Whether it is for tax planning purposes, inheritance planning, shareholdings or protection of assets, trusts are becoming increasingly popular and they are an interesting instrument in many aspects.
Malta is one of the few civil law jurisdictions that has developed its own legal system regarding trusts, which in addition to recognizing trusts that are established under foreign legislation (since the 1980s), also allows for new trusts to be created that are governed by the legislation of another jurisdiction. Malta ratified the Hague Convention on recognition of trusts in 1994. In the European Union, Malta trusts maintain the Anglo-Saxon concept of a trust, within a highly regulated, reliable and safe environment.
What is a Trust?
A trust exists when a trustee holds property as the proprietor with the obligation of administering said property for the benefit of other persons (beneficiaries), whether or not they are identified or exist, or for philanthropic or charitable purposes. This is an agreement between two parties, namely the settlor and the trustee. The settlor places certain property under the control of the trustee for the benefit of the beneficiary or for a specific philanthropic or charitable reason.
As such, the trust is not an entity, but rather a legal relationship that does not have independent legal personality, and the property that makes up the trust is independent from the settlor’s, trustee’s and beneficiaries’ assets, thereby guaranteeing greater protection.
The property that makes up the trust asset can be bank accounts, real estate, shares and other securities, furniture, art, etc..
Because a trust is a legal institution without legal personality, it is not subject to registration or maintenance or compliance formalities, except for those that apply to the trustee as part of the administration of the trust.
A trust is subject to a maximum duration of 125 years and can be terminated before this time providing all the beneficiaries are in agreement. This anti-perpetuity rule does not apply to certain trusts (e.g. charity).
The trust deed is the instrument via which the trust is created and which contains all the terms and conditions that govern the trust and can be in the form of a unilateral declaration (e.g. last will and testament).
Trusts can take on various forms with greater or less discretionary powers with regard to the participation of the trustee and can also vary with respect to the benefits granted to the beneficiaries.
A family trust is a trust created by a settlor or settlors to the benefit of the present and future needs of family members and dependents that are identified or identifiable.
The settlor is the person who creates the trust. He or she must be of legal age and have the capacity to administer his or her property. Once the trust is created, barring a few exceptions, the settlor ceases to have rights over the property of the trust. Notwithstanding, the settlor can reserve for him or herself a benefit derived from the property of the trust or the power to appoint or remove trustees without affecting the validity of the trust.
The settlor can issue a Letter of Wishes whereby he or she states directives to the trustee regarding how he or she shall perform his or her duties, with or without knowing the beneficiaries.
The settlor may also implement a Protector, which must be a person of his or her personal trust to whom various powers can be granted, such as naming or removing trustees, vetoing certain operations, etc..
The beneficiary is the person who may or will benefit from the property of the trust. He or she must be duly identified by name or identifiable by a category or relationship with a person, alive or dead.
The beneficiary’s rights are personal and treated as goods and chattel. As such, in accordance with the terms of the trust deed, encumbrances can be sold, created, etc.. The beneficiary may renounce his or her right in whole or in part. His or her rights are not transferred upon death, except those provided for under the terms of the trust. Subject to applicable laws and only under the terms of the trust, the rights of creditors, spouses, heirs or legatees of the beneficiary only exist in so far as the rights of the trust beneficiary exist and there are no other rights in relation to the property of the trust or in relation to the trustee.
The beneficiary is entitled to request information from the trustee and institute legal proceedings if he or she deems necessary.
The trustee is the entity charged with administering the property of the trust in the capacity of owner, in accordance with the trust deed and specific applicable legislation (Trusts and Trustees Act). It is a regulated activity, supervised and subject to licensing under the MFSA (Malta Financial Services Authority).
A Trustee established as a company:
- Its purpose is limited to acting as a trustee in relation to a specific settlor or settlors and supplies administrative services in relation to specific family trusts;
- It does not appear to the public as a trustee;
- It does not act as a trustee for more than five settlors at a time.
It is not subject to authorization under the terms of the Trusts and Trustees Act, but is obliged to register, and no company may act as a trustee of a family trust unless it is registered.
Maltese law foresees the possibility of a trust being converted into a foundation and vice-versa.