Malta Trusts and Foundations
Malta offers a unique blend of civil and common law elements which are interwoven in a most distinctive hybrid system of legislation. Prior to the adoption of the Trusts and Trustees Act in 2004, trusts were considered somewhat anathema to the domestic legal system, as is to date the position in other traditionally civil law countries. Since 2004, however, the trust industry in Malta has gained momentum, with the private law and commercial benefits of the institute being increasingly valued and considered as an important factor to stimulate further financial growth. A further enrichment of the Maltese legal system resulted in 2007 with the enactment of a comprehensive legislation governing foundations, both private and public in scope.
A Unique Trust law
Maltese trust law, based on the Trust (Jersey) Law 1984 allows the setting up of trusts with beneficiaries, fixed or discretionary, as well as the setting up of trusts for charitable purposes. No other purpose trusts are permitted in terms of Maltese law. A trust can be set to operate inter vivos, that is, during the lifetime of the settlor, or alternatively, there may be a trust that operates causa mortis, on the incidence of the demise of the settlor. Thus, the trust offers an effective flexible instrument for estate planning. Along the years it has offered solutions to a vast array of situations whereby the traditional civil law institutes were lacking in the apt solutions required to cater for particular situations. The drafting and preparation of the trust is tailor-made to cater for the particular needs of the case at hand, but in either scenario, the trust offers the following benefits inherent from the institute of trusteeship, most notably:
- The netting of assets settled in trust.
- The fiduciary responsibilities of the trustee.
- The acquisition of patrimonial rights which are enforceable by the beneficiaries.
Maltese trusts can be private or commercial trusts in either case involving a person (the 'trustee') holding property for the beneficial interests of others. The pinnacle of trusteeship is the fiduciary ownership vested in the trustee. A Protector may be appointed by the settlor to exercise oversight and the settlor may communicate via 'letters of wishes' to the trustee so that a channel of communication is maintained between all parties concerned. Maltese law provides for the detailed regulation of the institute of trusteeship as well as legislatively defining the fiduciary obligations that define the legal relations in the trust context.
Private trusts deal with inter vivos or causa mortis needs of private individuals. They are set up in family contexts and are tailor-made to suit particular configurations. In estate planning the trust is able to be shaped according to particular situations, with dynamic solutions being made possible insofar as combining inter vivos and causa mortis provisions allows a settlor to set up the entire planning of his estate. In setting up private trusts, the trustees can be both family members of the settlor or alternatively professional trustees, duly licensed with the Maltese regulator of financial services.
On the other hand, commercial trusts range from security trusts that can operate in conjunction with the elaborate private law of security existing in Malta; to the use of trusts in setting up of collective investment schemes; to trusts used in the context of securities offerings. In the case of commercial trusts, a more extensive degree of latitude and flexibility is afforded in the set up of the trust insofar as the terms of the trust are determined from the ad hoc trust deed which reflects the contractual agreement of the parties, whilst also stressing the security and certainty which is required in the commercial context. The regulation of commercial trusts is adept to the needs of the commercial world, and has been conducive to the proliferation of trusts in this field. Professional trustees are instrumental in the workings of commercial trusts as they espouse the trust benefits with commercial expedience for the ultimate benefit of parties to the transactions.
Foundations in Malta
Foundations have existed in the Maltese legal system since time immemorial, being typical of a civil law system. In 2007 a Second Schedule to the Maltese Civil Code was added whereby the law governing foundations was elaborated. A foundation is defined as an organization which consists of a patrimony that is constituted by the founder with the assets being destined to fulfil a scope that can be either for the benefit of a named person or class of persons (the so called 'private foundations') or for the fulfilment of a specified purpose (charitable, philanthropic, or other social purpose or a non-profit scope ' the so called 'purpose foundations').
As a general rule, a foundation cannot be set up to fulfil a commercial scope, though the following exceptions are permitted in terms of Maltese law:
- A foundation may be the passive owner of commercial property or a shareholding in a profit-making enterprise, a franchise, a trademark or an income-producing asset, as well as a ship;
- The foundation may operate as a collective investment vehicle and issue units to investors therein for the passive holding of a common pool of assets;
- The foundation may be employed as a vehicle for securitization purposes.
Maltese law requires a foundation to be established in writing, by public deed in the case of intervivos foundations, or by a will published according to Maltese law requirements whenever the foundation is intended to operate causa mortis.
Once a foundation is registered with the Registrar of Legal Persons, it is imbued with separate juridical personality, benefitting also from the limited liability concept which is often most associated with corporate legislation. The founder, who establishes the foundation, must appoint an administrator/s empowered with the management and with safeguarding the patrimony. There may also be appointed a supervisory council which supervises the actions of the administrators.
Electing to set up either a trust or a foundation must always be based on an in-depth appreciation of the characteristics of either institute, as applied to the case at hand. In offering trusts, typical of common law jurisdictions, as well as foundations, typical of civil law jurisdictions, the Maltese legal system prides in offering a unique extensive array of options to investors.
Family Office & Governance
Family estate restructuring has become the province of financial services practitioners and Malta, with its ever-growing reputation as an interdisciplinary financial services centre, is establishing itself as an attractive jurisdiction for family business governance. Financial services practitioners in Malta service clients and their future generations via the wealth of legal institutes available both under domestic law, as well as via the adoption of apposite solutions in appropriate jurisdictions. Matters such as structuring of assets, transference of family assets, succession planning and wealth protection are considered in a comprehensive manner to devise an effective governance structure. This is achieved by the adoption of tailor-made solutions: holding companies; trusts or foundations; investment funds; registered office services; company directorships and the plethora of other options available under the robust Maltese legal regime.