Trusts, Foundations, Associations and Other Legal Organisations
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1. Introduction to trusts
Malta is traditionally a continental / civil law jurisdiction, whilst the notion of ‘trusts’ and the
legal regime concerning their regulation emanates from the common law legal tradition. This
notwithstanding, the Maltese legal system has evolved into one of a hybrid nature: it retains
its continental/civil law basis, whilst welcoming common law concepts.
Trusts under Maltese law are regulated by the Trusts and Trustees Act (Chapter 331 of the
Laws of Malta) as well as various regulations enacted thereunder. The Act provides for strict
regulations relating to the authorisation and supervision of trustees. Furthermore, Malta is
party to the Hague Convention on the Law Applicable to Trusts and on their Recognition of
1985
A trust exists where a person (known as 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 they are 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.
The person who establishes the trust is referred to as the settlor, which term also includes a
person who ‘provides trust property or makes a disposition on trust or to a trust’. Therefore,
the settlor creates the trust and transfers assets from his patrimony therein. Typical assets
usually held in trust include shares, bonds, immovable property, and bank accounts.
The parties in a trust scenario are typically:
The settlor
The person who establishes the trust,This term also includes a person who ‘provides trust
property or makes a disposition on trust or to a trust’. Therefore, the settlor creates the trust,
transfers assets from his patrimony therein. Typical assets usually held in trust include shares,
bonds, immovable property, intellectual property, bank accounts, etc… The settlor may also
be a beneficiary under the same trust.
The trustee
The trustee is the person or entity entrusted with administering the property of the trust as a
bonus paterfamilias, acting in utmost good faith and in accordance with the trust deed and
Maltese law on trusts. Although the trustee becomes the legal owner of the property held in
trust, the said property is ringfenced and cannot be attacked by eg. creditors of the trustee.
The beneficiary or beneficiaries
The individual or group of people who benefit from trust assets and the income they may
generate. They are the persons in whose interest the trustee administers the trust assets – eg.
the family members in a family trust.
Usually, the settlor expressly establishes the trust by means of a written trust deed evidencing
his intention to this effect, whilst also stating who the beneficiaries are or will be (since they
may not yet be ascertained or in existence) and to what extent they will benefit from the trust.
This is known as an ‘express trust’.
Once the trust has been created, the settlor ceases to be the legal owner of the property held in
the trust and thus does not continue to control, nor does he retain an active role in the affairs
of the said trust.
However, the law provides for some inroads to this general rule:
For example, the settlor may expressly provide in the trust instrument that he may revoke (or
vary the terms of) the trust accordingly. Therefore, he may also reserve for himself any power
to appoint, remove, or add beneficiaries, trustees, or protectors. Moreover, the settlor can
reserve for him or herself a benefit derived from the property of the trust or the power to
appoint or remove trustees without affecting the validity of the trust. Therefore, a settlor can
also be a beneficiary under the same trust.
Although a trust does not enjoy a separate legal personality (as is the case regarding
foundations), trust property is distinct and separate from the personal property of the settlor,
as well as the trustee. Furthermore, the property held in trust is also distinct and separate from
the personal property of the trustee and from other property held by the trustee under any
other trust.
For example – a debt or liability incurred by the settlor after the trust is created cannot be
attacked by creditors. However, trusts under Maltese must be utilised in good faith and
cannot be established, for example, in order to defraud creditors; or to circumvent succession
laws on the reserved portion due to heirs; or to circumvent civil laws in relation to
maintenance due to spouse and children, etc. In this regard, one can refer to the landmark
Maltese judgment in Bettina Vossberg pro et noe v. Equinox International Ltd et (CoA
9/11/2012). The bottom-line is that: the trust be established before the assets at issue become
subject to third-party rights or restrictions arising therefrom.
The terms of a trust may provide for the office of ‘protector of the trust.’
Subject to the terms of the trust, the protector shall have the following powers:
(a) to appoint a new or additional trustee;
(b) to remove a trustee;
(c) to require the trustee to obtain his consent prior to exercising a discretion.
Trusts established for a charitable purpose may nominate an ‘enforcer’. The duty of the
enforcer shall be that of ensuring that the trustee administers the trust in accordance with the
terms of the trust and to promote the purposes of the trust.
What are the advantages of setting up a trust?
1. Protection and safeguarding of assets - the property that constitutes the trust is independent
from the settlor’s, the trustee’s and the beneficiaries’ assets, thereby guaranteeing greater
protection. One may wish to protect one’s assets as part of a risk management policy or
against political instability (eg. wars, expropriation, etc.)
