Malta’s Unique Structure for Private Trust Companies and Family Trusts

By Caitlyn Buchanan, 19.12.17

A trust is a form of contractual relationship in which legal ownership of assets is transferred from a settlor to a trustee. When a settlor partakes in this relationship they give up any ownership or rights to the trust assets, meaning they are not able to give any instructions to the trustee over the way the asset is managed. However, the settlor may make suggestions to the trustee in the form of a letter of wishes, which is a non-binding document.

It is often difficult for a settlor to give over full managing control to a trustee. Therefore, it is important to understand the full legal repercussions before settling assets into a trust agreement. The loss of control should be fully understood to avoid any future complications between the settlor and trustee. For example; if it were proven that the settlor was still making the management decisions and maintaining control over the asset, the trust may be declared a fake and legally non-existent. This can result in serious repercussions from a tax perspective (personal income tax for the settlor and inheritance tax for the trustee) and it could also give creditors recourse against the assets.

Malta is one of the few countries which has its own dedicated law to regulate trusts and trustees. Recent developments to the Trusts and Trustees Act include the concept of ‘private trust companies’ and ‘family trusts’ within the Maltese legal framework. A main feature of the amendments is that a settlor can sit on the board of their own private trust company giving them an added level of control over the trust assets. When sitting on the board, settlors now have a right to vote and influence the board of directors of the private trust company. Additionally, Private trust companies in Malta don’t have to go through the laborious authorisation and licensing processes which professional trustee companies are subjected to. The board of directors must be composed of at least three people, subject to approved by Regulator. Also, at least one director must have knowledge and experience in the administration of trusts.
Similarly, a settlor has control over a family trust which is created to hold property, securing the present and future needs of family or dependants. This also includes discretionary family trusts which are created for the benefit of family members or dependents who are identifiable but not yet definite.

Malta’s concepts of ‘private trust companies’ and ‘family trusts’ are innovative for a civil law within the European Union. Private family offices, wealth managers, as well as HNWI (High-net-worth individuals) are now able to retain control over trust assets when they sit on the board of the private trust company, ensuring that decisions are made advantageously.

The Malta Financial Services Authority regulates private trust companies registered in Malta. If you would like more information regarding the set-up of Maltese private trust company, please contact the experts at Euro Company Formations, click here.