The correct definition of a trust is an agreement or contract. It is not a structure with its own legal personality. Trusts are essential tools for constructive tax planning and are today widely used in the commercial field. They can equally be useful in preserving family assets in a wide range of circumstances.
A trust involves property of any kind transferred by a settlor to a trustee, who holds and controls the property, as owner, for the benefit of beneficiaries or for a charitable purpose. The beneficiaries need not be ascertained or yet in existence.
Uses of a Trust
It is impossible to have an exhaustive list of the “types” of trust. The trust, being a very flexible tool, can provide various solutions to individuals and organisations for asset protection, estate planning, as a substitute for wills, protection of family members and preservation of family wealth. Commercial entities may use a trust when restructuring their financing requirements. Indeed, Maltese trust law identifies a number of commercial situations within which the use of trusts would attract a more favourable treatment. These include unit trusts or collective investment schemes, security trusts, and securitisation, amongst others.
Typical trusts include:
- general asset protection trusts;
- matrimonial property trusts;
- special needs trusts
- testamentary trusts; and
- charitable trusts.
Effects of a Trust
Where assets are held in trust, the trust property is distinct from the personal property of the trustee. The trustee has the power and duty to administer, employ and dispose of the trust property, and owes a fiduciary obligation in the management of the trust assets. The trustee also has the power to register property, and to appear before courts or notaries in his capacity as trustee.
Taxation of Trusts
Generally, where the settlor and beneficiaries are not domiciled in Malta and where the trust assets are situated outside Malta, no Maltese income tax (or transfer duty) is payable on:
- gains or income generated as a result of day-to-day administration;
- reversion; and
- the disposal of beneficial interest
However, where the settlor and/or beneficiaries are domiciled in Malta, the principle of tax transparency usually applies.
The manner in which the trust concept was introduced into the Maltese legal system has placed the jurisdiction in a strong position to service the needs of individuals and organisations as an alternative to classic Anglo-Saxon jurisdictions within the European Union. Malta has furthermore ratified the Hague Convention on the Law Applicable to Trusts and on their Recognition.