doing so, the value of the settlor’s estate is reduced by that amount, potentially mitigating inheritance tax exposure. Provided the settlor survives for seven years from the date of settlement, the inheritance tax threshold is reinstated, allowing for the possibility of further settlements thereafter. This can make early planning attractive, even where the intended beneficiary is still very young.
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Income generated within most EMT structures is paid net of income tax. The beneficiary may then be able to reclaim some or all of the tax deducted by reference to their personal allowances. Where no trust is used, the assets remain within the settlor’s estate, and educational costs may be met from income already taxed at the settlor’s marginal rate, which may be significantly higher and not recoverable. Placing income-producing assets into trust can therefore alter the tax profile through which educational and maintenance costs are met.
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The examples above are illustrative only. Educational & Maintenance Trusts can be structured in a variety of ways, and their operation will depend on the terms of the trust, the powers granted to trustees, and the circumstances of the settlor and beneficiaries over time.
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