The stigma attached to trusts can be put down largely to a general misconception or misunderstanding of what they are and how they can be used correctly in Malta for a multitude of reasons, such as to accommodate commercial transactions, protect an individual financially should they become unable to manage their own financial affairs in the future or to provide certainty over continued control of the family business beyond the grave of a patriarch or matriarch.

In order to gain some insight it is necessary to appreciate that although Malta is a Civil Law jurisdiction, trust legislation was adopted for Maltese locals twenty years ago and remains in place today. Therefore, the secret to using a trust is to understand that in order to achieve the best results the trust must work in harmony with the Civil Code and not attempt to militate against it, such as being used, incorrectly, in a vain attempt to usurp legitim (reserved portions passing to children and surviving spouse on death).

So what is a trust? In simple terms a trust can best be described as an arrangement, which is neither a contract nor an agency, under which a person (called the Settlor) gives property (whether real or personal) to another person or persons (called Trustees) to hold for the benefit of chosen individuals (referred to as the Beneficiaries).

The transfer of property into the trust is therefore a donation but unlike an outright gift, can have conditions attached to it which first need to be satisfied to enable a beneficiary to derive a financial benefit from the trust. This could be on reaching a particular age for example or could be for a limited period of time only, such as enjoyment of the right to income from the assets in the trust for life, with the property passing to other beneficiaries thereafter.

Trusts can be either revocable or irrevocable with the choice being dictated by the purposes for which it is being established. For example, healthy people in middle age could establish a revocable trust for their own benefit which would become irrevocable should that person ever become incapable of managing their own financial affairs, from which point the trustee would use the income and capital of the trust to pay for the maintenance and well being of the settlor without need for further formality.

In order to achieve the best results the trust must work in harmony with the Civil Code

Trusts can also be established collectively by a number individuals (each being a Settlor in relation to their portion of the trust) in order to develop a commercial enterprise. For example ownership of land becomes fragmented over time meaning that it becomes very difficult to develop that land unless all of the parties agree. By using a trust, the separate ownership interests can be commingled for a common purpose thereby making development opportunities easier to manage and control while also making it easier to raise finance for capital expenditure, which would be secured against the land as a whole.

Finally, trusts can also be used to ensure that control over a family business does not become fragmented under legitim but remains vested in the trusted advisors of the patriarch or matriarch after death, thereby ensuring continuity of the business for the benefit of future generations free of conflicts which may otherwise arise because of competing priorities of the heirs.

With careful planning, this can be achieved without the heirs’ consent and also without defeating the legitim. This means that heirs would not be able to seek a reduction of donations to satisfy any part of the legitim which may otherwise result in fragmenting control.  

A interesting fact is that in the case of the transfer by gratuitous title of (i) marketable securities owned by individuals and of (ii) commercial tenements (i.e. business property) that had been used in a family business for a minimum period of three years preceding the transfer, to the transferor’s spouse, descendants, and ascendants in the direct line and their spouses, or in the absence of descendants to such transferor’s siblings and their descendants, stamp duty chargeable is at a reduced rate of 1.5 per cent (from the normal rate of five per cent). This reduced rate applicable to transfers by gratuitous title has been extended to December 31, 2024.

Clearly, the decision to create a trust depends on a fact pattern which is unique to each and every individual’s personal circumstances. Therefore, trusts are not a one size fits all proposition with each document establishing the trust being carefully considered by the settlor, in conjunction with their own trusted advisers, such as the family lawyer.  

While there is generally no interdiction in respect of who can act as a trustee of a trust continuity and certainty is better served through the appointment of a licensed and regulated corporate trustee who, unlike individuals will not die or change significantly over time. 

Finally, this short article is intended as an introduction of just some of the purposes a trust can legitimately be established under Maltese law and is not intended to provide advice, which should always be obtained from your own professional advisers before embarking down this route.  

About the author and Dominion

Kristian Camenzuli, CFA is the managing director of Dominion Fiduciary Services (Malta) Limited (DFSML). DFSML forms part of the Dominion Group. We are experts in estate and succession planning. DFSML is registered under the laws of Malta and is authorised to provide retirement scheme administration, trustee services and administration of private foundations. We are also looking at obtaining other licences to continue to service our clients.