2. Estate planning - By utilising a trust, the settlor can administer and distribute his assets
during the settlor's lifetime and after his death. He may distribute income and capital to meet
specific expenses i.e. education, medical or in emergency.
3. Succession planning – One can utilise the trust as a vehicle to transfer one’s assets to
successive/future generations. The Act allows the creation of a ‘family trust’ which it defines
as: “a trust created to hold property settled by the settlor or settlors for the present and future
needs of family members or family dependants who are definite and can be ascertained.” In
this respect, one can simplify proceedings, manage more efficient tax planning e and avoid
notarial formalities which would normally arise when one inherits under a will or by
operation of law (in an intestate scenario). Judicial formalities in Maltese courts in order to
prove heirship in the absence of a will can be avoided. In case of cross-border inheritance
cases, one can avoid probate proceedings abroad as well as judicial proceedings which may
arise in relation to succession. That said, however, when a Maltese trust is created, certain
indefeasible succession rights (whether testate or intestate), especially the reserved portion of
the spouses, ascendants and descendants, will prevail over the terms of the trust. It is
noteworthy that by utilizing a trust, the settlor can administer and distribute assets both
during his lifetime and after his death. Furthermore, a settlor can ‘reserve’ assets for his heirs
under a trust without said assets being transferred immediately to the heirs upon the settlor’s
death. For example, in the case where the settlor would like his heir to reach the age of
majority before benefiting from the inheritance assets. Also, trusts allow the creation of
special funds for minors or people with certain infirmities.
4. Tax planning –Trusts may be utilised in order to mitigate tax exposure, through efficient
and transparent tax planning. Trusts are considered to be transparent vehicles for tax
purposes. The trustee is not taxed for income attributable to a trust if such income is
distributed to a beneficiary. Income attributable to a trust which is not distributed to the
beneficiaries is taxed in the hands of the trustees at a rate of 35%. Other laws and regulations
may have an impact on the taxation of trusts and trustees. Malta is also a signatory to a
number of Double Tax Treaties which may apply accordingly.
5. Portability - Under Maltese law, a trust may be converted to a foundation and vice-versa. A
trust may be established for 125 years (which may be terminated sooner), or indefinitely (in
the case of unit trust sand trusts for a charitable purpose)
Thinking of setting up a trust in Malta? LexVirtualis™ can assist you with
advice on:
Choice of fiduciary entity and related matters
Recognition of trusts under foreign law.
Formation of the trust and drafting of all necessary trust documents
Re-domiciliation of trusts
Taxation of trusts
AML and CFT compliance
Furthermore, LexVirtualis™ can appoint an affiliated fully-licensed fiduciary to assist you with:
Acting as a ‘trustee’ in terms of the Trust and Trustees Act. This entails the holding,management and administration of assets held in trust for the benefit of the beneficiaries. Furthermore, securities over charged assets, or assets on behalf of secured parties, may also be held.
Other fiduciary services such fiduciary holding of assets, company nominee services, acting as a foundation ‘administrator’ in terms of the Second Schedule to the Civil Code, and escrow services.
2. Introduction to legal organisations - eg. foundations and associations.
Legal organisations are governed by the Second Schedule of the Maltese Civil Code (Chapter
16 of the Laws of Malta). Article 1 of the Second Schedule defines an ‘organisation’ as a
‘universality of persons who associate or a universality of things which are appropriated to
achieve a lawful purpose having a form recognised by law, and which is capable of being a
legal person in terms of law.’ Organisations are classified according to their purpose, ie:
To exclusively promote a social or public purpose on a non-profit making basis, excluding any private benefit (however it might have a type of beneficiary known as a ‘public interest beneficiary’ such as religious organisations or public organisations) – in which case it is referred to as a ‘public benefit organisation’
To promote any lawful purpose in terms of the Voluntary Organisations Act (other than those referred to above) - in which case it is referred to as a 'private benefit organisation' or
To promote any other lawful purpose, in which case it is referred to as a 'private interest organisation'.
Both foundations and associations fall under the term ‘organisations’. In the case of
foundations, the focus of the law is on the patrimonial aspect of the assets that are vested in
the foundation itself. On the other hand, in the case of associations, the law focuses on the
associative element of the organisation - ie. the members who have convened and established
the association in order to fulfil its aims.
If the organisation is a ‘voluntary’ one, then the Voluntary Organisations Act (Chapter 492 of
the Laws of Malta) also applies.
