Malta Trusts :: 5 Years On

Dr Michela Pirotta | 16 May 2011

malta trusts 5 years on

Pre-2004 – Where do we hail from?

The 11th of February, 1870 brought about the implementation of the Civil Code into Maltese legislature thereby providing a clear demarcation from the common law system adopted by Britain. The Civil Code finds its primary source in the Code Napoleon which in turn is based on Roman law. Prior to 1988, the notion of a trust was uncommon to our legislation or courts. This is especially ironic due to the fact that Roman Law recognised the institute of fiducia, which held a similarity to the characteristics of a trust; however the institute was phased out and the notion behind it withered away with time.

Due to the fact that Malta fell under British rule for a considerably long period of time, notions which surfaced and attached themselves to common law were infiltrating into Maltese judicature, even though Malta’s legislative system is based on continental law. The notion of a trust is based on the principle of equity expounded by common law. Even though this is not applied by our Courts it is nevertheless recognised. This principle encompasses the notion of fairness, impartiality and justice and as a result of this definition it is evident that the underlying theory has infiltrated within our judicature as laid down in the judgement Gouder noe v Sammut noe [1987].

The introduction of trusts to Malta was brought about by way of The Offshore Trusts Act which was based on Jersey Trust law; yet the Act included no reference to equity. Jersey Trust law entered into force in 1984 and is probably the most popular legislation with regard to trusts.  The Offshore Trusts Act bears a particular nature due to the fact that its application was directed solely towards those persons which were considered to be non-resident persons under local legislation. This resulted from the belief that the institution of a trust would provide no benefits or advantages to residents of Malta. Consequently, the Act did not bring about the constitution of the institute of a trust but rather the recognition of foreign trusts.

Under the Act a company registered under Maltese law would be able to act as trustee to a non-resident settlor provided that the trustee holds the necessary documents and warrant as required by the appropriate authority. It is for this reason that the act is entitled The Offshore Trusts Act. Owing to the offshore nature of the trust, it would not be required to provide public registration of the trust, even though the trust would have had to be registered for recognition purposes. Recognition was not restricted to one type of trust; the coverage extended to discretionary and charitable trusts with a period of validity for 100 years.

Through the entry into force of the Act, a range of novel concepts were introduced to Malta’s jurisdiction such as the definition of the trust itself, the notion and office of a trustee and beneficiary. In addition, the recognition of the trust brought along with it tax exemptions and benefits in relation to the trust, the applicable or choice of law to particular jurisdictions as well as providing an alternative to testamentary dispositions.

Despite the new concepts which were introduced, the industry never took off mainly due to the restrictions imposed as a result of the unavailability to residence. Amendments were made to the Act, particularly changing the name to The Trusts Act. Its purpose was to remove the reference to offshore in hope of lifting the industry off by attracting wide-ranging potential clients. In addition, it introduced novelty concepts particularly protective trusts, the office of protector as well as the opportunity to trace the property in relation to the trust. Overall, advantages were provided for those foreign trusts which were established in Malta. Despite this, trusts established by non-residents were still considered to be inapplicable.

The Act was once again considered to be insufficient and unsatisfying; consequently 1994 brought about the introduction of The Recognition of Trusts Act which emulated the provisions found under Jersey Law in relation to trusts and their recognition. The amendments were effected as a result of the limitations provided by its predecessor together with a strategy which provides for the phasing out of offshore trusts. Two years subsequent to the introduction of The Recognition of Trusts Act, Malta ratified the Convention on the Law Applicable to Trusts and on their Recognition (The Hague Convention) on the 1st of March, 1996. The object of the Convention is to provide guidelines for those jurisdictions which do not possess the same principles recognised under common law. In fact, the Convention’s preamble recognises the trust as a unique legal institution due to the fact that the principle of equity was developed by common law courts.  It regulates the law applicable to trusts and their recognition in civil law jurisdictions due to the disadvantage which civil law is set at. The Convention lays down certain conditions for its application to the recognition of trusts such as that laid down under Article 3 which provides that the scope of the Convention only extends to the those trusts which are voluntary and evidenced in writing; it also gives directions on the effects of foreign law trusts. Fiscal matters as well as matters going against public policy fall out of the scope of the Convention.

There have been a diverse number of initiatives with regard to the institution of trusts in Malta. It may be said that the incentives which were taken up prior to 2004 where necessary to pave the way for the introduction of The Trusts Act (TTA) in 2004.


2004 Act – Background

2004 brought about the implementation of The Trusts (Amendment) Act with the object of eliminating a range of concepts which were introduced as a result of its predecessor, especially the underlying concept of a nominee company, any rules of confidentiality as well as any discriminatory tools which were imposed when referring to a trust. It moreover provided for a departure away from the offshore industry, with the intent of creating a hub for trusts in Malta with the object of making it a more attractive vehicle. Moreover, the Act brought about the introduction of novel frameworks such as the regulation of trustees and fiduciary activities as well as providing for the regulation of the taxation of trusts.

The Act manifests an amendment to the name, changing it to the TTA as well as providing for amendments to other acts of law such as the Civil Code, the Income Tax Act, the Companies Act and the Arbitration Act. The Act’s main effect was the fundamental introduction of the institute of the trust into domestic legislation, with the result of making it available to residents.

A further amendment was made to the Act via Act III of 2007 which provides clarity on the interpretation of rules particularly relating to foundations.

