A trust exists where a person (called a trustee) holds, as owneror has vested in him property under an obligation to deal with that property for the benefit of the beneficiaries.
Under Maltese Law a trust may be set up either during one’s lifetime or by will. Even though a trust during one’s lifetime may even be set up orally, it is however a generally accepted rule that trusts are created by a private writing.
The settlor, the trustee and the beneficiary are the three players forming the trust triangle. The roll of two out of the three players, may at times, be permitted to merge into one person.
The Settlor is the person who generally creates the trust and settles/transfers things on trust. He may be any person who has legal title over, and capacity to transfer the assets. A Settlor may be the beneficiary, even the sole beneficiary of a trust. Generally, when a trust fails or is terminated, there is the reversion of the trust property back to the settlor.
A trustee may be an individual or a company. In either case, a trustee must be duly approved and licensed to carry out such an office. The initial trustee is generally appointed by the trust deed, which will also provide for the terms regulating the removal and/or addition of subsequent trustees.
The Trustee is the person who holds, as owner, the trust property, for benefit of the beneficiaries. The Trustee thus has a fiduciary relationship with the beneficiaries, as well as , to a certain extent, with the settlor in carrying out his or her wishes.
All trust property held by the trustee, must be kept separate and distinct. A trustee generally has a vast range of powers as to how to administer the trust property, including investment powers, purchasing and selling powers, the power of taking loans etc. All such powers , whether general or special, are usually outlined in the trust deed, and may, be subject to the discretion of the protector, as herein described.
Powers which are generally given to the trustee also include the power to change the common law of the trust, to vary the terms of the trust ( in so far as it is related to the nature or extent of the benefit), to add a beneficiary, as well as to decide which beneficiary is to benefit from the trust property. A Trustee may appoint professionals to assist him with his tasks.
These are the persons for whose benefit a trust is created. They must be expressly named in the trust. If there are no ascertainable beneficiaries, the trust will fail. A trust may also be set up for a charitable purpose.
The trustee may also be given the power to add beneficiaries from a group/class, specified by the settlor.
A beneficiary has the right to transfer, in any manner, his beneficial interest under a trust.
A protector is neither a trustee nor a beneficiary, but is appointed by the settlor in order to enable the trustees to be directed or controlled in the exercise of their powers in the way that the settlor wishes. This office is of particular importance when the trustees and the settlor reside in different jurisdictions. The Protector has a supervisory role, with the power to appoint or remove a trustee, as well as to require the trustee to obtain the Protector’s discretion prior to exercising his powers. Owing to the fact that legal title of the trust assets is transferred to the trustee, the office of the protector creates comfort to the settlor .
Different types of trusts:
Why opt for a Trust ?
The modern uses of international trusts are linked with the various benefits which the institution can provide such as tax planning, risk management, asset protection and estate planning, and non-disclosure.
Trusts may serve the purpose of investment and portfolio planning. One may opt to enter into high, medium or low risk investment strategies. A balanced portfolio is a common risk strategy which seeks to achieve the goal of capital growth and income yield, with a reasonable mixture of the two, comprising in a mixture of stocks and fixed interest securities. Sometimes a settlor may opt for a higher risk strategy, however in such cases the proper indemnities must be given to the trustee, in order to provide security in the case where investments under-perform.
Like many other areas of international financial vehicles, tax planning is one of the main aims and uses of a trust. Tax planning aims at minimising the payment of one’s taxation on income, capital and estate taxes. As the trust assets will not form part of the client’s estate, and/or will no longer form part of his income or capital, the payment of such taxes will be eliminated by the client. When the international trust structure is created in a low-tax or tax-free jurisdiction, further tax savings and flexibility are achieved. This does not however eliminate tax liability altogether. One must obtain proper advice from both, the client’s onshore jurisdiction as well as the IFC jurisdiction where the assets are held and where the trust is taxable.
Trusts do not have a separate legal personality. It is the trustee which is taken into consideration in this regard. Malta taxes trusts on the basis of the residence of the trustee.
A trust, by way of option, may be treated as a company for taxation purposes. It such a case, the trust will be taxed at the rate of 35% and any distributions made to the beneficiaries will be treated as dividends, and allow for a 6/7 tax refund, rendering the effective tax rate that of a mere 5%.
In certain circumstances where the beneficiaries are all non–resident the trust may be deemed a transparent model, whereby income of the trust will be deemed to be derived directly by the beneficiaries of the trust. This may result in ultimate tax planning opportunities, where the beneficiaries of the trust are located in nil tax jurisdiction.
As the trust property no longer belongs to the client, the creation of an international trust may, to a great extent protect the assets settled on trust from frivolous litigation against the settlor, as well as the beneficiaries.
A beneficiary has no rights to the assets of the trust, saving those in which he has a vested interest and in favour of which such interest is exercised by the trustee. A creditor of the beneficiary cannot bring forward a claim against the trust property in order to secure his rights against a beneficiary, saving to the extent of interest which a beneficiary has in the trust property.
Trusts survive the death of the testator. Through the creation of an inter vivos trust , one may decide what will happen to his property once the trust is created, and does not need to wait until his death. Upon the death of the settlor, the trust property would continue to be held in accordance with the terms of the trust deed rather than passing to the terms of the settlor’s will.
Here at FS Malta we can assist our clients with selecting for the ideal trust structure suitable to their needs, ensuring that the optimization of tax planning opportunities is available to them. We assist our clients with the drafting of a custom made trust deed and registering the deed where necessary. The FS Group also procures the services of a licensed trustee for Malta and Cypriot trusts, as well as other jurisdictions.
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