Trusts and Foundations
FoundationA private foundation is constituted by public deed (in front of a Notary). The constitutive documents are the Foundation deed, statute and the beneficiary statement which is the most important document. The beneficiary statement is kept confidential other than for the notary, administrators and of course the founder who nominates the first beneficiaries.
The beneficiaries could be indicated as specific individuals or as a class. The Founder of the foundation may also nominate himself as the, or one of, the beneficiaries.
Foundations may hold not only funds but also property including immovable property. Every foundation has a foundation bank account – in the case of a foundation in a corporate structure this is to be distinguished from the company’s bank ac.
Upon submission of documentation to Registrar of Legal Persons, the certificate of registration is usually issued approximately 15days after. By law the Registrar has to register or decline to register the foundation within 45 days.
Maltese banks have also adopted the trust concept and most offer ‘Trust accounts’ which are basically deposit accounts held in the name of the bank who is also the trustee of the same account and who is responsible for the maintenance and operation of that account for the benefit of the beneficiaries. This account does not form part of the estate of the settlor and on his demise is not frozen, nor does it form part of any succession procedures. Therefore, it offers a number of benefits particularly with regard to estate planning. It offers all the features of confidentiality and in the case of non-resident beneficiaries, income generated is tax exempt.
TrustA trust is a legally binding arrangement whereby a person (the settlor) transfers assets to another person (the trustee) who takes legal title to the trust assets. The trustee holds the trust assets for the benefit of other persons (the beneficiaries, which may include the settlor), or for a specified purpose.
There are many forms of trust that have been developed over time, some of the most common forms are:
• Accumulation and maintenance trusts
• Discretionary trusts
• Fixed interest in possession trusts
• Revocable trusts
Uses of a Trust
Trusts are used for a variety of reasons due to their flexible and confidential nature:
Preservation of wealth
The vesting of the legal title of the assets in the trustee prevents the ownership of the assets being diluted, when assets are distributed from the original owner to the second and then to the third generation. At the same time individuals can continue to benefit from the assets, such as a family business.
Circumvention of forced heirship laws
By divesting assets during the lifetime of the settlor, the trust will not form part of his estate upon his death, avoiding forced heirship rules which may apply under laws in the settlor’s country of residence. Local advice should always be taken and assets settled into the trust should not be located in the jurisdiction with the forced heirship laws.
As the settlor no longer owns the assets, the need to obtain probate or similar formalities on his death can be avoided.
A trust is therefore an efficient vehicle for transferring the benefit of assets, such as property, through successive generations and provides a useful tax and financial planning tool for settlors.
Asset of protection
Malta offers a secure and stable political environment in which to hold assets and protect them from strategic risk. In addition a trust can offer protection from creditors or other parties in the country of domicile or residence of the settlor.
On the settlement of assets into a trust, those assets cease to form part of the estate of the settlor. The legal title passes to the trustee, whilst the rights to future enjoyment are passed to the beneficiaries.
Taxation of Trusts in Malta
Under Maltese Tax Laws, Trusts are considered to be transparent in that income earned by the trust and distributed to the beneficiaries is not taxable in Malta, in the hands of the trustee.