The voluntary organisation is an organisation which is created or established:
For any social purpose including that which qualifies as a public purpose or for public
benefit
As non-profit making
Is voluntary
Whether it is registered or registerable as a legal person or not in terms of the Second
Schedule to the Civil Code and whether it is or may be enrolled under the Act or not. The
meaning of ‘voluntary’ is defined by the Act itself (eg. administrators do not receive
remuneration; and/or the organisation is created by the endowment of voluntary and
gratuitous grants, etc…)
Foundations
Foundations are governed by Title III, and more specifically, Sub-Title II of the Second
Schedule of the Maltese Civil Code (Chapter 16 of the Laws of Malta).
A foundation is defined as:
An organisation consisting of a universality of things constituted in writing, including by
means of a will, by a founder or founders whereby assets are destined
(a) for the fulfilment of a specified purpose (purpose foundations); and, or
(b) for the benefit of a named person or class of persons, and which are entrusted to the
administration of a designated person or persons (beneficiary foundations)’
Purpose foundations may be established for a public benefit or for any other lawful purpose
(non-public benefit).
Beneficiary foundations may be established for a private benefit or for a public interest.
Furthermore, a foundation may be classified as a ‘private interest foundation’, defined as a
foundation, which neither qualifies as a public benefit foundation nor is it established for a
public or social purpose and which is not a voluntary or non-profit organisation but which
can be established for a legitimate purpose.
The legal provisions dealing with foundations are numerous and vast. Foundations are often
compared to trusts and although similar (ie. they can serve the same purpose and achieve the
same results), there are some notable and crucial differences between the two. Whilst trusts
originate from common law, foundations are more akin to the continental/civil law tradition.
Unlike trusts, foundations enjoy separate legal personality. Whilst in a trust scenario, the
ownership of the patrimony of assets placed in the said trust scenario is vested in the trustee.
In the case of foundations, the foundation itself is the legal owner of the assets transferred to
it.
A foundation can be established either by a public deed (published by a notary and enrolled
in the Public Registry) or by means of a will. The minimum endowment of funds or value of
property in order to set up the foundation is €1,164.69. However, if the foundation is
established exclusively for a social purpose, the minimum endowment required is €232.94.
As a rule, foundations cannot engage in commercial activities (such as trade) except in the following cases:
It may be endowed with commercial property or a shareholding in a profit-making enterprise, a franchise, a trade mark or other intellectual property which gives rise to income, as well as a ship or aircraft, but may only act as the passive owner of such assets.
It may, subject to such authorisations as may be necessary under applicable laws, be used as a collective investment vehicle, as a pension or employee benefit scheme, as a retirement scheme or fund, as a securitisation vehicle or for the purpose of supporting or implementing a securitisation transaction,
A foundation may hold, administer, develop or sell undivided property originating from an inheritance deriving from one or more deceased person or persons common to the beneficiaries.
A foundation may carry out any trading activity resulting from such foundations owning, administering or otherwise operating an ‘innovative technology arrangement’, as defined in the Malta Digital Innovation Authority Act
What are the advantages of foundations?
A foundation (unlike a trust) is granted separate and distinct legal personality, and therefore acquires its own patrimony of assets and liabilities, has its own rights and obligations and is separate and distinct from its founders, administrators and beneficiaries. It must therefore register itself as a legal person.
The founder, administrator and beneficiary respectively can be natural persons (eg. individuals) or legal persons (eg. companies, etc.). A founder may also assume all three roles by also acting as administrator and also being named beneficiary of the same foundation.
Whilst administrators are subject to fiduciary bligations, a protector and supervisory council may be appointed to supervise the said administrator
Private foundations may be established for a maximum of 125 years, whilst there is no such time limit on public benefit foundations. Private foundations may engage in trade.
Foundations (like all organisations) may establish within them segregated cells to achieve particular purpose and to protect the patrimony of the said foundation.
Confidentiality (which may be waived by the founder).
Low endowment impositions - €1,164.69 payable upon enrolment of the deed of foundation and in the case of a public benefit foundations in which case the endowment shall be of at least €232.94. Endowment can also be in kind.
Ideal for tax planning – eg. assets may be transferred out of the patrimony of the founder prior to death and will not be subject to inheritance tax, private interest foundations can either be taxed either as company or as a trust, etc…)
Foundations may be converted into trusts and vice versa, due to the similar legal rights and obligations at play.
In view of the above, foundations may prove useful for the following practical purposes:
Succession planning – disposing of one’s estate via a foundation may afford a greater degree of confidentiality, privacy and flexibility than doing so under a will or in the absence of the latter, by operation of law.