The trust instrument produces an array of benefits making Malta an attractive preference to institute a trust deed. The trust instrument firstly creates a distinct patrimony from that of the trustee in the sense that there exists a separation of the estate of the trust to that of the trustee, especially with regard to any creditors’ claims, matrimonial property or inheritance.  Moreover, the trust instrument brings about the creation of a particular contractual arrangement resulting in the creation of fiduciary obligations. The trust instrument also gives rise to a distinct relationship between the trustee and the beneficiary in which the latter has an enforceable obligation against the trustee. It also gives rise to a degree of flexibility as to the beneficiary’s rights. The trustee is under the obligation to administer the property with the due diligence of a bonus paterfamilias.

The concept underlying the institute of a trust may cause a degree of perplexity due to the fact that the trust does not involve two divergent ownerships; but on the other hand the trust attributes to the beneficiary certain rights in the pool of assets as a whole due to the interest the beneficiary derives from the asset. However, the issue arises whether the beneficial interest held by the beneficiary constitutes an interest which is in rem or in personam. In a reference for a preliminary ruling of Webb v Webb  the court held that:

‘It follows that an action for a declaration that a person holds immovable property as trustee and for an order requiring that person to execute such documents as should be required to vest the legal ownership in the plaintiff does not constitute an action in rem within the meaning of Article 16(1) of the Convention.’

As a result, it may be concluded that the beneficial interest held in a trust constitutes a personal right. However, it is important to bear in mind that each trust instrument is distinct, resulting in the probability that the beneficiary may not only hold a beneficial interest over the trust estate but they may hold rights over the trust estate.


In its essence the basis of a trust relationship is that of a fiduciary obligation which is found under Article 1124A of the Civil Code:

‘(1) Fiduciary obligations arise in virtue of law, contract, quasi-contract, trusts, assumption of office or behaviour whenever a person (the ''fiduciary'') -
(a) owes a duty to protect the interests of another person; or
(b) holds, exercises control or powers of disposition over property for the benefit of other persons, including when he is vested with ownership of such property for such purpose; or
(c) receives information from another person subject to a duty of confidentiality and such person is aware or ought, in the circumstances, reasonably to have been aware, that the use of such information is intended to be restricted.’

Nevertheless according to the general principle of law: lex specialis derogat lex generalis, therefore the provisions found under the Trusts and Trustees Act override those found under the general law; unless the contrary is expressly provided for by law. For the creation of a trust instrument there must be the intent to create the trust present in the mind of the settlor. However, the law establishes a range of ways in which a trust relationship may arise. Under Article 7, the law lays down that a trust may come into existence:

• Unilaterally;
• By oral declaration;
• By an instrument in writing including by will;
• By operation of law; or
• By a judicial decision.

Notwithstanding the criteria laid down under Article 7, the meaning of Article 7 must be interpreted within the generality of Article 3 which states that:

‘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.’

The creation of a trust may take a variety of forms:

• Discretionary or Fixed Interest Trusts

A discretionary trust consists of a trust which gives rise to a particular discretion which may be applied by trustees in order to have the ability to manage and invest the estate of the trust; to have the power to appoint the beneficiaries, distribute the income and capital derived from the trust; as well as to whom such distributions should be made. In fact in Re Smith [1928], property was held by the trustee under a discretionary trust. The court held that under a discretionary trust the trustee has at his disposal the discretion to apply the whole or part of the fund to or for the benefit of a particular person. Moreover the latter may not avail himself of a remedy before the court in order to take hold of the benefit.

Fixed Interest Trusts on the other hand entail a similar discretion such as those laid down under discretionary trusts; however the remit of the discretion is laid down and provided for in the trust instrument. Therefore the beneficiaries’ entitlement is predetermined in the trust instrument to a specified portion.

• Accumulation of Maintenance

This type of trust is found under Article 26 of the Trusts and Trustees Act. The object of this trust is for when the beneficiary is of minor age, regardless of whether his interest is a vested interest or in the event that the interest will become vested upon the attainment of the age of majority or at any later age or the happening of an event depending on the trust instrument. In these trusts the trustee is awarded the discretion to accumulate the income which is attributable to the interest of the beneficiary pending the attainment of the age of majority or such later age or the happening of such an event. The trustee also has the power to apply such income or part of it to or for the maintenance, education or any other benefit of such beneficiary. Article 26 (2) also grants the power to the trustee to have the ability to advance or appropriate, to or for the benefit of any such beneficiary the whole or part of such interest.

• Oral Trusts

Oral trusts may be constituted under Article 7 however it is essential that the intention to create the trust is shown as otherwise it is assumed that a relationship of mandate arises.

• Constructive Trusts

According to Muschinski v Dodds  the court held that:

‘Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.’

Maltese general principles follow that a constructive trust bestows a presumed intention on the settlor by means of a judicial decision.

• Resulting Trusts

A resulting trust arises from two different scenarios. The first being where a presumption arises that the property held under the trust is for the benefit of others. The second scenario is where there is failure to wholly dispose of the beneficial trust in the trust instrument.

• Protective Trusts

A protective trust is one which is established for a person who is unable to manage his affairs. A protective trust is catered for the beneficiary under Article 13 of the TTA which provides that the in the case of a protective trust the interest may be:

o Liable to termination;
o Subject to restriction on alienation or dealing;
o Subject to diminution or termination in the event of the beneficiary becoming bankrupt, or insolvent, or any of his property becoming liable to seizure for the benefit of his creditors; or
o Not liable to attachment under a garnishee order issued against the trustee or to termination without the prior consent of the court, when the interest is expressed to be for the maintenance of the beneficiary or as a pension.

• Unilateral Declaration of Trust

Article 7 lays down the definition of the required criteria to constitute a unilateral declaration of trust:

‘(3) A unilateral declaration of trust is a declaration in writing made by a trustee stating that it is the trustee of a trust, containing all the terms of the trust as well as the names or the information enabling the identification of all the beneficiaries.’

In any trust for it to be valid two requisites must subsist: capacity and certainty.

