While trusts are peculiar to systems of law based on common law and are not generally found in civil law countries, Malta, a civil law country, is an exception to this rule.
In the past few years, the Maltese legislature has been active in the sector of fiduciary obligations, particularly those resulting from the creation of trusts and foundations. Trusts were initially introduced into Maltese legislation in 1988 as an offshore product, allowing for such structures in the context of non-resident persons only. This law was subsequently amended by Act XX of 1994, followed by the introduction of the Trusts and Trustees Act in 2005, which enables the trust concept to form part of the general law. On the other side of the coin, the Recognition of Trusts Act of 1994 laid the spadework for Malta to become a fully-fledged trust compatible system. As a result, Maltese Law has incorporated the principles of trust into its domestic civil law rules unlike other Civil law jurisdictions which have only recognised the concept and ratified The Hague Convention, but do not have a specific law to regulate trust. In 2014, Malta has further introduced new amendments to its Trusts Law to bring it in line with the international developments. This has culminated in the Trusts and Trustees (Amendment) Act, Act XI of 2014.
Key features of a Malta Trust
Classification of Trusts
The Maltese law caters for various types of trusts such as the following:
It is expressly declared by the settlor, whether by virtue of an inter vivos deed or if the testator declares it in his will. In both cases the settlor will intend to settle specific property, which is sufficiently identifiable to beneficiaries and which is to be held by appointed trustees according to the terms of the trust.
Implied trusts are trusts where the intention to set up a trust is not clearly expressed by the settlor or testator. In setting up such trust, the transferee is required, by equity, to hold property on trust for the transferor or for the person who provided the purchase money for the transfer.
These are trusts which are in no way dependent upon the intention of the settlor. They are imposed by operation of law in situations where not to do so would mean one party’s unjust enrichment.
Accumulation and maintenance trust
Trustees accumulate income of the trust for the benefit of minors irrespective of whether or not the minor’s interest is already a vested one or an interest which will become vested at a later stage. The trustee can then utilise the accumulated income to either apply all or part of it for the maintenance to apply all or part of it for the maintenance, education or other benefit of the beneficiary or to advance or appropriate the interest to any such beneficiary.
Trustees are normally afforded the discretion as to how to manage and invest trust property, who to appoint as beneficiaries, when to distribute trust income and capital, and to whom such distributions are to be made.
Fixed Interest Trust
In case of a fixed interest trust, the income and capital will be distributed in line with the trust deed. Such distributions will be effected to beneficiaries on specific dates as identified in the trust deed and according to the ratios specified therein.
The use of these trusts has been on the increase recently and the law identifies a number of scenarios where one can make use of these trusts for transactions which qualify as commercial transactions:
- Collective investment schemes
- Securitisation of assets
- Granting of real and personal security as in the case of security provided by the issuers of bonds to the public
- Portfolio management
- Syndicated loan agreements
- Insurance policies and the payment of proceeds thereunder
These trusts afford greater flexibility, fewer formalities and reduced contracting costs, therefore being a very efficient tool within the financial sector.