Establishment of a trust in Malta

Introduction

Definition of a trust and its functionality

A trust establishes a legitimate framework where the founder conveys assets to another party (the fiduciary) for control, administration, and execution of transactions involving these assets for the benefit of designated beneficiaries. A trust functions as a distinct legal tool for asset stewardship and distribution, separate from a legal entity or corporation.

A trust encompasses a comprehensive suite of operational functionalities and can be applied to varied applications. This includes the asset conveyance into estate distribution, streamlining of estate distribution processes, management of assets both during the founder's lifetime and after their passing, as well as the establishment of dedicated trusts to provide for children, beneficiaries, and disabled dependents. Trusts can also be utilized for tax efficiency and asset safeguarding against various liabilities.

In terms of tax optimization, trusts are particularly beneficial in jurisdictions with favorable tax conditions, such as Malta. They effectively shield assets from political, social, and personal risks, as well as creditor claims, while ensuring strict confidentiality.

The trust agreement serves as the cornerstone document for a trust, outlining its functioning parameters, asset portfolio, trustee remuneration, and designating beneficiaries. This document stipulates the core tenets of asset stewardship and the allocation of benefits amongst beneficiaries.

Why is setting up a trust in Malta an attractive idea?

Malta stands out as one of the most appealing options for setting up trusts. Its legislation fosters a conducive environment for the development of trust relationships, rendering Maltese trusts a popular choice for businessmen and owners of substantial capital. Below are key aspects elucidating this attractiveness.

The legislative environment: Malta boasts modern and flexible trust laws in line with The Hague Convention, providing a robust legal framework for the establishment and administration of trusts.
In Malta, there are a range of trust options, including fixed and discretionary trusts. A fixed trust designates predetermined allocations of assets to beneficiaries, while a discretionary trust grants the trustee more latitude in asset distribution.
Reliability and security: Malta is renowned for its high standards in financial conduct and stable economic environment, rendering it a dependable locale for the management of trust assets.
Long-term stability: according to Maltese legislation, a trust can exist on lawful grounds for no less than 125 years, ensuring long-term planning and stability for beneficiaries.
Tax benefits: Malta offers certain tax benefits for trusts, which can be beneficial for tax optimization.
Flexibility in asset management: trusts in Malta allow founders and managers to flexibly administer estate, adapting to changing circumstances and the needs of beneficiaries.
Confidentiality: Malta ensures a high level of secrecy concerning the proprietors and recipients of trusts, which is an important factor for many founders.
International recognition: due to its membership in the European Union and adherence to international standards, Maltese trusts enjoy broad international acclaim.
Asset protection: trusts in Malta offer efficient mechanisms for safeguarding assets against political, social, and personal risks, as well as creditor claims.

These factors render Maltese trusts an attractive instrument for international estate planning and asset management, affording founders flexibility, security, and confidentiality in the administration of their capital.

Legal aspects

The legislation in Malta concerning trusts

Aspect	Description
The basic law	The legislation on trusts in Malta is grounded in the Trust and Trustees Act. This law aligns with The Hague Convention and is crafted to streamline and enhance financial procedures associated with trusts.
Duration of the trust	Under Maltese law, a trust can last for up to 125 years unless it's for charitable purposes, creating investment schemes, or relevant retirement plans. In those cases, there's no time limit.
Supervisory authority	The Malta Financial Services Authority is the primary regulatory and supervisory body overseeing the operations of trusts in Malta. It ensures compliance with legislative requirements and standards in this field.
Licensing of caregivers	Guardians in Malta must be licensed, regulated, and supervised by the Financial Authority. This ensures an additional level of protection and reliability in the management of trust assets.

Types of trusts in Malta: fixed and discretionary trusts

Trust type

Description

Fixed Trust

Definition: in a fixed trust, the conditions and portions conveyed to beneficiaries are explicitly defined by the trust's creator.

In simpler terms, once a trust is set up in Malta, the person in charge of managing it, known as the trustee, can't change who gets what. The shares of the trust, meaning what each beneficiary is entitled to receive, are set in stone from the start and can't be altered later on. So, once the trust is established, everyone knows exactly what they're supposed to receive, and it can't be changed.