In the event that the settlor is a natural person the settlor must have the title of ownership of the estate which is going to be held under the trust and he would be capable to transfer in his personal capacity according to law. Moreover, the settlor must be of majority age and does not qualify as a bankrupt individual or suffer from any mental illness. In the event that the settlor constitutes a corporation, the creation of the trust instrument must fall within the objects of a company.

Certainty is the second requisite required to create a valid trust deed. Certainty must arise in three areas: Certainty of words; certainty in the subject-matter; certainty in the objects falling under the trust instrument.

Moffat refers to the requisite for certainty of words as that of certainty of intention as the more appropriate term.  In the deed of settlement certainty of words must occur in relation to the transfer of the assets to the trustees particularly in the method of transfer. With regard to the declaration of the trust, the instrument must be certain in the fact that it shows that the assets he already holds will fall under the trust deed; this is otherwise known as the declaration method. When a trust comes into existence on the opening of succession, certainty must be provided in the fact that the trust shall take effect upon the settlor’s death.

The trust instrument must be binding in that it is clear and unambiguous.

In Re Adams and the Kensington Vestry [1884]  the judge held that that in order to establish the settlor’s intent, one must look at the whole trust instrument and in this case it resulted that the settlor’s intent was not one to create a trust.

Certainty of subject-matter entails certainty in the property which is going to be held under trust as well as certainty with regard to the interest held by the beneficiaries. However such certainty is considered to be a reasonable certainty as in the case of Re Golay’s Will Trusts [1965].

With regard to the element of the certainty of the object of the trust, this criterion not only extends to the fact that the beneficiaries must be mentioned with sufficient clarity however, it now wholly refers to the beneficiary principle with the result that all the beneficiaries must be ascertained or ascertainable except for those trusts which are considered to be charitable trusts.

• Duration

The duration of a trust depends on the rule of perpetuity. This rule resulted from a compromise between the public and private interest of the property. In fact Article 12 maintains that:

‘(1) A trust may continue until the one-hundredth anniversary of the date on which it came into existence and, unless sooner terminated, shall then terminate.
(2) Subarticle (1) shall not apply to a trust for a charitable purpose, to a unit trust or to a retirement scheme registered in terms of the Special Funds (Regulation) Act and set up as a trust.’

• Letter of Wishes

A letter of wishes is a document which is made by the settlor with the purpose of controlling the assets held under the trust. It is not a formality which is required for the validity of the trust instrument due to its non-binding character as established in Bank of Nova Scotia Trust Company (Bahamas) Limited v Nelia Ricart de Barletta.  However, the letter of wishes may be made binding if it is included in the trust deed. Moreover beneficiaries are not entitled to access the letter of wishes of the settlor.

• Charitable Trusts

Instituting a charitable trust derived a range of fiscal benefits such as exemptions from income tax or trading profits. In a charitable trust there is no interest of beneficiaries due to the fact that there are no beneficiaries and it is not subject to the rule of inalienability. Moreover, rules in relation to charitable trusts are not as stringent with the relaxation of the rules on certainty as well as the fact that perpetual charitable trusts are considered to be valid.

For the constitution of the charitable trust, four criteria need to be satisfied:

• The trust must be charitable in nature
• The trust must entail a public benefit requirement
• The purpose of the trust must be exclusively charitable

There must be the application of The Cy Pres Doctrine which saves the property held under the trust in the event that the original trust would have failed or there would be the initial or subsequent failure of the general charitable intention.

Main Players

A settlor is defined as ‘the person who makes the trust and includes a person who provides trust property or makes a disposition on trust or to a trust.’  On the other hand, a trustee is defined in relation to property as ‘the person or persons holding or in whom the property is vested on terms of trust in accordance with the provisions of this Act or is otherwise deemed to be a trustee under this Act.’  The persons to act as trustees may be either legal or natural persons. In the event that the trustee consists of a legal person, there must be adherence to the following criteria:

• The objects of the company must include acting as trustee and carrying on activities ancillary or incidental thereto, and does not include objects which are not compatible with the services of the trustee;
• The company’s actual activities are compatible and connected with the services of a trustee;
• The directors of the company must not be less than three in number and must be individuals who are approved persons as established by law;
• The company has established adequate systems for maintaining proper records of the identity and residence of beneficiaries, the dealings and the assets in connection with trusts and compliance with the applicable law;
• Every person who has a direct or indirect interest in the company must be an approved person;
• The name of the company must not be inconsistent with the trustee activity; and
• Where the company is not registered in Malta, that company must be constituted or incorporated in an approved jurisdiction.

If the trustee is an individual who is considered to be a natural person, the law lays down the following qualifications:

• The individual must be a resident in Malta or operating in Malta;
• The individual is an approved person; and
• The individual has established adequate systems for maintain proper records of the identity and residence of beneficiaries, and of the dealings and the assets of trusts and compliance with applicable law.

Nevertheless, a person shall not be considered to hold the appropriate qualification or to hold office as trustee if he is an interdicted or incapacitated person or is an undischarged bankrupt. A person shall neither qualify if he has been convicted of any of the crimes affecting public interest or of theft or of fraud or of knowingly receiving property obtained by theft or fraud; neither will he have the ability to hold office as trustee if he is of minor age or if he was subject to a disqualification order ordered by the Court.

Generally, the trustees are first appointed by the settlor in the trust instrument. However, where there is no trustee or where a vacancy arises, the duty to apply to the court for the appointment of a new trustee on the part of the last former trustee or any other trustee, the beneficiaries or the Attorney General. If the appointment of the trustee is made by any other means than by the settlor in the trust instrument, the trustee shall be subject to the same powers, discretion and duties as if he had originally been appointed in the trust instrument.

