[e.g. Maltese]

Maltese law caters for all the main types of trust one would normally find in traditional common law jurisdictions such as:

  • Discretionary trusts;
  • Accumulation and maintenance trusts;
  • Fixed interest trusts;
  • Spendthrift trusts;
  • Charitable trusts;
  • Unit trusts.maltese1

Recognition of foreign trust law.

Malta’s trust law also allows settlors to establish trusts governed by a foreign law, and foreign trusts are fully recognized in Malta. The country not only recognizes trusts created voluntarily and evidenced in writing as required under the Hague Convention, but also recognises any other trust of property arising under the law of another country, meaning that even constructive or resulting trusts arising under foreign law will be recognized and enforced in Malta. However, if a foreign chooses a trust under Maltese law, the Maltese rules of reserved portion and ‘forced heirship’, whereby the assets of a deceased person must be divided as prescribed by law, will only apply if the settlor was domiciled in Malta at the time of his/her death. If a Maltese law trust is set up but has no connection to Malta because of the domicile of the settlor at the time of setting up the trust, or the location of any immovable property, the trust will be governed exclusively by the Trusts and Trustees Act.

Exempt from taxation.

Malta’s advantageous taxation regime also enhances the attractiveness of this legal arrangement. Although the actual impact of taxation on trusts depends on a number of issues, including the type of assets and the status of residence of the beneficiaries, where the beneficiaries under a trust are non-resident and the income of the trust does not arise in Malta, there is no taxation in Malta. Under Maltese law, trusts may also, in certain circumstances, opt to be taxed as Maltese resident companies.

Reliable service providers

In Malta, a trustee and a foundation administrator have to be licensed by the Malta Financial Services Authority (MFSA). This system ensuresthat certain standards are met and provides settlors with a higher degree of assurance. The MFSA has already licensed 121 Maltese and international fiduciary companies to offer trust and trustee services in the country.

Lower set-up costs

Malta offers another key attraction to people choosing where to set up a trust: significantly lower set up and administrative costs. On average, setting up a trust in Switzerland will cost a minimum of 5,000 euro; in Malta the cost of setting up a fully-fledged trust is around 1,500 euro.

Professional fees in Malta, including trust management fees, legal fees and audit fees, are also significantly lower than in other jurisdictions, while the country’s professional classes enjoy an excellent international reputation.

Key Features of a Trust

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:

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 no 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 9which 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 (o his or her heirs) absolutely;
  • It is the trusteee’s duty to provide the settlor with information, subject to the terms of the trust deed.

The Protector:

The protector is typically a person who enjoys the settlor’s trust (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:

The beneficiary is the person who is legally entitled to the benefits 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 ar conceived may be 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.

Trust Deed:

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 discetion. Depending on the relationship between the settlor and the beneficiaries, the settlor can inform the beneficiaries of this lette, however, he/she may also choose not to disclose this letter to the beneficiaries.

Legal Form:

A trust is a form of legal institute which does not have its own legal personality. Trusts are not registered anywhere and ther are no formalities for the annual maintenance of trusts other than statutory obligations that are imposed on trustees in the administration of trusts (e.g. for example the duty to prepare accounts).

Set –up time:

There are no statutory restrictions that could delay the setting up of a trust in Malta.

Therefore, the time required depends on thee particular circumstances and mainly relates to the drafting of the trust deed.

Termination:

A Malta trust is subject to a maximum duration of 99 years, however, it can be terminated earlier if all beneficiaries acting is unison demand termination, which the trustees must accept.

[e.g. Cayman]

murzynA trust is a legal arrangement whereby one or more persons (the trustees) hold title to property on behalf of other persons (the beneficiaries). A trust is created when one person (the settlor or grantor) transfers property to the trustees who are legally obliged to deal with such property for the benefit of the beneficiaries.  Cayman Islands trusts may be established by anyone, in any part of the world, with property or investments in any part of the world and in any currency.  The reasons for establishing a trust are manifold and include:

(a) Asset Protection:

This is one of the principal advantages of a Cayman trust.  A person who is about to embark on some new business venture or to take up a new position involving potential liabilities to third parties, can transfer his major assets, or some of them, to a Cayman trust to achieve protection for himself and his family against the claims of future creditors. Another example of asset protection arises in connection with foreign divorce proceedings. A financial order made in such proceedings against the settlor will not be enforceable in the Cayman Islands against a Cayman trust.

(b) Tax Benefits:

The income received by the trustees is not subject to Cayman tax.  There are no Cayman fiscal implications arising out of transactions effected by the trustees or distributions to beneficiaries, and no estate tax is payable on the death of a beneficiary.  The establishment of trusts by non-resident settlors may have tax consequences under the law of their place of residence.  Such settlors should always seek appropriate tax advice before setting up the trust.  Tax-motivated planning through trusts often involves also the use of offshore companies. 

