Trusts and their use as Estate Planning Tools
A Trust is a legal arrangement whereby assets are transferred from a person called ‘the Settlor’, to another person called ‘the Trustee’ for the purpose of holding such assets ‘Trust assets’ as owner but for the benefit of others called the ‘Beneficiaries.
Trusts can be used as an estate or succession planning tool for families, where, typically such an arrangement would be created by the parents (Settlors) for the benefit of the children, grand-children and other future generations (Beneficiaries). It is common and also recommendable to use Professional Trustees in such cases which normally take the form of a Company thereby ensuring accountability but also continuity of the trustee – a key role within the trust arrangement.
The Trust will be regulated by a private writing between the Trustee and the Settlors, known as the Trust Deed/Instrument. This document is binding on the trustees and would include the various rules and details which the settlor would like the Trustee to follow when managing and administering the Trust and its assets for the benefit of Beneficiaries. The Trust can have a maximum duration of 125 years.
The settlor/s also have the added right to write a Letter of Wishes to the Trustees outlining how they wish the Trustee to manage and distribute the assets during and after their lifetime. While not legally binding, these letters provide guidance to the trustees on how their discretion is to be exercised.
Private company shares, investments, financial products and immovable property are the typical assets which are placed in Trust. As a rule of thumb, the assets placed are those which can appreciate in value or require management over time.
Professional Trustees operating in and from Malta are subject to the Trust and Trustees Act, and are regulated by the Malta Financial Services Authority. They are therefore bound by a code of conduct, are under constant supervision and are also subject to fiduciary obligations in favour of the beneficiaries, the latter requiring trustees to act with utmost prudence and diligence.
It is also possible for the Settlor to appoint a Protector for the Trust. The role of the Protector is that of overseeing the acts of the trustees, and may also be given certain important powers, e.g. the power to consent to decision before these are taken by the Trustees. The Protector can be a family member, a trusted family friend or adviser.
The benefits of a Trust, as estate and succession planning tools are numerous and include the following:
- A Plan of succession over the longer-term;
- distribution of the assets in a controlled manner,
- possibility of creating a separate patrimony which is to be accessed by family members only in exceptional circumstances or case of certain dire needs;
- the protection of vulnerable family members