The acceptance of the trust to act as trustee is not obligatory; however if any person who is appointed as a trustee in the trust deed acts in such a way a trustee would act then that person shall be deemed to have accepted the appointment as trustee. The refusal of his office as trustee should be made within a reasonable period of time after becoming aware of his proposed appointment.

It is possible for the trustee to resign from the office of trustee, provided that this is done by a notice in writing to his co-trustees or in their absence to at least one beneficiary. In the event that there are no beneficiaries to the trust notice in writing shall be made to the settlor or in his absence to any successor of the trustee. His resignation shall take effect upon such notification. Removal of the trustee on the other hand shall occur in any of the following cases:

• Removal by the court;
• The occurrence of a provision in the trust declaring so; or
• In the event of the winding up of or declaration of bankruptcy of the person acting as trustee.

A power is defined as an authority conferred upon a person to determine the legal relations relating to him or others. The powers of the trustee may consist either of administrative power (e.g. the power to remove trustees) or dispositive powers (e.g. the power to appoint beneficiaries). In fact, Article 24 maintains:

‘(1) Subject to the terms of the trust and to the provision of this Act, a trustee shall, in relation to the trust property, have all the powers of a natural person having the absolute title to such property.
(2) A trustee shall exercise his powers in the interest of the beneficiaries and in accordance with the terms of the trust.’

The trustee is not permitted to delegate his powers to any other person unless it is established by law, ordered by the Court or falls within the parameters of the trust.
A trustee is not entitled to any remuneration unless it is provided for under the terms of the trust; however he may be reimbursed for any of the expenses he incurred in connection with the trust.
Article 21 lays down the trustee’s duties in that he will act with the prudence, diligence and attention of a bonus paterfamilias and observe the utmost good faith in the exercise of his duties, powers and discretions. It is the duty of the trustee to carry out and administer the trust according to its terms together with the obligation to ensure that the trust property is vested in him or is under his control and shall in so far as is reasonable to the terms of the trust safeguard the property held under the trust from any loss or damage. The duties of the trustee generally cover the Due Diligence principle and the KYC (Know Your Client) principle this would result in obtaining all possible information about the settlor, analysing the creation of the trust together with its funds or asset throughout the existence of the trust. The trustee has the additional duty to maintain the accounts in relation to the trust as well as having the duty to keep the property held under the trust separate and distinct from the trustee’s personal property as established under Article 21 (5). Moreover the trustee has the duty to provide information as laid down in Article 29:

‘29. (1) A trustee shall, so far as is reasonable and within a reasonable time of receiving a request in writing to that effect, provide full and accurate information as to the state and amount of the trust property, including the accounts of the trust, and subject to subarticle (2), the conduct of the trust administration to:
(a) the Court;
(b) subject to the terms of the trust, the settlor;
(c) the protector of the trust;
(d) subject to the terms of the trust, any beneficiary of the trust who is of full age and capacity, or if a minor, to his lawful guardian or representative;
(e) subject to the terms of the trust, any charity referred to by name for the benefit of which the trust was established; and
(f) in case of a trust established for a charitable purpose, the Attorney General or the relevant authority under applicable law.’

A trustee shall be liable for breach of trust where there occurs loss of depreciation in the value of the trust property resulting from the breach or if the profit would have accrued to the trust if there would have been no such breach. The trustee may neither apply a set off to any gain from a breach of trust against a loss from the same or other breach of trust. However, the trustee is not liable for any breach which occurred prior to his appointment as trustee when the said breach was committed by another person; in such event, on becoming aware of the breach he has the duty of to take all reasonable steps in order to rectify the breach. Nevertheless when the breach of trust arises from the trustees own fraud, wilful misconduct or gross negligence there shall be nothing in the terms of the trust which shall relieve, release or exonerate a trustee from the repercussions of the breach of trust.

The validity of the trust depends on the presence of the beneficiaries in the trust deed unless the trust is a charitable trust. In fact, Article 9 (4) maintains that:

'(4) A person shall not be entitled to benefit under a trust unless he is -
(a) identifiable by name; or
(b) ascertainable by reference to a class or to a relationship to some person, whether or not living at the time which under the terms of the trust is the time by reference to which members of a class are to be determined;
and if there are no beneficiaries identifiable or ascertainable as aforesaid the trust shall, unless the purpose of the trust is a charitable purpose, fail.'

Gardner expands on this by stating that ‘It is in the interest of a beneficiary in the trust property, rather than the trustee’s duties that lies at the heart of the trust concept.’

In the case of Saunders v Vautier,  the Court held that beneficiaries are entitled to terminate the trust provided that the trust instrument does not state otherwise. The beneficiary must also obtain the consent of all the other beneficiaries as long as each individual beneficiary is of sound mind and would have attained the age of majority. Moreover, as provided for in Article 9 (4), the beneficiaries must be ascertainable.

According to the law, a beneficiary has an entitlement in or to the trust. Such entitlement is known as the beneficial interest of the trust. The beneficial interest is to the enjoyment of the beneficiary provided that such enjoyment is within the parameters of the trust, the Act and any provisions relating to the trust. The rights of the beneficiary are personal in nature and are subject to any applicable laws. Relations to the beneficiary such as his creditors, heirs and spouse may have a right to the interest only as specified in the terms of the trust provided that such rights only to the extent of the beneficiary’s entitlement to the interest. Moreover, the beneficiary’s relations have no other right neither against the trust property nor the trustee. Regardless of the fact that the interest constitutes immovable property, the interest of the beneficiary is still considered to be movable property by operation of law.

