Malta Trusts

In the past few years, the Maltese legislature has been active in the sector of fiduciary obligations, particularly those resulting from the creation of trusts and foundations.

Trusts were initially introduced into Maltese legislation in 1988 as an offshore product, allowing for such structures in the context of non-resident persons only. This law was subsequently amended by Act XX of 1994, followed by the introduction of the Trusts and Trustees Act in 2005, which enables the trust concept to form part of the general law. On the other side of the coin, the Recognition of Trusts Act of 1994 laid the spadework for Malta to become a fully-fledged trust compatible system.

As a result, Maltese Law has incorporated the principles of trust into its domestic civil law rules unlike other Civil law jurisdictions which have only recognised the concept and ratified The Hague Convention, but do not have a specific law to regulate trust. In 2014, Malta has further introduced new amendments to its Trusts Law to bring it in line with the international developments. This has culminated in the Trusts and Trustees (Amendment) Act, Act XI of 2014.

Key features of a Malta Trust

Means of establishment

A trust may be created unilaterally or bilaterally, by oral declaration or in writing. A unit trust must always be created in writing.

Set up time

There are no statutory restrictions that affect the creation of the trusts. The time it takes to set up the trust depends entirely on the complexity of the Trust Deed.

Settlor

Under Maltese Law, the settlor shall have no rights in relation to the trust property except as provided in the Act. The settlor has the following rights:

• Power to seek court directives
• To a variation of terms where the Trust deed permits
• To receive information from the Trustee vis a vis the trust property, subject to the terms of the Trust Deed

Following the 2014 amendments to the Trust and Trustees Act, the settlor may reserve or grant himself:

• Any beneficial interest in the trust property
• Any power to appoint, add or remove trustees, protectors or beneficiaries;
• Any power to appoint an investment advisor or investment manager

The protector

Malta Law allows for the appointment of the Protector and. is subject to the Trust deed, and is empowered to:

• appoint new and/or additional trustees
• remove trustees
• require trustees to obtain the protector’s discretion prior to entering into a transaction.

Beneficiaries

All beneficiaries have to be mentioned by name or ascertained by class or relationship to a person alive or dead. Beneficial interest may be sold or transferred with no restrictions as long as it is done in writing. The beneficiary has certain rights under the Act in particular to receive information from the Trustee and to terminate the trust and request the Trustee to distribute the trust property.

Trust Deed

The Trust Deed is the instrument whereby the trust is created and includes the terms of the Trust.

Letter of Wishes

Maltese Law allows for settlers to compile a letter of wishes setting out guidelines in which the Trustee can exercise his discretion.

Legal Form

A trust does not have its own legal personality. They are not registered anywhere.

Accounts

The Trustees are legally obliged to keep proper accounting records of the Trusts and accounts should be prepared on a regular basis.

Tax

Trusts can either be treated as transparent for tax purposes or else the Trustees have the right to elect to treat the Trust as a company for tax purposes.

Classification of Trusts

The Maltese law caters for various types of trusts such as the following:

Express Trust

It is expressly declared by the settlor, whether by virtue of an inter vivos deed or if the testator declares it in his will. In both cases the settlor will intend to settle specific property, which is sufficiently identifiable to beneficiaries and which is to be held by appointed trustees according to the terms of the trust.

Implied/Resulting Trust

Implied trusts are trusts where the intention to set up a trust is not clearly expressed by the settlor or testator. In setting up such trust, the transferee is required, by equity, to hold property on trust for the transferor or for the person who provided the purchase money for the transfer.

Constructive Trust

These are trusts which are in no way dependent upon the intention of the settlor. They are imposed by operation of law in situations where not to do so would mean one party’s unjust enrichment.

Accumulation and maintenance trust

Trustees accumulate income of the trust for the benefit of minors irrespective of whether or not the minor’s interest is already a vested one or an interest which will become vested at a later stage. The trustee can then utilise the accumulated income to either apply all or part of it for the maintenance to apply all or part of it for the maintenance, education or other benefit of the beneficiary or to advance or appropriate the interest to any such beneficiary.

Discretionary Trust

Trustees are normally afforded the discretion as to how to manage and invest trust property, who to appoint as beneficiaries, when to distribute trust income and capital, and to whom such distributions are to be made.

Fixed Interest Trust

In case of a fixed interest trust, the income and capital will be distributed in line with the trust deed. Such distributions will be effected to beneficiaries on specific dates as identified in the trust deed and according to the ratios specified therein.

Commercial Trust

 The use of these trusts has been on the increase recently and the law identifies a number of scenarios where one can make use of these trusts for transactions which qualify as commercial transactions:

• Collective investment schemes
• Securitisation of assets
• Granting of real and personal security as in the case of security provided by the issuers of bonds to the public
• Portfolio management
• Syndicated loan agreements
• Insurance policies and the payment of proceeds thereunder

These trusts afford greater flexibility, fewer formalities and reduced contracting costs, therefore being a very efficient tool within the financial sector.

Contact Rudolph Psaila to find out more.