Malta Trust Legislation
The institute of trusts is generally a common law concept and not usually found in civil law countries. Malta is a traditionally civil law jurisdiction, and an exception to the general rule above. Malta has implemented trust law into its legal regime and permits not merely the establishment of Malta trusts, but also accepts and recognises foreign trusts. Malta integrates the provisions of the Hague Convention on the Law Applicable to Trust and their Recognition 1984. Initially Malta allowed for trusts in its legislation in an offshore context when it allowed such structures in the context of non-residents only. Thereafter the Recognition of Trusts Act of 1994 laid the foundations for Malta to become a fully fledged trusts jurisdiction. In 2014 Malta introduced further amendments to its trusts law to align it with international developments[1].
Under Maltese law, a Malta trust is defined as a pledge (a binding agreement) by one or more individuals or entities (trustees) to manage and control a property, a particular asset, or funds for a third party/parties (beneficiaries) in a pre-agreed manner under the terms and conditions of the said trust. Such agreement would stipulate that legal ownership of the property would be transferred by the settlor to the trustees for the benefit of beneficiaries.
"A trust exists where a person (called 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."[2]
As such, the trust is not an entity, but instead it is a form of a legal relationship with no independent legal personality. The property that makes up the trust is independent from the settlor’s, trustee’s and beneficiaries’ assets, thereby guaranteeing greater protection.
As stated by the Trust and Trustees Act, a Malta trust has three main protagonists:
- Settlor: the person who creates the trust and includes a person who provides trust property or makes a disposition on trust or to a trust;
- Trustee: the person or persons holding the property or in whom the property is vested in terms of the trust agreement and in accordance with the provisions of Maltese law
- Beneficiary: a person entitled to benefit under a trust or in whose favour a discretion to distribute property held in trust maybe exercised.
This tri-partite relationship between the trustee, settlor and beneficiary is based on a fiduciary relationship.
Malta trusts may be used by both legal as well as natural persons. This agreement has particularly gained popularity in Malta, regardless of whether the trust is employed for commercial or private purposes. The Malta Trust may be used indiscriminately for international or local purposes and the Malta Trusts and Trustees Act makes no distinction between the two typologies.
A Malta trust can be set up in respect of any property whatsoever. Such property may be movable or immovable, personal or real, situated anywhere, have rights and interest, and even be contingent or future. The property that makes up the Malta trust may include multiple forms of assets such as bank accounts, real estate, furniture, art, shares in companies and other securities and other forms of assets.
The provisions of the Malta Act generally apply to all trustees, whether such trustees are authorised, or are not required to obtain authorisation in terms of the law.
The Regulation of Malta Trusts and Malta Trustees
The Malta Financial Services Authority (“MFSA”) is responsible for the regulation and supervision of trustees and other fiduciaries.
The general remit of the MFSA is to authorise, monitor and supervise of Malta authorised trustees and other fiduciaries, including administrators of private foundations and their level of compliance with the applicable legal framework to ensure a proper degree of protection for the clients of persons carrying on such regulated activity. Trustees and other fiduciaries are deemed to be gatekeepers to the financial system since the structures which they set up may have wide-ranging effects and uses within the financial sector. In this respect the MFSA’s scrutiny of the Malta trustee and fiduciary service providers is taken very seriously in view of the enhanced risks which these sectors may pose.
The MFSA adopts a risk-based methodology with regard to the supervision of trustees and other fiduciaries. A risk monitoring approach is employed whereby the data collated through offsite supervision and any other intelligence available to the MFSA, is inputted and a risk score is allocated to each authorised trustee or fiduciary. This risk score will determine the type and frequency of supervision conducted by the MFSA.
The MFSA deploys an array of tools related to ongoing supervision, with onsite inspections being the most commonly utilised approach. This may take the form of either a comprehensive top-down assessment of all the systems and procedures of the authorised person, or a dedicated inspection on a particular area.
Trusts themselves can be set up in Malta under the country’s statutory regulations and are still monitored, supervised and regulated by the MFSA. Trusts from overseas can also be redomiciled into Malta, if trustees migrate to Malta from an accepted jurisdiction. This can be done without having to liquidate the trust and reform it.
Duration of a Malta Trust
A Malta trust may validly exist for a maximum of 125 years, the exception being any trust created
- for a charitable purpose,
- as a unit trust or
- a qualifying retirement scheme.
Having said that, where all beneficiaries are in existence and have been ascertained, where none of such beneficiaries are interdicted or minors, they are entitled to demand that the Trustee terminates the trust and distribute the trust property among them.