As aforementioned the beneficiary must be either identifiable by name or ascertainable by reference to a class or relationship to some person. Nevertheless, the trust is considered to be valid if persons who are not yet conceived at the time of the institution of the trust instrument as long as they are named as beneficiaries or form part of a class of beneficiaries. However the rights of the unborn beneficiary arise once they are born viable. Additionally, the settlor may also appoint himself as a beneficiary of the trust.

It is possible to increase the number of beneficiaries to the trust through the trust instrument itself. As mentioned earlier if it is provided hereto in the trust deed, the trustee may have the power to appoint beneficiaries to the trust, such power shall only be valid upon the adherence to certain conditions. These conditions lay down that the beneficiary must be identifiable by name or forms part of a class of persons, the members of which are reasonably individually identifiable, such identification is to be given either in the trust deed itself or in any other written instrument which is signed by the trustee whether or not it is binding on the trustee or not. The beneficial interest and any rights appertaining to the office of the beneficiary shall only arise upon the appointment of the beneficiary by the trustee.

Being a movable by operation of law, the beneficial interest is considered to be a transferable right unless the trust instrument excludes or prohibits such a transfer. In fact Article 9 (14) holds that:

‘Subject to the terms of the trust, a beneficiary may, by instrument in writing, sell, charge, transfer or otherwise deal with his interest in any manner.’

Article 9 (12) provides that a beneficiary may, by instrument in writing, disclaim his whole interest and such a disclaimer shall be irrevocable. It is also possible to disclaim part of the interest which may be made revocable provided that this is permitted within the terms of the trust instrument.

The generality of the action for breach of trust against the trustee found in Article 41 is limited for the beneficiaries as provided in subsection (2) and (3) which states that:

‘(2) Without prejudice to the provisions of subarticle (1), no action may be brought against a trustee by a beneficiary for breach of trust after the lapse of three years -
(a) commencing from the date of the delivery of the final accounts of the trust to the beneficiary; or
(b) commencing from the date on which the beneficiary first had knowledge of the occurrence of the breach of trust, whichever is the earlier date.
(3) Where the beneficiary is a minor the periods referred to in this section shall not begin to run until the day on which the beneficiary ceases to be a minor.’

The beneficiary has two other remedies at his disposal which may be found under Article 1124A which are available against fiduciary obligations:

'(5) In addition to any other remedy available under law, a person subject to a fiduciary obligation who acts in breach of such obligation shall be bound to return any property together with all other benefits derived by him, whether directly or indirectly, to the person to whom the duty is owed.
(6) The obligation to return property derived from a breach of a fiduciary duty shall apply also to all property into which the original property has been converted or for which it has been substituted.'

The office of the protector was introduced in 1994. His position is that of a third party to the trust instrument and is the main channel of communication between the trustees and the beneficiaries. In fact, the protector’s powers may be defined as ‘the power to direct the trustee in matters relating to the trust. The role of the trust protector and the ability of the trust protector to direct the trustee will vary from trust to trust depending on specific drafting.’

The TTA defines the power of the protector as follows:

‘(a) to appoint a new or additional trustee;
(b) to remove a trustee;
(c) to require the trustee to obtain his discretion.’

Nevertheless, it is important to distinguish the trustee and the protector even though they are both appointed by the settlor.

The protector adds flexibility to the trust as well as ensuring that the intentions of the settlor are being fulfilled for any foreseeable circumstance, thereby giving the protector a sufficient range of power to be considered as a disadvantage.

Foreign Law Trusts

There exists a conflict between civil law and common law which creates a difficulty when introducing the institution of the trust into civil law. As a result of this arising conflict, The Hague Convention in Law Applicable to Trusts and their Recognition was drafted in order to ease the distinction between the two legal norms in relation. At the time Malta did not introduce the trust institution into legislation, however it simply recognised foreign trusts. Similarly, the Convention did not bring about the introduction of the trust into local legislation but simply provided for its recognition.

The Convention is a multilateral treaty with the aim of harmonising national law of the contracting parties in relation to the definition of a trust as well as resolving any conflicts arising as a result of the choice of law. Through its provisions it determines whether the trust is enforceable according to national law, the appropriate protection awarded to the parties of the trust as well as the validity of the trust itself.

Article 5A of the TTA regulates the applicability of the Convention where Article 5A (1) maintains that:

‘The provisions of articles 1 to 12, 14, 15, 16 (the first paragraph only), 17, 18 and 22 (the first paragraph only) of the Convention as set out in the Schedule shall have the force of law in Malta.’

The Convention lays down a common definition attributable to a trust where the trusts is recognised as the legal relationship created by person, known as the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or specified purpose. Such an instrument may be created either inter vivos or by testamentary disposition. The characteristics of the trust which is recognised under the Convention are as follows:

• The assets do not merge with the trustee’s estate but such assets constitute a separate fund falling under the trust;
• The title of the assets which are held under the trust fall under the trustee’s name or any other person acting on his behalf; and
• The trustee has the power and duty to manage, employ or dispose of the assets within the trust’s parameters and those as established by law. However, Article 2 of the Convention goes on to state that the reservation by the settlor of certain rights and powers, and the fact that the trustee may himself have rights as a beneficiary does not necessarily go against the validity of the trust.

Moreover the application of the Convention only extends to those trusts which are expressed in writing and created voluntarily. Therefore, those oral trusts which are not evidence in writing under Maltese law would not fall under the scope of the Convention. Moreover, any other preliminaries falling outside of the scope of the trust agreement such as that of the validity of wills or of other acts by virtue of which assets are transferred to the trustee.