Advantages: transparency and predictability of asset distribution. Ideal for situations where the founder seeks to provide specific benefits to particular individuals or enterprises.

Disadvantages: lack of flexibility in the event of changing circumstances, as the terms of the trust are predetermined and cannot be easily modified.

Discretionary Trust

Definition: in a discretionary trust, the trustee possesses the authority to determine the allocation and timing of asset distribution and income amongst the beneficiaries.

Features: the founder of a trust established in Malta provides the trustee with guiding instructions, but the trustee makes final decisions regarding distribution.

Advantages: flexibility in asset management and the ability to adapt to changing circumstances or the needs of beneficiaries.

Disadvantages: decreased predictability for beneficiaries regarding what and when they will receive. High level of trust in the trustee is required.

Established and discretionary trusts domiciled in Malta provide founders and trustees with a spectrum of control and adaptability. The selection between these two trust structures hinges on the founder's specific goals, the sought-after level of asset stewardship flexibility, and the extent of control the founder desires to maintain. It is equally important to ponder the beneficiaries' unique needs and circumstances when opting for the type of trust.

Procedure for enrolling a trust

List of documentation for registering a trust in Malta

Trust deed:

The basic document establishing the trust.
Incorporates recognition of the originator, guardian, recipients, along with the conditions and regulations for overseeing the trust.
It is necessary to delineate the assets earmarked for transfer into the trust, elucidate the intended goals of the trust, and expound upon the entitlements and liabilities of all involved parties.

Personal documents of the founder:

Identity card (passport or ID card)
Proof of residential address (as utility bills)

Personal documents of the trustee:

Identification.
Professional qualifications.
License to operate as a trust manager in Malta.

Beneficiary information:

Full names and residential addresses.
Identity cards.
Other relevant information identifying them as beneficiaries.

Documents about trust assets:

Details of the assets transferred to the trust.
Documents confirming ownership of assets (for example, ownership certificates, bank statements).

Asset management plan:

Description of the trust's asset management strategy.
May include investment policies, income distribution plans and other operating procedures.

Letter of wishes:

A discretionary record wherein the originator may articulate their inclinations and desires concerning the management of the trust and the allocation of assets.
Although this letter is not legally binding, it can serve as a guide for the trustee.

Proof of payment of fees:

Proof of payment of required government and registration fees associated with establishing the trust.

This compilation of documentation outlines the fundamental prerequisites for the registration of a trust in Malta. Additional paperwork may be necessary based on particular situations and the configuration of the trust. It's essential to note that criteria might differ in line with laws and regulatory norms, so consulting legal experts well-versed in Maltese trust legislation is advisable.

Role and responsibility of the trustee

Trust asset management:

Exercising ownership, management and control over trust assets.
Effective and prudent management of assets, taking into account the objectives of the trust and the interests of the beneficiaries.

Compliance with the terms of the trust agreement:

Strict adherence to the terms and conditions set out in the trust agreement.
Management of the trust in accordance with the instructions of the founder and the law.

Distribution of income and capital:

Trust income and capital distribution decisions.
Compliance with distribution time frames and conditions.

Investment policy:

Develop & implement safe, profitable investment strategy for Maltese trust.
Align investments with trust objectives.

Compliance with laws and tax obligations:

Comply with all relevant laws and regulations.
Pay taxes and fulfill other financial obligations of the trust.

Maintaining accounting and reporting:

Maintain accurate and detailed records of all trust transactions.
Preparation and submission of reports to beneficiaries and regulatory authorities.

Confidentiality and protection of interests of beneficiaries:

Maintaining the confidentiality of trust and beneficiary information.
Protecting the interests of beneficiaries and trust assets from improper use or risk.

