The Key Players of a Malta Trust

The Trustee

A Trustee refers to the person or persons holding the property or in whom the property is vested on terms of trust. The trust property constitutes a separate fund owned by the Trustee, distinct and separate from the personal property of the Trustee and from other property held by the Trustee under any other trust. As a general rule any individual or corporate entity who is residing in Malta or who operates in or from Malta, requires authorisation from the Malta Financial Services Authority (MFSA) to act as Trustee. This also applies to those persons (whether individuals or bodies corporate) who act as mandatories, or administrators of private foundations. As a result, as a general rule, these also require authorisation to the extent that they are:

• either residing in Malta; or
• operating in or from Malta. Mandatories, however, are only required to be authorised to the extent that they are acting as such in the holding of securities or immovable property.

In order for authorisation to be granted to a corporate entity to act as Trustee, it must have a minimum share capital requirement of €15,000 which capital must be maintained on an ongoing basis. Moreover it must maintain at all times an insurance cover which is proportionate to the nature and size of the Trustee’s business operations.

Trusts create fiduciary obligations upon the Trustee in favour of the Beneficiaries of the trusts. The Trustee has full power as well as the duty for which he is accountable, to administer, employ or dispose of the trust property in accordance with the terms of the trust and any special duties imposed on the Trustee by any law applicable thereto, to sue and be sued in respect of the trust and otherwise to act in all matters concerning the trust.

personal creditors of the Trustee have no recourse against the trust property …

The holding of property under trusts has the following legal effects:

• personal creditors of the Trustee have no recourse against the trust property;
• the trust property does not form part of the Trustee’s personal estate upon his insolvency or bankruptcy; and
• the trust property does not form part of the matrimonial property of the Trustee or his spouse nor part of the Trustee’s estate upon his death.

A Trustee is entitled to appear or act in his capacity as Trustee before any court, any notary or any person acting in an official capacity. Where the Trustee desires to register property, movable or immovable, or documents of title to them, he is entitled to do so in his capacity as Trustee or in such other way that the existence of the trust is disclosed.

In 2014 the ‘Private Trust Company’ for family trusts was introduced in the TTA, aimed at facilitating the authorisation procedure in view of the fact that they would not typically offer their services to the general public but would rather cater to the needs of a specific family. As such, a ‘family trust’ is defined as “a trust created to hold property settled by the Settlor or Settlors for the present and future needs of family members and family dependants”.

Accordingly, a Trustee company:

• whose objects and activities are limited to acting as Trustee in relation to specific Settlors and providing administrative services in respect of specific family trusts;
• which does not hold itself out as Trustee to the public; and
• which does not act habitually as a Trustee (in any case in relation to more than 5 Settlors at a time)

is not required to be authorised but is required to merely register with the MFSA.

A Private Trust Company offers an interesting opportunity to High Net Worth Individuals (HNWI’s) who may prefer a tailor-made trustee solution designed to suit their specific purposes rather than the mainstream trustee/settlor/beneficiary relationship which may prove to be too institutionalised.

The Settlor

The Settlor is the person who sets up the trust and includes a person who provides trust property or makes a disposition on trust. A Settlor may also be a Beneficiary under the same trust. A settlor has no rights in relation to the property settled by him on trust save for those specifically provided for in the Trusts and Trustees Act (“TTA”) and/or the trust instrument.

By virtue of article 14A of the TTA, which was introduced in 2014, the Settlor is vested with additional powers which can be reserved in the trust instrument.  Accordingly, the Settlor may:

• reserve or grant to himself any beneficial interest in the trust property,
• reserve any power to appoint, add or remove Trustees, Protectors or Beneficiaries; and
• reserve any power to appoint an investment advisor or investment manager.

The above-mentioned powers are without prejudice to certain other powers which can be reserved by the Settlor in accordance with other provisions of the TTA, such as the power of revocation of the trust (where this is included) and the power of amendment.

the Settlor may reserve or grant to himself any beneficial interest in the trust property and may reserve the power to appoint, add or remove Trustees, Protectors or Beneficiaries

The Settlor can, by virtue of a letter of wishes express to the Trustee the manner in which the said Trustee should exercise his discretion. A letter of wishes is not legally binding on the Trustee, but rather constitutes an express indication of the Settlor’s wishes which, given the discretionary rights vested in the Trustee, may or may not be abided by.

The Beneficiary

The Beneficiary is the person who is entitled to benefit under the trust or in whose favour a discretion to distribute property held in trust is exercised. All Beneficiaries have to be mentioned by name or are ascertainable by class or by relationship to a person alive or dead, meaning that even children not yet born or conceived may be potential Beneficiaries.

creditors, spouses, heirs or legatees of the Beneficiary may have rights only to the extent of the Beneficiary’s entitlements under the trust and have no other rights in relation to the trust property or the Trustee

Rights of a Beneficiary are personal to him and cannot be transmitted by inheritance except as provided for in the terms of the trust. Subject to any applicable laws and only as stated in terms of the trust, creditors, spouses, heirs or legatees of the Beneficiary may have rights only to the extent of the Beneficiary’s entitlements under the trust and have no other rights in relation to the trust property or the Trustee. The terms of the trust may provide for the addition of a person as a Beneficiary, the exclusion of a Beneficiary from benefit, or the imposition on a Beneficiary of an obligation as a condition for benefit. A Beneficiary in whose favour discretion to appoint or advance property may be exercised, shall have no rights in or to specific trust property until such time as such discretion is exercised by the appointment, application or advancement of such trust property in favour of such Beneficiaries.

