The Malta Trust

Factsheet - The Malta Trust
A unique legal institute

An Introduction to Trusts in Malta

The trust was fully incorporated into Maltese law as a unique legal institute available indiscriminately to all and sundry by virtue of the Malta Trusts and Trustees Act. The said Trusts and Trustees Act was modelled on the Jersey trusts law (which represented a much-acclaimed attempt to codify the English law of Trusts). The said Trusts and Trustees Act also transposed, into domestic law, the provisions of the Hague Convention on the Law Applicable to Trusts and on their Recognition – ratified by Malta in 1994.

A trust deed

The Creation of a Trust

The creation of a trust is typically handled by means of a private written instrument (i.e. a trust deed), by virtue of which the trustee/s will become the legal owner of the trust asset/s.

The trust deed does not result in the creation of a legal entity, but represents a contractual obligation between the settlor and the trustees, with benefits granted in favour of the trust beneficiary/ies.

A trust may validly exist for a maximum of 125 years.

This limit does not apply in respect of a trust created for a charitable purpose, a unit trust, or a qualifying retirement scheme set up as a trust.

A trust can be set up in respect of any property whatsoever.

Trust Property

A trust can be set up in respect of any property whatsoever. Meaning, it can be movable or immovable, personal or real, situated anywhere, have rights and interest, and even be contingent or future. However, there can be no trust if there is uncertainty regarding what is initially to constitute the trust property or the trust object or aim.

Property transferred or settled on trust as aforesaid effectively constitutes a separate fund owned by the trustee and which is distinct and separate from the personal property of the trustee and from other property held by the trustee under any other trust. As a result, personal creditors of the trustee are denied access and recourse against the trust fund and, furthermore, that fund would not form part of the trustee’s personal estate upon his insolvency or bankruptcy or of his estate upon his death.

By way of example, any funds held by the trustee are held on a client’s account which is kept segregated from the trustee’s proprietary funds, in a sub-account internally identifiable as “the ABC Trust sub-account”. This feature protects the beneficiaries of the trust from any eventual insolvency / bankruptcy of the trustee from affecting the trust property. In this way, effective ‘ring-fencing’ of trust assets is ensured in order to keep the same out of reach of the personal creditors of the trustee or of any other trusts under its administration.

Trusts are managed and administered via the legal personality of the trustee

Trustee Powers & Obligations

The trust is not a legal entity afforded legal personality – such as a company or a foundation. Accordingly, the trust property is managed and administered via the legal personality of the trustee who is subject to a legal duty and corresponding obligations to hold and deal with such asset for the benefit of the beneficiaries (the beneficial owners) in accordance with the procedures set out in the trust deed, whether or not such beneficiaries have been ascertained in the trust deed. Named beneficiaries of a trust are said to have a “vested interest” in the assets or the income these produce, which rights can be gifted, sold or used as security.

The trustee’s holding of property for the benefit of the beneficiaries of the trust is subject to strict fiduciary obligations requiring the trustee to act in the best interest of the trust.

The trustee’s holding of property for the benefit of the beneficiaries of the trust is subject to strict fiduciary obligations requiring the trustee to act in the best interest of the trust. In doing so the trustee must act honestly, with integrity, in the utmost good faith and subject to a specified standard of care. In summary (i) the trustee must comply strictly with the duties and directions as set out in the trust deed; (ii) the interests of the trust and the beneficiaries are paramount; and (iii) powers must be exercised in an informed manner, with due standards of care and in a way which does not exceed that specified by the trust deed. The mechanisms set out in the trust deed are of paramount importance to ensure an effective and workable framework balancing the trustee’s discretions with a degree of formality that will serve to provide the beneficiaries or prospective beneficiaries with the desired levels of comfort and peace of mind.

A Malta Trust Offers Complete Discretion.

The trust deed is not registered in any central register or with any public authority whatsoever, and consequently offers the advantage of complete discretion, remaining outside of the public domain.
A virtually limitless range of powers vested in and obligations incumbent upon the trustee and rights appertaining to the beneficiaries

Types of Trusts in Malta

Different types of trusts may be created, such as discretionary trusts, fixed interest trusts, life interest trusts, contingent trusts, security trusts, trusts for certain prescribed commercial transactions (including securities offerings, collective investment schemes, employee benefit or retirement schemes or arrangements timeshare and multi-property structures).

The Fixed Interest Trust

In a ‘fixed interest’ trust, the rights of the Beneficiaries to the capital and/or income of the trust would be defined in detail in the terms of the trust to such extend that the Trustee would generally only be required to execute those said terms. ‘Contingent Trusts’ typically provide that the Beneficiaries would only enjoy the benefit of the trust property after the happening of a specified event.

The Discretionary Trust
A ‘discretionary trust’ is favoured by many settlors as such a trust does not have an exhaustive list of beneficiary/ies in the trust deed. The trustee is empowered to appoint beneficiary/ies from identified class/es of potential beneficiaries (which may also be companies or other entities) subject, of course, to the terms of the trust deed which will drafted to cater for a pre-determined mechanism for appointing beneficiaries. The identification of classes of potential beneficiaries may be made by way of a non-binding ‘Letter of Wishes’ communicated by the settlor to the trustee. Such a proposition must however be analysed in the light of applicable tax law rules in the jurisdiction where the settlor is ordinarily resident to ensure that such wishes are not deemed to represent any degree of control by the settlor.

As a general rule, a beneficiary of a discretionary trust in whose favour the trustee may distribute trust assets or any other benefit does not have a vested interest in the trust property and therefore does not have any rights in relation to the trust property until such time as the trustee exercises such discretion.

The discretionary trust gives an added measure of protection.

In view of the fact that a beneficiary under a discretionary trust has no vested interest in the trust property, if such beneficiary were to become insolvent/ bankrupt his creditors could only claim against payments already made to him from the trust. They cannot claim against any other part of the property. Thus, the discretionary trust gives an added measure of protection.

An angle of indepenedence

The Protector

It is possible to appoint a ‘protector’ to the trust, being a third party (i.e. a person who is neither a trustee nor a beneficiary of the trust) appointed by the settlor to enable the trustee to be directed or controlled in the exercise of its powers in the way the settlor wishes. The role of the protector could be valuable in providing an angle of independence to the exercise of any discretion/s by the trustee as may be provided by the trust deed.

By way of example, the trust deed may provide that the protector’s prior written consent is required, inter alia, for the exercise of any of the following matters:

  1. Investments to be made by the trustees
  2. Appointment of any professional advisors
  3. Distribution of income and/or capital
  1. Appointment or removal of beneficiaries
  2. Vesting of a beneficiary’s rights
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Harness the Benefits

Advantages of a Trust in Malta

  • Legal ownership is effectively transferred to the trustee, thereby effectively ‘insulating’ or ‘ring-fencing’ the trust assets;

  • Beneficial ownership vests in the beneficiaries;

  • Creditors of the settlor and/or the trustee will have no claim against trust property as it constitutes a separate estate distinct from that of the settlor and/or of the trustee;

  • If the trust is a discretionary trust, the beneficiaries need not be named in trust deed, but a class of beneficiaries must be provided in order to make the beneficiaries at least “ascertainable”;

  • Option to appoint protector of the trust to increase objectivity and protection for the beneficiary/ies;

  • Tax neutral structure.