(c) Estate Planning

Settlors many times set up trusts to exclude assets of an estate from probate, ensuring that particular assets such as the family business are kept within the family and avoiding forced heirship rules in civil law jurisdictions.

Trust Structures

Some of the most common general trust structures include:

  • Simple Trust:

the beneficiary has the right to access the assets and income of the trust.

  • Fixed Trust:

the beneficiary's entitlement to the assets of the trust is fixed by the settlor.

  • Discretionary Trust:

the trustee is given absolute discretion as to how to manage and invest the trust estate and how much and to which beneficiaries distributions should be made.  Limitations can be imposed on these discretionary powers.  The discretionary trust is probably the most common trust vehicles used in the Cayman Islands.

  • Hybrid trust:

a hybrid trust is a combination of fixed and discretionary trusts.

  • Unit trust:

in a unit trust the beneficiaries are referred to as unitholders. Each unitholder possess a certain number of units (i.e. shares) and can instruct the trustee to pay money to them out of the trust property by redeeming their units.

  • Interest in Possession Trust:

the beneficiary has a right to the present enjoyment of property.

  • Revocable trust:

may be altered or revoked by its settlor at any time.

  • Irrevocable trust:

in contrast to a revocable trust, an irrevocable trust is one in which the terms of the trust cannot be amended or revised until the terms or purposes of the trust have been completed.

  • Charitable Trust:

Is technically another type of purpose trust, which is available in most onshore jurisdictions. Like the purpose trust it exists to advance a cause, however this cause is charitable.

  • Spendthrift Trust:

is a type of discretionary trust which provides the trustee with the discretion on how to spend the trust income on behalf a beneficiary, who's unable to control their spending.

Cayman trusts are similar to onshore trusts, however, legislative modifications make them more commercially attractive by abolishing or modifying certain common law restrictions:

(a) Onshore trusts are typically subject to the “rule against perpetuity” which places a limit on the length of time a trust may be established. Cayman has enacted legislation to avoid this rule.  This law provides that a fixed period not to exceed 150 years may be chosen as the duration of a trust.  Further, certain trusts (i.e. the so-called “STAR” trusts) are not subject to the rule against perpetuities, which makes it possible for these trusts to continue indefinitely. 

(b) Cayman also allows self-settled spendthrift trusts which allow the settlor to be beneficiary of the trust. This means that by properly establishing a trust,

the settlor can avoid his own debt and protect his assets (see Asset Protection above). 

(c) Generally onshore jurisdictions do not permit non-charitable purpose trusts outside of certain anomalous exceptions. However, Cayman has passed legislation allowing non-charitable purpose trusts, the STAR trusts, which do not specify beneficiaries but exist to advance some non-charitable purpose.  The beneficiaries and/or objects may be persons, purposes or both. There may be any number of beneficiaries and any number of objects, whether charitable or not, provided that such purposes/objects are lawful and not contrary to public policy. 

Trustees

A trustee has a fiduciary obligation towards the beneficiaries (not the settlor) of the trust, an obligation which demands honesty, integrity, loyalty and high standards of care and good faith. The trustee is required to act within the terms of the trust instrument and must always act in the interests of the beneficiaries.  The general duties of trustees are: to act in good faith and in accordance with the terms of the trust deed; to manage the trust fund bona fide in the best interests of the beneficiaries; to exercise the level of care and skill in administering the trust as might reasonably be expected of trustees with their level of experience; to take reasonable steps to preserve and protect the assets in the trust fund; to disclose any conflict in relation to the trust; to keep accurate records and accounts; and other duties. 

A trustee who fails to comply with its duties will be liable to the beneficiaries to account for loss occasioned by any breach of trust.  Beneficiaries can bring a legal action in a local court of law against the trustee for breach of a fiduciary duty. These claims can be made if the beneficiaries feel that any act or omission by the trustee has wrongly prejudiced their interests. A trustee against whom such a claim is successfully made will be liable to the beneficiary to account for any loss occasioned by the misfeasance.

Jurisdiction

Subject to any express term to the contrary in the trust deed, all questions arising in regard to a trust which is governed by the laws of the Cayman Islands are to be determined according to the laws of the Cayman Islands, without reference to the laws of any other jurisdictions with which the trust or disposition may be connected.

Confidentiality

There are no public registration requirements or other disclosure requirements concerning the establishment of trusts in the Cayman Islands, except in the case of exempted trusts.  Certain rules relating to the disclosure of evidence and information are found under various treaties and anti‐money laundering legislation.