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is a Trust?
A Trust is an agreement whereby the Settlor transfers the
legal ownership of the assets to a Trustee. A Trust does not necessarily need to have a written agreement, it
could also be a verbal one but it is mainly formalised by a written agreement
called a Trust Deed. Where a Trust is created verbally, the Act provides
that it is presumed to be a mandate unless there is evidence of a specific
intention to create a Trust. The assets within a Trust are normally known as a Trust Fund.
A Trust becomes valid when the Settlor
has passed on the legal rights of the assets to the Trustee and therefore has no more control over them. The Settlor may not be able to reclaim the
assets unless he or she is a Beneficiary.
A Trust can run for a period of 100 years before it is terminated
(except those which are there for charitable reasons.)
The MFSA (Malta Financial Services Authority) is responsible for the
authorisation, regulation and supervision of Trustees. Licensed and regulated
Trustees require the highest amount of probity and honesty.
Trusts - a
Trusts have been around in Malta since 1988 and have in recentl years undergone
major changes. The Maltese Trust laws were adapted from the 1984 Jersey Trust
laws and were radically updated in 2004 under the new, Trusts and Trustees Act (Chapter 331). This law makes Malta one of
the only countries that have successfully managed to incorporate Anglo Saxon
Trust concept with its Roman law based legal system. This new system has now helped
accelerate the process of setting up a Trust
by removing all obstacles that made flexibility a big issue. By introducing
these new laws, Trusts have become
simpler and a more attractive solution to personal and business needs.
used terms: The Settlor is the person who sets up the Trust. The Settlor may
be more than one person and it is the person who provides Trust property and
passes its legal ownership to the Trustee.
After the Settlor settles his/her
legal ownership to the Trustees, he or she no longer has an active role in the
Trust. The Settlor can be a
beneficiary but cannot be a Trustee. The Trustee is the person vested with the legal ownership of the assets
transferred by the Settlor. The Trustee shall have the power to
administer, employ or dispose of the trust assets and to generally act in all
matters concerning the Trust. The Trust
Deed should reflect the wishes and requirements of the Settlor. The Trustee
must administer the assets of the fund in the interest of the beneficiaries.
Amongst the many duties, the Trustee
must treat documents connected the Trust
as confidential and act in accordance with the terms of the Trust.
The Beneficiary is the person who
is legally entitled to the assets of the trust fund. The beneficiary has to be
specifically named or a class of persons could be nominated, for example the Settlor's children. Charitable
institutions can also be beneficiaries. The Settlor can also be a beneficiary but he/she cannot be the sole
beneficiary since this will invalidate the trust. If the Trustee does not act as stated in the Trust Deed, the beneficiaries are legally enabled to seek legal
judgment in accordance to the Trust Deed.
The Protector is normally a close trusted friend/ relative and / or
advisor of the Settlor. The Protector is a person appointed by the Settlor to watch over the Trust assets.
The Trust Deed may be drawn up in
such a way whereby the discretion of the Trustee
in dealing with Trust Funds of a
certain size and nature would require the approval of the Protector. Preferably the Protector
should have no direct or indirect interest in the Trust Fund. It is also possible for the Settlor to be the Protector
of the Trust. Most of the time the
Protector's powers consist of (i) vetoing
role and powers; (ii) the
right to disapprove investment decisions; (iii) the
ability to remove and appoint new trustees.
The Trust Deed also known as the 'Settlement' is one of the first
processes in establishing a trust. Almost all Trust Deeds are unique since they should be drawn up to meet the Settlor's expectations. Although most
Trust Deeds are different, many of them have the same 5 elements: (i) a short description of the Settlor; (ii) a
definition of who is the Trustee;(iii) an
explanation of the rights vested in the Trustee
and any restriction imposed on the Trustee in the Trust deed; (iv) a
description of the assets and how they are to be managed; (v) a description or definition of the Beneficiaries.
Letter of wishes - The Settlor may indicate in a separate letter of wishes, specific
wishes on how the Trustee should exercise his discretion. The Settlor may
choose to inform the beneficiaries of this letter, whilst in certain cases, the
Settlor may choose not to disclose this letter to the beneficiaries; it
all depends on the relationship between the Settlor and the beneficiaries.
Although it is very normal for the Trustee
to take up the suggestions as indicated in the letter of wishes, it is
nonetheless not legal binding.
The Trust Assets are separate and distinct from the personal property
of the Trustee. The main types of Trusts: Charitable
trusts are the only trusts that can last for more than a hundred years since
the beneficiaries are charitable organisations. Charitable means any charitable
and philanthropic purpose and may include: (i) The
advancement of education, including physical education and sports; (ii) The
advancement of religion; (iii) The
advancement of health; (iv) Social
and community advancement; (v) The
advancement of culture, arts and national heritage; (vi)The
advancement of environmental protection and improvement; (vii) The
promotion of human rights, conflict resolution and reconciliation.
Discretionary Trust: This is probably the most common
type of Trust whereby the Trustee has the discretion to manage and invest the Trust Assets.
The Trustee also enjoys full discretion to appoint Beneficiaries and when to distribute assets out of the Trust Fund. The Trustee is in full control of the Trust.
Trust: The Settlor can set up a Trust
that makes him/her the primary Beneficiary
of all income generated by the Trust
Fund (he or she cannot be the sole Beneficiary
because that would invalidate the Trust). This type of Trust ensures that the Settlor may receive a regular income during
their lifetime whilst protecting the capital within the Trust Fund for the benefit of the Beneficiaries.
Trust: This Trust is set up to take care of ones husband or wife in case anything
had to happen to him or her. Basically when ones spouse dies the other spouse
might not be able to live alone so with this trust the Trustee makes arrangements to find residential care for the
surviving spouse from funds available in the Trust Fund. It could help relieve
anxiety, money and stress problems that may come with the loss of a loved one.
Trust: Do your children believe in retail
therapy? Are you scared that once you're gone and your children inherit a lump
sum, the children or their spouses may take advantage of your hard earned cash?
The Trustee will distribute funds
within the Trust Fund to the Beneficiaries on a Regular Rate as a regular income and the Trust Deed will not permit the distribution of a large lump sum. In
addition, these Trusts are also
designed to protect the Trust Fund
from any legal actions of potential creditors of the spendthrift. A wealthy person who would have
settled large amounts of assets into Trust
may be concerned about the risks of irresponsible children recklessly spending
a considerable lump sum and therefore this type of Trusts are most suitable to
Asset protection Trust: This type of Trust could help many
professionals from liability claims. Their main assets could be put in a Trust,
which would protect them from any greedy creditors. This type of Trust is only
valid if the Settlor is found to be acting in good faith and there is no fraud.