Charitable / Philanthropic Purposes – Foundations are enforceable without having any nominated beneficiaries (unlike trusts which must have beneficiaries). This renders it ideal for a founder to dispose of his estate in furtherance of an altruistic objective of his or her choosing,
Asset protection and ringfencing – One can carry out asset structuring and estate planning in view of the fact that certain assets may be segregated and thus not continue to form part of the estate/patrimony of the founder. In this regard, one can protect his estate against future events which may entail debts and/or liabilities. Conversely, debts and liabilities incurred by the foundation can only be satisfied by assets forming part of the patrimony of the said foundation.
Confidentiality – Save in cases involving money-laundering and terrorist financing, and certain due diligence requirements, the general rule is that the confidentiality of a foundation’s beneficiaries is respect and safeguarded, even by the Maltese Courts. The identity of the founder may be also be kept confidential, for example, by utilising fiduciaries (nominees) in the establishment of the foundation. The public deed creating a foundation must be enrolled in the public registry. However, only a minimum of information is available to the public and confidentiality is retained.
One can also, by means of a foundation, cater more specifically to the needs of the:
Founder – The founder is the person wishing to transfer assets from their estate into a foundation (and is akin to the settlor in relation to a trust. However, unlike trusts, in the case of foundations – the founder may continue to exercise control over the foundation during his/her lifetime, depending on the constitutive instrument – he may monitor the administrators’ activities or may be an administrator himself. Unlike in the case of a will, the founder can decide what is to happen in certain cases while he still alive. For example, should he or she become unable to administer their estate due to ill health, disability or age – in which case he can also finance his medical care and assisted living or nursing home.
Beneficiary or beneficiaries – in case of succession planning, it is the potential heirs who would fill in this role, should the founder wish to do so. The founder can pre-empt future situations where there is a high risk of his heirs squandering the estate – for example, in view of any potential habits or lifestyles they might be engaged in. There is a much lesser degree of control and flexibility in the case of a testator disposing of his estate under a will or in an intestate scenario by operation of law.
Associations
An association, which is not bound to register itself as a legal person, but may nonetheless do
so, is defined as:
an agreement between three or more persons to establish an organisation with defined aims or
purposes to be achieved through the dedication of efforts and resources by such persons and
others who may join voluntarily, the patrimony, namely assets and liabilities, if any, of the
association being distinct from that of the members, its administrators or any beneficiaries:
Provided that an association which is not established as a public benefit organisation may be
established between two persons.
An association can established for various purposes, such as:
the fulfilment of private interests;
the promotion of trade or a profession;
the obtainment of a social purpose,
the carrying on of any lawful activity on a non-profit making basis
Depending on the purpose of the association, different legal rules may apply. Associations
are regulated, as a rule, by Sub-Title III of Schedule II of the Civil Code entitled ‘Of
Associations’.
They may be established for a:
private benefit – for example – those that promote a private interest or a particular profession or trade. These associations are subject to special laws and specific provisions enlisted in Article 48 (1) of the Schedule (eg. those on civil and/or commercial partnerships, unions and employer associations, etc.) However, the rules of Sub-Title III 'Of Associations' (other than those governing public benefit organisations) continue to apply as a lex generalis.
public benefit – these associations are governed by the provisions of this Sub-Title III 'Of Associations' and the applicable provisions of this Schedule, with the exception of provisions of article 48.
Legal Personality
Legal persons are organisations which are endowed with legal personality. Legal personality
is acquired through the formal recognition of the State. Recognition by the State requires a
specific act of recognition and no other administrative act of the State in relation to an
organisation or activity shall constitute recognition.
Except where legal personality is recognised or established by a law or an international treaty
or agreement or is granted in virtue of registration pursuant to any special law, legal
personality shall only be acquired by an organisation on its registration with the Registrar for
Legal Persons.
LexVirtualis™ can assist with the following advice in relation to legal organisations such as foundations and associations:
Establishing and registering foundations, associations and other organisations in accordance with Maltese law
Appointing a fully licensed administrator for holding of assets as mandatary or depositary
Drafting of the statute or other constitutive instrument.
Drafting of public deeds where necessary
Assistance and advice related to obtaining legal personality
Assistance and advice relating to the establishment of segregated cells within organisations
Advice on taxation in relation to any organisation.
Protection of assets
Responsibility and liability
Conversion, Amalgamation, Division
Revocation of the organisation
Termination and winding up
ADR and litigation
For further information about how LexVirtualis™ Advocates can help you with your law requirements kindly contact us on info@lexvirtualis.com.mt

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