Chapter II outlines the rules governing the applicable law of the trust chosen by the settlor. The applicable law shall be chosen by the settlor, where such choice must be express or implied by the terms of the trust interpreted in the light of the circumstances of the case. In the event that the choice of law does not apply for the recognition of trusts, the choice of law shall not be effective. In this case or in the event where no applicable law has been chosen the applicable law of the trust shall be connected with.  The applicable law will be chosen on the following criteria:

• The place of administration of the trust which is designated by the settlor;
• The lex situs of the assets held under the trust;
• The place of residence or business of the trustee;
• The objects of the trust and the place where such objects are to be fulfilled.

There need not be any connection with the choice of law and the trust instrument provided that the applicable law recognises the institute of trust, especially in the event that the applicable law constitutes a State which is not a contracting party to the Convention.

Article of the Convention provides a non-exhaustive list of the aspects of the trust which will be governed by the applicable law. Generally the law shall govern the validity of the trust, its construction, its effects, and the administration of the trust. In the event of a foreign trust, the mandatory rules found under Article 6A shall apply to the foreign trust only when the settlor is domiciled in Malta. In the event that the settlor is not domiciled in Malta, the provisions of the Act shall apply only in so far as to the recognition of the trust. The Convention goes on to state that matters relating to the trust such as that of administration may be governed by a different law than that of the applicable law.

If a trust is created according the conditions laid down in the Convention, then such trust shall be recognisable. Moreover, the rules laid down in Chapter I of the Convention shall be applicable; therefore, the trust shall be a separate fund to that of the trustee, an action may be brought by or against the trustee in his capacity as trustee and that he may appear as trustee before a notary or any person acting in his personal capacity. The following principles shall also be applied:

• The personal creditors of the trustee may not bring an action against any property held under the trust;
• The trust shall not form part of the estate of the trustee upon his insolvency or bankruptcy;
• The trust shall not fall under the estate belonging to the matrimonial of the trustee or his spouse nor part of the trustee’s estate upon his death; and
• The trust assets may be recovered when the trustee, in breach of trust has mingled trust assets with his own property or has alienated trust assets. However, the rights and obligations of any third party holder of the assets shall remain subject to the law determined by the choice of law rules of the forum.

Commercial Trusts

Private trusts are especially catered for the needs of the individual where it is mainly employed for the use in family matters. Commercial trusts on the other hand provide a range of tools for those trusts which have the intention to be set up for a commercial purpose, making them highly functional and beneficial to the parties.

Maltese law does not provide for the setting up of a trust without the existence of beneficiaries to the trust, since the beneficiary is a requisite to the formation of a trust (except for the establishment of charitable trusts); therefore the setting up of a commercial trust provides no exception to the rule.

The commercial trust may be set up for any of the following:

• Security offerings to the private or public as well as opportunities dealing with the management and custody of investment instruments;
• Securitisation of assets;
• Establishing personal security interests under a trust;
• Collective investment schemes;
• Employee benefit or retirement schemes;
• Loan agreements and multi-creditor banking facilities;
• Insurance policies and their payments;
• Time-share and multi-property opportunities; and
• Other opportunities which the Minister may prescribe.

The law therefore provides a range of opportunities for commercial trusts with particular advantages held over the private trust; such as the release from the duty of the trustee to inform the appropriate authority as established by law when such trustee is the sole trustee and he is enjoying benefit under the trust amongst others.

Legislation relating to commercial trusts is therefore devised to take an advantage over the instrument of the personal trust thereby making it a more attractive mode of concluding business transactions.

Mandatory Rules

The mandatory rules laid down in the Convention and the Act find a balance between ordinary rules and the rules relating to public policy. The purpose of implementing the respective mandatory rules in order to protect and safeguard the interests of those persons who might be subject to a possible abuse due to the application of the trust.

Article 15 of the Convention is reproduced under Article 6A (1) of the TTA. The Article provides that in the case that the applicable law of the trust is that of Maltese law, the following areas of law may not be derogated from by voluntary act:

‘(i) the protection of minors or incapable parties;
(ii) the personal and proprietary effects of marriage;
(iii) succession rights, testate and intestate, especially the indefeasible shares of spouses, ascendants and descendants;
(iv) the transfer of title to property and security interests in property;
(v) the protection of creditors in matters of insolvency;
(vi) the protection, in other respects, of third parties acting in good faith’

Unless it is otherwise provided for under the Act or any other law relating to trusts, such laws shall prevail over the terms of the trust. Such mandatory rules shall also be applied by the courts unless the matter falls under the conflict of provisions which will be regulated under Article 6B.

In the case where the settlor provides that the applicable law is Maltese law and such law finds no connection with the law of Malta by reason of the domicile of the settlor at the time of the creation of the trust or with the lex situs of the immovable property, the mandatory rules aforementioned shall not apply. Moreover, in such an event no regard shall be taken of the following:

• The domicile, habitual residence, registration, authorisation or place of business in Malta of the trustee or any protector or any person rendering administration, accounting or other services to the trustee;
• The fact that the proper law of the trust is Maltese law;
• The situs of the movable property in Malta; or
• The place of execution of the deed of trust, any documents relating to the trusts or property held under the trust or other transaction documents in Malta.

The law enables the court to apply those mandatory rules established under private international law, provided that such rules do not conflict with any of the mandatory rules found under the Act. The same applies when the Court is required to apply a judgement applying such mandatory rules under private international law.

The following Article ensures that the elements found under Article 6A are adhered to in such a manner as to provide for the preservation of the trust. Firstly the application of the mandatory rules shall not result in the invalidity of the trust. The trust shall continue under the same terms as established originally in the trust instrument which is unaffected by the application of the mandatory rules. Moreover, unless provided otherwise by order of the Court, the affected property shall be held by the trustee for the settlor.

