In 2004, the Trust and Trustees Act was implemented as the first written law regulating domestic trusts in Malta. Prior to this, however, the notion of a trust was still present in Malta.

Defining a Malta Trust

Trusts under Malta law are comprehensively defined to successfully include the key characteristics of the notion of trusts. One finds the definition of the trustee and the beneficiary, the two main players in a trust settlement. The law also contemplates the existence of the settlor who settles the trust property.

Malta Trusts and Trustees Act, Article 3:

“A trust exists where a person (called a trustee) holds, as owner or has vested in him property under an obligation to deal with that property for the benefit of persons (called the beneficiaries), whether or not yet ascertained or in existence, which is not for the benefit only of the trustee, or for a charitable purpose, or for both such benefit and purpose aforesaid.”

Malta trust law establishes a sound legal institute which caters for the formal transfer of assets, wherein the trustee safeguards the assets for the benefit of someone else. The three key players in a trust are:

  • The settlor creates the trust and transfers assets into the trust
  • The trustee, who can be a legal or natural person, holds the property for the benefit of the beneficiary under the terms of the trust
  • The beneficiary is the person entitled to benefit from the trust and in favour of whom the trust property is administered.

The document which creates the trust is called a trust instrument or deed and this includes all three key players. The trust deed indicates the person tasked with administering the trust and the person or people who will benefit from such trust. The initial property can be made up of both movable and immovable property and is known as the trust fund or trust settlement.

The delineation between legal and beneficial ownership is what makes trusts such a unique method of asset protection. Legal ownership belongs to the trustee while beneficial ownership rests with the beneficiaries.

Why do I set up a Malta trust?

People set up a Malta trust for several different reasons. These motivations broadly fall under three headings: domestic, taxation and practical elements.

Domestic Elements

  • The preservation of assets until minors reach the age of majority;
  • The avoidance of any expense and delays relating to Malta or overseas probate processes;
  • A safeguard in the event of the settlor or the beneficiary’s incapacity; and
  • The disposition of assets to the settlor’s heirs without the assets being transferred immediately upon the settlor’s death.
  • Shield assets from third parties including creditors;

Tax Elements

  • A Malta trust may be set up to make use of compliant avenues to:
  • Minimise estate taxes
  • Defer taxable events to a later date
  • Shift tax burdens onto beneficiaries with more favourable tax impositions

Practical Elements

  • Additionally, a Malta trust may be set up for any of the following purposes:
  • Bringing investments together in order to be managed and administered by professionals;
  • Safeguarding one’s legacy such as a family business
  • To organise charitable contributions and support

Benefits and Downsides of a Malta Trust

Some of the benefits enjoyed when one opts for a Malta trust are as follows:

  • Flexible deed drafting process
  • The Settlor may impose certain conditions on the distribution of assets that remain effective even after the settlor passes away
  • Assets are distributed efficiently to the chosen beneficiaries, that may include heirs
  • Assets are protected from creditors and claims
  • Choice as to tax treatment

With several advantages to a Malta trust, one hurdle that prospective settlors need to overcome is relinquishing control over the assets placed under trust.