TRUSTS AND TRUSTEES

A trust is an obligation which binds a person or persons (‘trustees’) to deal with property over which they have control (‘trust property’) for the benefit of persons (‘beneficiaries’) or for a charitable purpose in accordance with the terms of the trust. 

 

There are various ways by which a trust can come into existence. 

1. A trust can be created by an instrument in writing including a will. A unilateral declaration of a trust whereby a written declaration is made by a trustee stating that it is the trustee of a trust, containing all terms of the trust as well as the names or information enabling the identification of all beneficiaries, is also possible.  

2. Trusts can be created by an oral declaration, with the exception of a unit trust which must be created by a written instrument. A trust can come into existence by operation of the law or by a judicial decision, or by a notarial trust deed in the case of an inter vivos trust. 

 

Trusts may continue until the 100th anniversary of the date on which they came into existence, on which date they shall terminate, unless sooner terminated. This does not apply for a charitable purpose or to a unit trust. 

 

Main Characteristics of a Trust 

 

The following characteristics must be present when establishing a trust: 

1. The Settlor 

2. The Trustee or Corporate Trustee 

3. The Beneficiary 

4. The Protector 

5. The Trust Deed 

 

The Settlor is the person placing the assets in the trust and it includes any person who provides trust property or who makes a disposition on trust or to a trust. The settlor ceases to have any active role in the trust once this has been created. 

 

The Trustee is the person/s holding or in whom the property is vested in trust for the beneficiaries. These are usually appointed by the trust instrument. The trustees may be natural persons provided that they are of full age and legal capacity and not under any legal impediment to so act. A trustee may also be a juridical person the objects of which include acting as trustee. 

 

A Corporate Trustee can be defined as a trustee which is any legal person wherever incorporated. 

 

The Beneficiary is the person entitled to benefit under the trust or in whose favour discretion to distribute property held in trust may be exercised. As the rights of the beneficiary are personal to him/her, he/she can only benefit under a trust if he/she is either identifiable by name or ascertainable by reference to a class or to a relationship to some person. Where the beneficiaries are not identifiable or ascertainable the trust shall fail, unless the purpose is a charitable one. 

 

The Protector may be appointed only if the terms of the trust provide for this office. In this position the protector normally has powers to appoint new or additional trustees, removal of trustees, obtaining information as to the way the trustees are managing the trust assets.  

 

The Trust Deed is the instrument by which the trust comes into existence and it includes any instrument varying the terms of the trust and also a unilateral declaration of trust. 

 

Trusts can be classified into three main types 

 

These include: 

• Express Trusts are declared by the settlor and the intention to set up the trust is clearly and openly expressed. 

• Implied Trusts are trusts arising from the unexpressed but presumed intention of the settlor, which intention is presumed from his words or actions. These trusts are also resulting trusts since the property will return to the person setting up the trust. 

• Constructive Trusts arise by operation of law and are in no way dependent on the intention of the settlor. These are imposed by operation of law in situations where not to do so would result in one party’s unjust enrichment. 

 

Duties of Trustees  

 

The duties of the trustees can be particularly onerous. Trustees shall in the execution of their duties and the exercise of their powers and discretions, act with prudence and diligence and shall observe the utmost good faith. Trustees should treat the interests of the beneficiaries as paramount subject to their legal obligations to other persons or bodies and they are obliged to act in accordance with the terms of the trust deed. They are also obliged to keep accurate records of the trusteeship, which records are to be disclosed to any beneficiary upon request. Trust property is to be kept separate and distinct from the trustee’s own property.  

 

 

 

 

 

Powers of Trustees  

 

Trustees shall, in relation to the trust property, have all the powers of a natural person having the absolute title to such property. Trustees shall exercise their powers in the interest of the beneficiaries and according to the terms of the trust. 

 

Taxation of Trusts  

 

Taxation on trusts is regulated by the Income Tax Act, Cap 123. Trusts are considered as being transparent for tax purposes as income attributable to a trust which is distributed to a beneficiary is not charged to tax in the hands of the trustee. Furthermore where the beneficiaries are not resident on Malta and where the trust income does not arise in Malta, there is no tax impact under Maltese law. Beneficiaries are charged to tax on income distributed by the trustees and any income attributable to a trust that is not so distributed to the beneficiaries is charged to tax in the hand of the trustee at the rate of 35% per year.