What is a Trust?
The Trust and Trustees Act, Chapter 331 of the Laws of Malta (the “TTA”), contains the following definition:
“A trust exists where a person (called a trustee) holds, as owner, or has vested in him property under an obligation to deal with that property for the benefit of persons (called the beneficiaries), whether or not yet ascertained or in existence, which is not for the benefit only of the trustee, or for a charitable purpose or for both such benefit and purpose aforesaid”
A more practical definition could possibly be the following: A “trust” arises where ownership of property is transferred by a person called “the settlor”, to another person called “the trustee”, to be managed or dealt with for the benefit of another person called “the beneficiary” or for a charitable purpose.
Although the trustee becomes the legal owner of the property transferred by the settlor, , since the Trustee is holding such property for the benefit of beneficiaries or a charitable purpose, the trustee holds such property subject to fiduciary obligations and as a separate patrimony which is segregated from any other property which the trustee holds in his own name or under separate trusts.
What is the role of the people involved?
From the definition outlined above it is clear that each Trust relationship will typically involve the following 3 persons:
- Settlor – This is you, the person who sets up the Trust and transfers assets from their name into that of the Trustee. It is also the person on whose ideas and intentions the Trust is established and managed. In fact the settlor is also the person who executes the trust instrument together with the trustees. The instrument would typically contain the terms in accordance with which the trust is to operate.
- Trustees – This is the person who undertakes the role to manage and administer the Trust and its property for the benefit of the beneficiaries in accordance with the terms of the instrument. EWS Trustees are professional Trustees authorised to act as such by the Malta Financial Services Authority.
- Beneficiaries – These are the persons for whose benefit the trust has been set-up and in whose interest the Trustees will manage and administer its property. These are the persons who will ultimately benefit from the property. Within the context of a family trust these would be family members of the Settlor, and may also include the Settlor himself.
Apart from the three persons mentioned above, a trust may also have a Protector. The role of the Protector is that of overseeing the Trustees in the operation of the Trust and may be given certain powers to this effect. A Protector would typically be a family friend or the Settlor’s trusted adviser.
Are the rules of a Trust set in stone?
The TTA regulates both trusts and trustees, and includes within it the rules that set limits and boundaries within which a trust is to operate. The TTA also includes certain default positions, which apply to the extent that the relevant instrument does not state otherwise. It leaves enough room for flexibility allowing one to create a Trust which may be tailor-made to your needs.
EWS Trustees, as professionals in the field, will be able help and guide you to formulate the trust instrument in a manner which reflects your intentions, while making the trust operable. In doing so, EWS Trustees are also more than happy to work with your advisers.
Can I trust the Trustees?
EWS Trustees are licensed to act as Trustees by the Malta Financial Services Authority (MFSA). Moreover, we are at law bound by fiduciary obligations which require us to act with the highest standards of care and diligence which include acting honestly and with utmost good faith at all times. We are constantly monitored by the regulator and expected to follow a prescriptive Code of Conduct issued by the MFSA.
How is a Trust created?
It is created the moment the settlor transfers property to a trustee to be held for the benefit of beneficiaries or for a charitable purpose. While at law it can also be created verbally, in practice the existence of the trust, the transfer of the property from the settlor to the trustee, the identification of the beneficiaries for whose benefit the property is to be administered, and the terms in accordance with which the trustee is to administer such property, are documented in an instrument which is executed by both the settlor and the trustee.
What happens after the Trust is created?
Once it has been established, the Trustees will start managing and administering the assets, for the benefit of the Beneficiaries and in accordance with the terms of the instrument.
In the course of the administration of the Trust, the Settlor may, through what is known as a ‘Letter of Wishes’ inform the trustees of how they wish the assets to be managed and distributed. It is important to note that while the trustees will take such wishes into consideration, these letters are not binding on the Trustees. These letters of wishes are typically used within the context of a discretionary trust, i.e. where the instrument does not make specific provision for the exact amounts to which a beneficiary is entitled to, but instead grants discretion to the Trustees to decide which beneficiaries are to benefit, in what amount and at which point in time.
When will the Trust end?
The instrument would typically include a clause which will state the duration of the trust, depending on the intentions of the Settlor. As a general rule a trust cannot exist for a period exceeding 125 years. This rule does not apply to certain types of trusts, e,g, charitable purposes.