Wealth Management and Protection in Malta
Since Malta’s accession to the EU in 2004, Malta has emerged as an attractive jurisdiction for the establishment of international corporate holding structures, to be used in multinational groups, owner-managed companies as well as the holding of assets for High Net Worth Individuals. Worthy of note is the fact that in the last decade Maltese legislature has been very active in the area of fiduciary obligations, specifically those resulting from the creation of trusts and foundations.
Means of establishment
A trust may be created unilaterally or bilaterally, by oral declaration or in writing. A unit trust must always be created in writing.
The settlor is the person who sets up the trust. The settlor must be of age, have full capacity to contract and a free disposition of the assets settled on trust. While imposing fiduciary obligations upon the trustee in favour of the beneficiaries, trusts do not leave the settlor with any rights in relation to the trust property – except as specifically provided for in the Trusts and Trustees Act. The Trusts and Trustees Act lists the settlor’s rights (which may be supplemented by the trust deed) as follows:
- The settlor has the power to seek court directives as to trust validity
- The settlor has the right to a variation of terms and revocable trusts where the Trust Deed so provides
- In cases of trust termination, interest lapses or no existing or possible beneficiary, the trustee holds the trust property for the settlor (or his or her heirs)
- It is the trustee’s duty to provide the settlor with information, subject to the terms of the Trust Deed.
NEW: The settlor may reserve or grant himself:
- Any beneficial interest in the trust property
- Any power to appoint, add or remove trustees, protectors or beneficiaries
- Any power to appoint an investment adviser or investment manager
The protector is typically a person who is in a trustworthy position (e.g. the family lawyer). The protector may also act as investment advisor. Subject to the trust terms, the protector typically has the power to:
- Appoint new and/or additional trustees
- Remove trustees
- Require trustees to obtain the protector’s discretion (including approval) in relation to particular matters e.g. purchase /sale of trust property.
The beneficiary is the person who may benefit from the assets of the trust. All beneficiaries have to be mentioned by name or are ascertainable by class or by relationship to a person alive or dead. For instance, children not yet born or conceived may be potential beneficiaries. The rights of the beneficiary are personal and are regarded as movable property. Subject to the trust deed, the beneficiary may sell, charge or deal with his or her interest in any manner, provided that this is done in writing.
The beneficiary has the right to information from the trustee and may seek court directives regarding the validity of the trust. The beneficiary may also disclaim his or her interest, or part thereof.
NEW: all the beneficiaries who are in existence and have been ascertained, provided that none of them is interdicted or a minor, may request the trustee to terminate the trust and distribute the trust property. The new amendments preclude this rule from applying in the case of protective trusts.
The Trust Deed is the instrument whereby the trust is created and includes the terms of the trust and may also be in the form of a unilateral declaration of trust. For example, a Trust Deed may provide for the addition of new beneficiaries (e.g. for unborn children) or the exclusion of a specific benefit to certain beneficiaries under conditions clearly stated in the Trust Deed.
Letter of Wishes
The settlor can guide the trustee in a separate letter of wishes on how the trustee should exercise his discretion. Depending on the relationship between the settlor and the beneficiaries, the settlor can inform the beneficiaries of this letter, however, he/she may also choose not to disclose this letter to the beneficiaries. A letter of wishes is not legally binding on the trustee, but rather constitutes general guidance on a settlor’s wishes.
A trust does not have its own legal personality. Trusts are not registered anywhere and there are no formalities for the annual maintenance of trusts other than statutory obligations that are imposed on trustees in the administration of trusts (for example the duty to prepare accounts).
There are no statutory restrictions that could delay the setting up of a trust in Malta. Therefore, the time required depends on the particular circumstances and mainly relates to the drafting of the Trust Deed.
The Malta trust has been amended to extend the permitted duration to 125 years (formerly maximum duration was 100 years), however, it can be terminated earlier if all beneficiaries acting in unison demand termination, which the trustees must accept under the conditions outlined in the Trusts and Trustees Act. With most trust deeds it is usual for the trustees also to be able to bring the trust to an end during the trust period.
Ensuring trustees’ performance
Professional trustees are licensed by the MFSA, which has also issued a code of conduct to provide guidance to trustees as to the standards required under the Trusts and Trustees Act and other financial services legislation, as well as to the best practice in the industry. Trustees must exercise their fiduciary duties prudently and competently and, subject to the terms of the trust and the provisions of the Trusts and Trustees Act, consider the rights of all beneficiaries when making decisions affecting the administration of the trust.
If a trustee fails to administer a trust in accordance with the law and the respective trust deed, the trustee is liable for such a breach and can be sued for it.
NEW: the amendments include:
- trustees have the duty to avoid any conflicts of interests
- upon accepting appointment, trustees are duty-bound to draw up a written inventory of the trust assets and declare it includes all the trust property of which the trustees are aware
- trustees are obliged to keep accounts and records of their trusteeship for at least 10 years from the date of termination of the trust/trusteeship
(Excerpt from the FinanceMalta Wealth Management Sector Guide 2015-2016)