Types of Malta Trusts
Discretionary Trust
As one of the most common types of trusts, in a Malta discretionary trust, the Trustee is afforded a high amount of discretion as to the manner in which the income and/or capital of the trust is to be distributed to the beneficiaries.
Security Trust
Also a popular type of trust arrangement, especially in the shipping field, the security trust is designed to benefit one or more creditors or a class of creditors, whether present or future. The security trustee would effectively be treated as a creditor and would be vested with the power and legal interest to file any legal proceedings for the enforcement of the security.
Charitable Trusts
Historically, for a trust to be valid it requires that the beneficiaries are identifiable. An exception to this rule has allowed trusts to be set up for charitable purposes.
The Trust & Trustees Act requires that the trust deed states the charitable purpose or purposes for which the trust has been created. The 2014 amendments to the Trust & Trustees Act allow for the appointment of an enforcer, whose role is to enforce the terms of the trust. The enforcer cannot also be the trustee.
Trusts for Commercial Transactions
Trusts can be created for certain prescribed commercial transactions, including security offerings, collective investment schemes, employee benefit or retirement schemes/arrangements, timeshare and multi-property structures.
Fixed Interest Trusts
In a fixed interest trust, the deed would specifically define the rights of the beneficiaries to the capital and/or income of the trust. The beneficial interests under a fixed trust are, as the name implies, fixed, which means that the share of the value of the trust property the beneficiary will receive is defined by the terms of the trust. In this type of trust the duties of the Trustee would generally be limited to the execution of those terms.
Life Interest Trusts
In this type of trust, the beneficiaries would be entitled to enjoy the trust property throughout their lifetime, after which the trust property would pass on to another person upon their demise.
Contingent Trusts
In contingent trusts, the beneficiaries would only enjoy the benefit of the trust property after the happening of a specified event.
Benefits of the Malta Trust
A Malta trust may be established for a wide range of reasons. These motivations broadly fall under three main headings: domestic, tax and practical.
Domestic Aspect of Malta Trusts
Malta trusts have been used for a variety of domestic, private reasons including:
- the preservation of assets until minors reach the age of majority
- the avoidance of any expense and delays relating to Malta or overseas probate processes
- to shield assets from third parties including creditors.
- as a safeguard in the event of the settlor or the beneficiary’s incapacity, and
- in the case of the disposition of assets to the settlor’s heirs without the assets being transferred immediately upon the settlor’s death.
Taxation of Malta Trusts
Malta adopts a territorial system of taxation which means that only income derived or generated in Malta is taxable herein. A Malta trust may be set up to make use of compliant avenues to:
- minimise estate taxes
- defer taxable events to a later date
- shift tax burdens onto beneficiaries with more who might enjoy more favourable tax impositions.
Apart from the above listed advantages, Malta has an outstanding number of Double Taxation Treaties concluded with countries all over the globe. Moreover, Malta’s membership in the EU and participation in the euro zone makes this whole legislative package even more attractive.
Ownership
A Malta trust may also be used in relation to the acquisition of real estate and the management thereof. This trust instrument is extremely useful when the property in question is still under construction or if alterations are being made to it, since the trustee will be managing cash flow in relation to works.
In this type of scenario, the institution of trust has the purpose of providing a form of guarantee. The debtor, acting in the office of settlor to the trust may place any asset which is to be held under the trust for the benefit of his creditor, who would be acting as a beneficiary. This mechanism provides a more efficient, effective, and non-time-consuming form of guarantee than other forms such as the institute of ‘pledge’.
Malta Trusts in Securitisation Scenarios
Securitisation of funds may also occur through the use of trusts. Monies may be allocated to the trust for investment and as a guarantee of payment to any creditor. The securitisation trust possesses similarities to an investment trust where the trustee places monies under investment as instructed by the settlor and this is usually done through a letter of wishes.
Amongst the above possibilities, a trust may be used as an instrument for the benefit of either the settlor himself or any other third party beneficiaries such as descendants, spouses, other relatives or any other person the settlor desires.
Our Malta Trust Services
Malta is known to be a stable and adaptable financial jurisdiction with expertise in this sector.
Our firm offers trust and trustee services through our licensed trust and fiduciary company Claris Capital Limited. We have been involved with mainstream assets such as family business, financial portfolios and real estate investments as well as new age holdings such as virtual and digital assets. We are one of the leading players in the field of Malta trusts and we offer professional trustee services to local and international persons, whether legal or natural. We would be happy to discuss trusts as a solution to your requirements.
[1] Malta Trusts & Trustees Amendment Act 2014, Cap 331, Laws of Malta
[2]Ibid Article 3