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.

The TTA, as amended, provides for certain limitations on the applicability of the express provision found in article 17(3) of the TTA which states that all the Beneficiaries who are in existence and have been ascertained, provided that none are interdicted or minor/s, may request the Trustee to terminate the trust and distribute the trust property. Accordingly this provision does not apply in the case of protective trusts e.g. when the interest of a Beneficiary is subject to restriction on alienation or dealing, and this in order to better safe-guard the interests of such protected Beneficiaries.

The Protector

The terms of a trust may provide for the office of Protector of the trust. 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.

In the exercise of his office the Protector shall not be deemed to be a Trustee.

The Enforcer

In 2014, the appointment of an enforcer was introduced in articles 24B and 24C of the TTA applicable in the case of a trust established for a charitable purpose. The duty of the enforcer is that of ensuring that the Trustee administers the trust in accordance with its terms, and promoting the terms of the trust. The enforcer is also given certain other duties, e.g. the duty to take action against the Trustee in case of breach of trust, thereby ensuring that even in the case of a charitable trust, where there are no Beneficiaries, the terms of the trust and its purpose may be duly and effectively enforced.

Trust Property

A trust can be set up in respect of any property whatsoever. Meaning, it can be movable or immovable, personal or real, situated anywhere, have rights and interest, and even be contingent or future. However, there can be no trust if there is uncertainty regarding what is initially to constitute the trust property or the trust object or aim.

Duration

A trust may validly exist for a maximum of 125 years, the exception being any trust which was created for a charitable purpose, a unit trust or a qualifying retirement scheme set up as a trust. Nonetheless, where all the Beneficiaries are in existence and have been ascertained and none of them are interdicted or a minor, they are entitled to require the Trustee to terminate the trust and distribute the trust property among them.

Types of Trusts

The different types of trusts include:

Discretionary Trust: this is the most common type of trust in terms of which the Trustee is afforded a great deal 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: this is also a widely used trust especially in the shipping industry and 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.

Trust for certain prescribed ‘Commercial Transactions’: this includes security offerings, collective investment schemes, employee benefit or retirement schemes/arrangements, timeshare and multi-property structures.

Fixed Interest Trusts: the trust deed would specifically define the rights of the Beneficiaries to the capital and/or income of the trust and generally in this type of trust the duties of the Trustee would be limited to the execution of those terms.

Life Interest Trusts: the Beneficiaries would be entitled to enjoy the trust property throughout their lifetimes, after which the trust property would pass on to another person.

Contingent Trusts: the Beneficiaries would only enjoy the benefit of the trust property after the happening of a specified event.

Tax Treatment

Transfer of a Beneficial Interest

No Malta tax would be chargeable when transferring a beneficial interest in a trust which does not include Chargeable Property (immovable property, shares (except shares having a fixed rate of return), business goodwill, copyright, patents, trademarks and trade-names; or by a Beneficiaries who is not ordinarily resident and domiciled in Malta should the relevant trust not include chargeable property situated in Malta.

Otherwise, Malta tax would be chargeable at the flat rate of 35% on the consideration received for a transfer of a full or partial Beneficial Interest in a trust.

Settlement of Property on Trust

In the case of property settled on trust by the Settlor to the Trustee, no Malta tax would be chargeable in the following situations:

• A settlement of non-Chargeable Property; or
• A settlement of property located outside Malta by any person not ordinarily resident and domiciled in Malta for tax purposes.

Additionally, when the sole Settlor is also the sole Beneficiaries, no Malta tax would be due when the trust is established or evidenced by means of a written instrument.

Income Derived and Gains Realised by a Trustee

all income and gains otherwise attributable to a trust would be deemed, for Malta tax purposes, to have been directly received by the Beneficiaries of that trust – such that the Trustees of the relevant trust would be wholly transparent for Malta tax purposes

Income and gains attributable to a trust are chargeable to tax in Malta at the flat rate of 35% when at least one of the Trustees of that trust is a person resident in Malta for tax purposes.

However, under an alternative optional transparency model, all income and gains otherwise attributable to a trust would be deemed, for Malta tax purposes, to have been directly received by the Beneficiaries of that trust – such that the Trustees of the relevant trust would be wholly transparent for Malta tax purposes. Such income and gains may be chargeable to Malta tax in the hands of the Beneficiaries depending on their tax residency and domicile. Accordingly it is noteworthy that:

• A Beneficiary who is neither resident nor domiciled in Malta would only be chargeable to tax in Malta on local source income and gains, and not on any foreign income or gains.
• A Malta resident but not domiciled Beneficiary would be chargeable to Malta tax on local source income and gains, and on foreign source income which is remitted to Malta. Therefore any foreign income which remains outside Malta would not be taxable in Malta. Foreign capital gains would always be Malta tax exempt even when remitted to Malta.
• A Malta resident and domiciled Beneficiary would be chargeable to Malta tax on a worldwide basis.