Why set up a Trust in Malta?

Trusts under Maltese Law

Dr. Maria Chetcuti Cauchi | Published on 30 Mar 2012 | Updated on 11 Jul 2019

Why set up a Trust in Malta

The use of Malta trusts in the domestic context has been increasing slowly but surely. The Trusts and Trustees Act, which was implemented in 2004, was the first written law on domestic trusts in Malta however the notion of a trust had been introduced in Maltese law much prior to its codification.

What is a Malta trust?

The definition offered by the Malta trust law incorporates the core principles of the concept of trusts into one comprehensive definition. This definition identifies the trustee and the beneficiary as two of the main constitutive elements of trusts. The third player in this relationship is the settlor, who is the person who settles property in trust. 

Article 3 of the Malta Trusts and Trustees Act:

"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."

A Malta trust allows for the establishment of a legal institute in which a formal transfer of assets takes place and such trustee holds assets for the benefit of others. According to the Trust and Trustees Act, a trust has three main counterparts: 

  • The Settlor is the person who makes the trust and includes the person who provides trust property or makes a disposition on trust or to a trust;
  • The Trustee is the person, whether legal or natural, holding property or in whom the property is vested on terms of trust;
  • The Beneficiary is the person entitled to benefit under a trust or in whose favour discretion to distribute property held in trust may be exercised.

A Malta trust deed is the document setting up the trust and includes all the afore mentioned persons. The trust deed sets out the person responsible for the administration of the trust and who is to benefit from the trust. The trust fund, which is also known as the trust settlement, is the initial property made up of any asset whatsoever, including movables or immovables wherever situated.

The distinctive characteristic which makes a trust a one-of-kind vehicle is the separation of legal and beneficial ownership, the former pertaining to the trustee, whilst the latter belongs to the beneficiaries.

Setting up a Malta trust

The motivation and grounds to set up a Malta trust can be various; the characteristics can be grouped under three general headings: domestic, taxation and practical issues.

The reason behind the setting up a Maltese trust for domestic issues may include:

  • The avoidance of any expense and delays relating to Malta or overseas probate processes;
  • The preservation of assets until minors reach the age of majority;
  • A safeguard in the event of the settlor or the beneficiary’s incapacity; and
  • The disposition of assets to the settlor’s heirs without the assets being transferred immediately upon the settlor’s death.

A Malta trust may be set up to:

  • Minimise estate taxes;
  • Shield assets from third parties including creditors; and
  • Shift hefty tax burdens onto beneficiaries with more favourable tax impositions.

Additionally, a Malta trust may be set up for any of the following purposes:

  • Bringing investments together in order to be managed and administered by professionals; and
  • Providing benefits to a charity.

The advantages and disadvantages of a Malta trust

A Maltese trust provides an array of advantages which include but are not limited to the following:

  • Flexibility of drafting of trust deed
  • Imposition of certain conditions on the distribution of assets following the settlor’s death;
  • Efficient distribution of assets to individuals, including heirs;
  • Protection of assets from claims and creditors; and
  • Naming a successor trustee following the settlor’s death.

The disadvantages of setting up a Maltese trust are limited, particularly because the advantages heavily outweigh the shortcomings of a Malta trust. These may be generically listed as follows:

  • The cost to set up and maintain a Malta trust may considered to be an unnecessary expense;
  • Control of the asset placed under the Maltese trust is surrendered;
  • Maintenance of the trust may consume time as a result of the obligations which exist under the trust deed;
  • In very limited scenarios, the income which is generated by the asset under trust may suffer a higher rate of tax than if the income remained in the hands of the settlor.

In view of the above, the determination of whether the formation of a trust would be beneficial to an individual must be decided on a case by case basis.

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