Trusts

Revision No. 11  -   Last Updated : 09-10-2002

 

“…is an institute of great elasticity and generality; as elastic, as general, as contract” [Maitland].

A Trust is a relationship whereby a settlor transfers assets to a trustee empowering him to deal and employ such assets for the benefit of beneficiaries who must be identified or identifiable.

Trusts in Malta

The Trust in Malta owes its origin to statute - the Trusts Act, 1988 - which was, to a large extent, modelled on the Trust (Jersey) Law, 1984.  Indeed, Malta is one of only few civil law jurisdictions that has managed to successfully incorporate the Anglo-Saxon Trust concept into its Roman law based legal system. 

Malta has ratified the Hague Convention on Trusts and on their Recognition as a result of which Malta distinguishes between:

Maltese law Trusts which are entirely regulated by the Trusts Act, 1988, and must be registered with the Malta Financial Services Centre (MFSC); and

Foreign law Trusts that may be set up and regulated by any law whatsoever and are recognised by Maltese law subject to certain conditions laid down in the Convention being satisfied.  Such Trusts have the option to register with the MFSC and thereby benefit from the various fiscal and other benefits provided by Maltese law.

All Maltese law Trusts and foreign law Trusts registered with the MFSC must observe the following 2 requirements:

The settlor and all the beneficiaries (with some exceptions in the latter case) must be persons who are not resident in Malta. 

The Trust property cannot include any immovable property situated in Malta which is defined as including shares, stock or debentures in/of a company whose assets include immovable property situated in Malta or in/of a company (other than an offshore company) registered in Malta.

Formalities

A Trust may be set up by any written instrument, generally either a Trust Deed or a will.  If the Trust is formed by means of a Unilateral Declaration of Trust, the identity of the settlor may remain anonymous.

The Settlor

The settlor is the person who sets up the Trust and who provides the trust property.

The settlor may be one of the beneficiaries of a Trust but he cannot be one of its trustees.

The settlor may wish to exercise indirectly a certain degree of control over the trustee, in which case he may choose to be a Protector of the Trust having the power to:

·        appoint a new or additional trustee;

·        remove a trustee; and

·        require the trustee to obtain his consent before exercising a particular discretion.

Further powers may be given to the Protector by the Trust instrument. 

The settlor may indicate directions to the trustee as to how the latter is to administer the Trust and exercise his discretions in a Letter of Wishes.

The Beneficiaries

Beneficiaries are persons entitled to benefit under a Trust. 

The beneficiaries may, subject to the terms of the Trust, by instrument in writing, sell, transfer or otherwise deal with their interest in the Trust in any manner.

Furthermore, irrespective of the terms of the Trust, under certain conditions, the beneficiaries may require the trustee to terminate the Trust and distribute the trust property amongst them.

The Trust instrument may provide for the addition of a person as beneficiary, the exclusion of a beneficiary from benefit, or the imposition of an obligation on a beneficiary as a condition for benefit.

The Trustee

“…the trustee’s office is attached with no small degree of trouble and anxiety…it is an act of great kindness in anyone to accept it” [Lord Hardwicke in Knight vs. Earl of Plymouth (1747)].

Every Trust registered with the MFSC must have a Maltese corporate trustee as its sole trustee or as one of its trustees.

Powers of trustees

A trustee may delegate his powers if authorised to do so by the Trust instrument.  He may, for example, delegate management of trust property to and employ investment managers.

A trustee shall, of course, exercise his powers in the interest of the beneficiaries and in accordance with the terms of the Trust instrument.

Duties of trustees

Indeed, trustees have far more duties than they have powers.  In broad terms, trustees are duty bound to:

·        exercise their powers in the interest of the beneficiaries and to deal with the trust property for the beneficiaries’ benefit;

·        act in accordance with the terms of the Trust;

·        preserve and enhance the value of the trust property;

·        keep accurate accounts and records of their trusteeship and provide, upon request, any beneficiary with a copy of these accounts;

·        surrender trust property upon trustee ceasing to be so; and

·        treat documents or information connected with the Trust as secret and confidential.

Registration with the MFSC

Registration is straightforward and involves:

·        filing a certified copy of the Trust instrument with the MFSC;

·        filing a declaration by the trustee stating that the Trust complies with the law; and

·        paying a fee of two hundred Malta liri (approximately US$550).

Upon registering these documents, the MFSC will issue the trustee with a certificate confirming the existence of the Trust.

Confidentiality relating to Trusts

The Trust instrument is highly confidential and, although registered with the MFSC, is not a public document. 

No one has access to the said deed and trustees and/or officials of the MFSC are duty bound (under pain of heavy fines and imprisonment) not to divulge its contents to any one.  In addition, the trustee may also be held liable in damages.

Fiscal and other advantages of registration

Trusts registered with the MFSC benefit from:

·        flat-rate tax liability of 200 Malta liri per annum (approximately US$550) irrespective of earnings;

·        no further annual registration fees are payable;

·        no customs duty payable on importation of trust property into Malta;

·        exchange control does not apply to transactions or operations relating to a Trust;

·        duty on documents and death duty do not apply; and

·        no stamp duty is paid on any documents concerning a Trust.

Trust or Company?

The myth that Trusts are to be used primarily for estate planning purposes is slowly being eroded as more and more commercial and modern uses of the Trust are being developed world-wide.

Admittedly, the Trust is not really considered when a new structure is being contemplated and the company is seen as the only and logical vehicle to be used.  However, the Trust has a number of advantages over the company, namely:

The Maltese Trust does not need to make a distribution to its beneficiaries to obtain the benefit of paying tax at a flat-rate of 200 Malta liri whereas, in the case of companies, a distribution of dividends to non-resident shareholders is essential for them to be entitled to claim back all or part of the tax paid by the company.

Greater confidentiality and flexibility.  A company’s Memorandum and Articles of Association is a public document.  Companies must also comply with the detailed requirements of the Companies Act and must submit on a yearly basis, amongst other things, audited accounts and, upon payment of a registration fee, an Annual Return.  On the other hand, the Trust deed is not a public document.  A Trust does not submit audited accounts or other documents to the MFSC and does not pay an annual registration fee.

Liquidation of companies is rather complex and cumbersome whereas termination of a Trust remains a fairly straightforward procedure that can be completed within a few days.    

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