Unit Trusts under Maltese Law

Dr Michela Pirotta | 11 Apr 2014

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The Unit Trust

The purpose behind the creation of a unit trust is that many persons, whether legal or natural, are unable to accumulate large pools of moneys sufficient to individually give them access to substantive investment opportunities. In this event investors collectively contribute through the set up of a unit trust. In fact Malta's Trust and Trustees Act (TTA) defines a unit trust as follows:

"unit trust" means any trust established for the purpose of, or having the effect, of providing, for persons having funds available for investment, facilities for the participation by them as beneficiaries under the trust, in any profits or income arising from the acquisition, holding, management or disposal of any property whatsoever, being a collective investment scheme as defined in the Investment Services Act." 

This definition may in itself be placed in sharp contrast with that of a trust under the TTA which holds 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 charitable purpose, or for both such benefit and purpose aforesaid."

The definition also includes the trust property, the rights, powers, duties, interests, relationships and obligations under trust.

Therefore, on the basis of the above one may summarily state that a unit trust is the merger of resources and funds of investors which have been entrusted to a third person.  The unit trust thereby allows certain flexibility in that the investor may invest by either contributing a one-time lump sum or a contribution on a regular basis.


The Parties 

  • The fund manager who runs the trust.
  • The trustee who ensures that the fund manager keeps to the fund's investment and objective and safeguards the trust assets as established under the trust deed.
  • The unit holders who have the rights to the assets under trust. 
  • The distributors who allow the unit holders to transact in the fund manager's unit trust.

Even though the unit trust is used for commercial reasons, the functions of the role players in a trust and unit trust are not alike due to the unique structure which is given to the latter.

Moreover a common feature in investment vehicles particularly in SICAVs is, the role of the custodian. The custodian's function is to monitor the safekeeping of the investment. This role is considered to be required since it is a third party to the investment. In the case of a unit trust, the role of custodian is taken up by the trustee as indicated under the trust deed.

Nevertheless, the central features of the trust do still exist in that the trustee is still the holder of the legal title to the assets and is given a wide discretion of powers as set out under our law. The trustee is however, somewhat put aside as the fund manager steps into the limelight. The fund manager usually holds knowledge and experience in the field of investment and has full discretion over the choice of investments. Even though wide discretion is left in the hands of the fund manager, a mechanism in the trust deed may be set to put some limitation on the fund manager in order to strictly adhere to the aims and objectives laid down in the trust deed. The unit trust may be seen as a commercial trust which allows certain flexibility when drafting the trust deed. The parties may decide on which roles are to be given to the trustee and which roles are to be given to the fund manager.

The Different Characteristics in Unit Trusts

Our TTA does provide for certain exceptions when it comes to unit trusts as follows:


Although versatility exists when setting up a trust in that it may come into existence in any manner, the law strictly lays down that a unit trust may only come into existence by written instrument. 


Unless sooner terminated, a trust is in existence for a hundred (100) years. A unit trust on the other hand has no limitation as to its duration due to the commercial aspect given to its constitution.


It is necessary for a trustee to comply with certain authorisation requirements; however this is not the case for persons acting as trustees of a unit trust which is a collective investment scheme and recognised in terms of the Investment Services Act or which is exempt from licensing in terms of the said Act and the establishment of which is notified to the Authority as laid down in the Act.


The main advantage behind a unit trust is that investors obtain direct access to wealth creation and profits. In addition, it is sometimes considered to be inconvenient to adhere to the strict provisions laid down in the Companies Act. The unit trust poses the possibility to structure it as being tax-transparent leading to favourable results in certain investments.



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