The terms of the trust may be varied by the trustee in so far as it relates to the nature or extent of the benefit. In addition, the trustee has the power to carry out such acts as are necessary and legally permissible. In both events, the objective is for the beneficiary to derive the benefits as originally intended by the settlor in a manner which would be compatible with the afore-mentioned mandatory rules. If any property is released from the trust, the trustee shall hold such property in trust for the settlor absolutely, or if he is dead for his heirs.

When the aforementioned conflict and where the terms of the trust remain silent the terms of the trust shall be deemed to include:

• The power to reduce the assets held under the trust and return the assets wholly or partially to the settlor by the trustee in order to comply with the mandatory rules;
• The power of the trustee to enter into arbitration or mediation agreements or any other compromise to disputes and claims with third parties; and
• The power of the trustee to seek directions from the Court on such matters.

The trustee holds these powers regardless of the terms found within the trust; he is however under the duty to act in good faith, honestly and reasonably.

Moreover, when conflicting provisions with the mandatory rules does arise, property which belongs to the settlor and is not settled in the trust should first be utilised to meet the claims of any person seeing to invalidate or reduce the trust. Article 6 (e) maintains that notwithstanding any other applicable law, the trustee may meet a valid claim being made against the trust property, whether voluntarily or as a result of a court direction, order or judgement, by a payment of value in money and shall not be obliged to return property settled in trust in kind.

The benefits under the trust shall be forfeited in the event where any person succeeds in reducing the property under the trust or obtains a court; unless the trust expressly provides otherwise or the trustee considers it unreasonable and obtains the consent of the Court to maintain the trust in force subject to the appropriate conditions imposed by the Court. Article 6B concludes in stating that the trustee shall not be subject to an obligation to make a payment or return any more than the property which is held under the trust, after deducting fees and costs. He shall neither be subject to any obligation to account for any distributions made by him in good faith prior to having written notice of any claim.

‘958A. (1) Property under trusts shall be regulated by the special law on trusts and to the extent applicable, the rules of this Code relating to trusts.’

The Code thereby provides for provisions with the purpose of regulating trusts and their effects. Moreover, the Code outlines those transactions which include property and shall be subject to the special law on trusts under the principle of lex specialis derogat lex generalis.

The trustee has the power to dispose of the property held under the trust regardless of whether the property which is to be transferred is held under the right of reserved portion. The reserved portion is defined as:

‘the right on the estate of the deceased reserved by law in favour of the descendants and the surviving spouse of the deceased.’

Following the death of the settlor, the trustee is notified of any claim to the reserved portion in circumstances when the property held under the trust is to be sold, the trustee shall hold on trust for the benefit of any claimant of such right a sum based on the net transfer value of the property at the time of transfer until the claim for the reserved portion is determined or otherwise lapses. If the property held under the trust is subject to a claim for the reserved portion, or in the event that he has been sold, the proceeds thereof have already been distributed to any beneficiary, then the person entitled to the reserved portion claim may be made against such beneficiary as though he were an heir, legatee of donee as the case may be, and if any property remains under such trusts, proportionately between the trust property and the beneficiary. The trustee is to hold the value for the person entitled to the reserved portion for a peremptory period of five years from the date of death of the deceased.

Trust settlements shall be reduced to the portion permitted by law if at the time of the opening of succession they are found to exceed the disposable portion of the settlor’s estate. In the event that there is excess property after its reduction, such excess shall be held by the trustee absolutely for the heirs of the settlor or for the benefit of the persons entitled thereto as the case may be. The reduction of a settlement can only be demanded by those who are entitled to the reserved portion as established under the law. Such right may not be waived during the lifetime of the settlor, nor may the reduction in the settlement be demanded by the donees, legatees or creditors of the deceased. Moreover, trusts forming part of a commercial transaction cannot be reduced in any manner until the completion of the commercial transaction, after which the residual property shall be subject to the rules stated in this article. The effect of a person claiming the reserved portion from a trustee shall lose any benefit under the trust unless the trust instrument expresses otherwise.

Where the beneficial interest to which the beneficiary is entitled consists of the use and enjoyment of property and the enjoyment of its fruits or a life annuity and it appears that the value of the trust fund exceeds the disposable portion of the estate of the settlor, such person may either claim the reserved portion and lose all the benefits under the trust and will, or the trustee will send to the beneficiary an amount which is equal to the reserved portion and interest at 5% per annum up to the value of the trust property and shall not be entitled to any benefits granted under the will or trust or opt not to claim the reserved portion and enjoy the benefits granted.

In the event that a person not domiciled in Malta places movable or immovable property situated in Malta under the law of Malta or otherwise, it shall be deemed that such person had the capacity to do so if at the time of transfer or disposition he was of majority age and sound mind under both the law of his domicile and Malta. Moreover, no provision which is found under the Civil Code relating to inheritance or succession including rights to the reserved portion or similar rights applicable under the Code shall apply at such time or subsequently, keeping the generality of the other provisions in mind. Lastly the beneficiaries shall be deemed to have the capacity to benefit from the trust. In this event once the property is held under the trust, any changes to the domicile of the settlor shall not affect the trust regardless of the fact whether the settlor’s domicile is Maltese.

Malta Case Law

The first mention of the notion of trust in Court was made during the case of Vassallo Av. Dr. Franco Noe v Cuschieri Dr Leslie by Mr. Justice Joseph Azzopardi on the 31st of October, 2003 – a few months prior to the enactment of the TTA. In this case, the plaintiff brought the action as a mandatory of Ralph Stephen Preece in his capacity as trustee who was appointed by the English Court. This constitutes as evidence of the Court’s recognition of the office of the trustee.