Taxation and financial aspects

Tax benefits and optimization for trusts in Malta

Tax Aspect	Description
Tax exclusion	Trusts in Malta may be exempt from income tax if the trust assets and beneficiaries are located outside Malta. This exemption renders Maltese trusts appealing for international asset management purposes.
Tax transparency	Maltese trusts may, in certain instances, be fiscally clear. This entails that the trust's income is deemed as the income of the beneficiaries and subject to taxation in their hands rather than at the trust level.
Double taxation	This jurisdiction has agreements on the avoidance of double taxation with many nations, which can offer additional tax advantages to those wishing to establish a trust in Malta.
Tax rates	Trusts that subject to taxation in Malta are liable to pay corporate tax rates similar to those applied to companies at a rate of 35%.
Dividend taxation	Dividends received by a trust from Maltese companies are typically exempt from taxation, offering the opportunity for efficient management of investment income.
Estate and giving planning	Trusts can be utilized for tax-efficient estate and gift planning, minimizing potential tax liabilities when transferring assets between generations.
Tax reporting	Despite the tax advantages, trusts in Malta are obligated to comply with tax reporting and declaration requirements, necessitating precise accounting and professional management.

Tax incentives and optimization for trusts in Malta offer significant advantages for founders and beneficiaries, particularly in an international context. However, it is important to consider that specific tax obligations may depend on a multitude of factors, comprising the trust structure, residency of beneficiaries, and location of estate. Therefore, it is recommended to seek advice from tax specialists to maximize tax efficiencies based on personal situations.

Asset management and transfer of property in the context of Maltese trusts

Asset management and property conveyance through Maltese trusts entail a complex procedure necessitating meticulous planning and governance.

Selecting assets for the trust:

Assets transferred to the trust may encompass real estate, stocks, bonds, cash, equities and other investment vehicles.
The choice of assets depends on the trust's goals, such as income, capital growth, asset preservation, or estate planning.

Transferring assets to a trust in Malta:

The conveyancing process entails the legal transfer of ownership from the initiator to the trust.
This requires proper paperwork and may include registering ownership or transferring shares.

Investment strategies:

Development and implementation of an investment approach tailored to align with the objectives of the trust and the requirements of its beneficiaries.
Strategies can range from conservative, focused on preserving capital, to more aggressive, focused on growth.

Risks and diversification:

Manage investment risks, including market, currency, credit and liquidity risks.
Diversification of assets to minimize risks and optimize profitability.

Tax planning:

Taking into account the tax implications when handling assets and allocating income or capital.
Using tax benefits and structuring the trust to minimize the tax burden.

Estate planning:

Transfer assets to heirs/beneficiaries in Malta.
Align with founder's wishes, shield from liabilities.

Reporting and accounting:

Maintaining detailed records of all transactions involving trust assets.
Regular reporting to beneficiaries and the founder on the status of assets and management of the trust.

Legal and regulatory requirements:

Compliance with legal and regulatory requirements when managing assets and transferring property.
Taking into account changes in legislation and regulatory practice.

Maximizing estate management and inheritance facilitation via a Maltese trust necessitates a comprehensive understanding of financial, taxation, and legal dimensions, tailored precisely to the objectives of the donor and the requirements of the beneficiaries. Ensuring openness and equity for all stakeholders engaged in the proceedings is equally vital.

Potential risks of establishing a trust in Malta and their minimization

Legal risks:

Incorrect drafting of the trust agreement or misunderstanding of legal requirements.
Minimization: engaging qualified trust lawyers to ensure compliance with all legal rules and requirements.

Tax risks:

Misunderstanding or managing tax obligations, which may result in additional taxes or penalties.
Minimization: Consult with tax professionals for accurate planning and compliance with tax obligations.

Asset management risk:

Poor asset management or inappropriate investment decisions leading to loss of asset value.
Minimization: choosing an experienced and reliable trustee with a good reputation and history of success.

Privacy risk:

Leakage of confidential information about a trust, assets or beneficiaries.
Minimize: apply strict security and confidentiality measures, including data protection and compliance with privacy regulations.

Creating a trust in Malta involves an intricate procedure, requiring careful evaluation of multiple hazards. Effective handling of these hazards requires careful preparation and involvement of skilled experts.

Conclusion

Creating a trust in Malta can be intricate, involving specific hazards and requiring a skilled approach. Engaging competent professionals is vital to ensure adherence to regulations and optimize trust operations. Our team of specialists is well-equipped to deliver expert services, offering full assistance throughout the entire process – from initial strategizing and trust establishment to its ongoing management and administration.

When turning to our specialists, clients receive a guarantee of quality service, compliance with all norms and standards, as well as an individual approach to solving each unique task. We strive to ensure that each trust created with our assistance meets high standards of efficiency, safety, and legal protection.