A trust is a highly flexible vehicle, which may be instrumental for family, inheritance or estate planning purposes as well as for protection of asset purposes. Malta has developed its own legal system regulating trusts, based on the common law concept, and has also ratified the Hague Convention on the Law applicable to Trusts and their Recognition. Trusts are regulated under the Trusts and Trustees Act (Chapter 331 of the Laws of Malta) which provides for the creation of trusts and authorisation and supervision of trustees.
Foreign trusts may be governed by Maltese law in accordance with the freedom of choice allowed by the Hague Convention on Trusts.
What is a trust?
A trust exists where a person (referred to as a trustee) holds, as owner, or has vested in him property under an obligation to deal with that property for the benefit of persons (called the beneficiaries), whether or not yet ascertained or in existence, which is not for the benefit only of the trustee, or for a charitable purpose or for both such benefit and purpose aforesaid.
A trust does not have legal personality, and should not be considered to be an entity, but is rather construed as a legal relationship. The property that makes up the trust is to be considered independent from the settlor’s, trustee’s and beneficiaries’ assets. The Trustee is charged with the administration of the property of the trust in the capacity of owner, in accordance with the trust deed and specific applicable legislation.
A trust may be constituted in any manner by an instrument in writing, a will, a unilateral declaration, oral declaration, by operation of law or judicial decision. However, trusts are typically created by an instrument in writing, known as the trust deed, which contains all the terms and conditions that govern the trust.
The legislation allows for both Maltese and non-Malta residents to set up a trust regulated by Maltese Law.
A Malta trust may exist for a maximum of 125 years, however this does not apply in respect of trusts created for a charitable purpose or a unit trust or a qualifying retirement scheme set up as a trust.
Who are the parties to a trust?
- Trustee
- Professional trustees resident or operating in Malta must be regulated, supervised and subject to licensing under the Malta Financial Services Authority (subject to certain limited exemptions).
- Settlor
- The individual who is setting up the trust and is providing the property on trust for it to be managed by the trustee.
- The settlor ceases to have any active role once the property is settled into the trust, barring some exceptions.
- The settlor can issue a Letter of Wishes giving guidance to the trustees.
- The settlor may also appoint a protector.
- Protector
- A protector is generally a person the settlor trusts to whom various powers can be granted e.g. appointing and removing trustees, vetoing certain decisions to be taken by the trustees etc.
- Beneficiary
- The beneficiary is a person who may or will be entitled to benefit from the property of the trust. Beneficiaries must be duly identified by name or identifiable.
Advantages of setting up a trust in Malta
- Efficient distribution of assets to individuals as well as heirs;
- Flexibility in the drafting of the trust deed;
- Assets can be protected from any claims and creditors;
- A number of tax advantages depending on the residence and domicile of beneficiaries;
- English is an official language;
- Proximity to European countries gives substance to the trust;
- Trustee bound by fiduciary obligations.
Family Trusts and Malta Private Trust Companies (PTCs)
The passing of a family business from one generation to the next is a complex issue. The new “Family Trust” instrument is a tool to consider when restructuring family businesses or as part of succession planning.
A Family Trust is a trust created to hold family assets settled by the settlor or settlors to be administrated by a trustee, for the present and future needs of family members or family dependants, who are definite and ascertainable or a class of family members identifiable but not yet definite, on the creation of the trust.
The term ‘family dependants’ and ‘family members’ shall mean an individual who is related to the settlor or to any one of the settlors setting up the trust, by consanguinity, adoption or affinity, in the direct line up to any degree, whether ascendant or descendant, or in the collateral line up to the fifth degree inclusively.
In practice, an individual wishing to set up a Family Trust, will need to set up a company which will act as trustee of the family estate transferred to it under the trust, for the benefit of the present and future needs of family members or family dependants. This entity is equivalent to a Private Trust Company (PTC) as it is known in other trust jurisdictions.
The advantage of the rules is that the family trustee is subject to a registration process rather than to an authorization and licencing requirement.