The following are judgements where the concept of a trust is dealt with by the Maltese Courts, following the introduction of the TTA:

• In the case of Sciberras Rose P.l. Noe Et Pro Et Noe v Cilia Carmelo [2007], the applicant filed the application in her capacity as a trustee with regard to the opening of succession.
• In A B v C D, the issue of maintenance subsequent to the spouses’ separation was dealt with where maintenance to the family was distributed under a trust. The claim by the plaintiff favoured the liquidation of the amount of maintenance paid by way of the trust to the defendant which was allegedly misapplied. The defendant argued that the payments which were made through the trust were not maintenance payments. The Court declared that such payments did consist of maintenance and rejected the plaintiff’s claim in this regard.
• Busuttil Louis Noe v Meadows Alan Et Noe provides the case for a lease where the Court explains that the only exception to the general rule to obtain the consent of the landlord for the assignment, underletting, parting with the possession of property is in the event of a change of trustees holding the asset under trust.
• On the 27th of February 2009, Vossberg Bettina Pro Et Noe v Equinox International Limited (C29674) Et Noe revolved around the revocation of an act concerning the settlement of additional property in a trust deed. The terms of the original trust deed had been changed by the settlor in order for the trustee to have the power to provide for additional beneficiaries. The terms of the trust where deemed to be according to law; however the plaintiff was attempting to annul the trust deed through the Actio Pauliana, where the element of fraud exists between the defendant as the settlor and Equinox International Limited as trustee. Since the trust was onerous and not gratuitous, the plaintiff had to prove that the trustee was aware of the fraud which had occurred in the settlement of additional property; thereby the court declared the trust deed to be valid.


Prior to the introduction of the TTA non-residents of Malta used to be taxed at a nominal rate. The introduction of the trust to Maltese residents brought along with it the consequence of applying tax to Maltese trusts. However, upon drafting the TTA the legislator wanted to apply the same tax advantage which was provided for offshore trusts.

The sources for tax applicable to trusts may be found under:

• The Income Tax Act
• The Duty on Documents and Transfers Act
• The Value Added Tax Act

Different tax provisions apply to different transactions relating to the trust.

Capital gains shall be charged to a transfer of the beneficial interest under a trust whether such transfer is a partial or whole transfer of the trust and falls under any type of alienation. A transfer under a trust is however exempted if the conditions established by law exist where:

• The settlor is the sole beneficiary;
• The property has been donated to the beneficiary provided that the conditions laid down by the law exist; or
• No gains or losses arise from the transfer provided that the conditions laid down by the law exist.

These provisions ascertain the settlor’s and beneficiary’s exemption with regard to capital gains due to the certainty it lays down.

In relation to the Duty on Documents and Transfers Act, the general rule applies which states that where a document is subject to duty under the Act, that duty is payable in relation to trusts, with exceptions as established by law with regard to a transfer of immovable property or any real right over such immovable property.

A trust consists of a passive activity and therefore no economic activity results from the trust thereby falling outside of the scope of the Value Added Tax Act. The trustee is considered to be the legal owner of the property held under trust and therefore it is considered that he is entitled to the interest accrued, provided that the carrying out of the trust consists of an economic activity.

The general rule is that the income derived from a trust is taxed under the hands of the trustee as owner of the asset. A distinction is made between those trusts were the trustee consists of a least one resident and where all the trustees are considered to be non-resident.

In the first instance, tax shall be payable on any income attributable to a trust accruing or deriving in the year immediately preceding the year of assessment.  Capital gains derived from the transfer of property settled in trust in the administration of such trust or in the distribution or the reversion of such property shall form part of the income attributable to a trust. When calculating the tax on the income it shall be deemed that the trust is a person who is ordinarily resident and domiciled in Malta thereby applying of 35%. The TTA provides for the cases where the trustee’s office is held by a company.

For those trustees who are non-residents, the TTA establishes specific rules in order to tax all income derived in Malta. The law provides for special provisions in certain situations such as in the event of temporary residents.

If tax was incurred in the hands of the trustee then no tax shall be imposed on the distribution of the income to beneficiaries. In the event that tax was not charged to the trustee, then tax has to be paid upon the distribution of the income to the beneficiary.

Gains or profits are deemed to arise on the date of execution of the trust deed. The gain or profit arising out of the beneficial interest’s transfer who has taxable trust property shall be equal to the consideration for the beneficial interest as declared in the trust deed. Moreover, no deductions shall be allowable against the consideration payable to the transferor. Such tax shall be charged at 35% with no possibility of set-off, credit, reduction or relief.

The beneficial interest is exempt from tax upon its transfer in the following scenarios:

• Where the Commissioner of Inland Revenue is satisfied that an irrevocable disclaimer of the beneficial interest was not effected with the sole or main purpose of avoiding, reducing or postponing liability to tax and where he has at his discretion issued an order in writing to that effect;
• Where the trustee holds property solely for the purpose of a designated commercial transaction in the event of the transfer of a beneficial interest.

Malta has signed double taxation treaties with a range of countries. Taxation on trusts is particularly regulated under the agreements with Canada, Finland and the United Kingdom amongst others.

The aforementioned provisions are evidence of the special provisions applied in order to provide for the trust vehicle and make it fiscally beneficial to the trustee and the beneficiary. 



The development of the institute of trusts in local jurisprudence has had a major impact on fiduciary obligations in Malta. In recent years, the popularity of the trust as a vehicle for funds has brought about investment amongst foreign residents as well as amongst Maltese residents for a variety reasons both in private and commercial trusts.

Its popularity and efficiency can be evidenced from the success which Claris Trustees and Fiduciaries Limited which is a licensed trustee and provides serves to settlors and beneficiaries whether residing in or out of the Maltese islands. The advantages existing at present can clearly be placed into contrast when referring to the situation prior to 2004.

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