Trusts & Foundations

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Trust & Foundation Vehicles 

Being of a hybrid-legal personality, the Maltese legal system benefits from adopting the best aspects of different legal jurisdictions. Maltese law provides for the setting up of foundations, which are etymologically of a civil law nature, and the setting up of a trust, which is essentially a common law tradition.

Trust Law 

Trust law is that which allows for the beneficial, yet secure, protection of a person’s wealth and property. Over time, the concept of trusts in Malta are often regarded as flexible and efficient vehicles for asset protection and management in Malta. The law regulating such an aspect is that of the Trust and Trustees Act, which additionally incorporates the values of The Hague Convention on the Law Applicable to Trusts and on their Recognition. Malta, having ratified this Convention, further strengthened its local laws to meet international trust law requirements and standards. 

Foundation Law 

A foundation, in itself, is a non-governmental organization or corporation which is established as a non-profit organization or charitable trust. Albeit it was only recently, in 2007, that Malta has established regulatory framework regarding foundations law, the island has enjoyed a rich history of foundations nonetheless. The principal piece of legislation dealing with foundation law, therefore, is that of Act XVIII of 2017. And, this, is further complemented by the Voluntary Organizations Act of the same year. Maltese foundation law effectively deals with an array of issues raised by foundations when used unconventionally. In fact, the 2007 revamp of legislation of the institution, in the context of an established tradition of foundations in Malta, has provided for its consistent legal success. 

Defining the Differences between Malta Trusts and Malta Foundations

Malta trusts and Malta foundations are two institutions of law which fundamentally differ. It is therefore essential for one to analyze their disparities in order to come up with the most effective solution to a particular situation. 

Despite both traditionally originating from different jurisdictions, as aforementioned, Malta due to enjoying a mixed jurisdiction has managed to regulate both trusts law and foundations law. Therefore, the principle distinctive features between the two institutes lie within; 

  •     The existence of a legal personality;
    • A Malta trust does not have a separate legal personality and therefore, it cannot sue or be sued. This right only belongs to the trustee. However, Malta foundations do have a separate legal personality and are subsequently registered with the Registrar for Legal Persons.  
  •     The obligation of registration;
    • A Malta trust does not have the obligation to be registered, unlike in many other foreign jurisdictions and, advantageously, is not subject to registration fees. On the other hand, a Malta foundation is set up by means of public deed or by means of a last will published in Malta. Subsequently, these actions go on to be registered in the records of a Maltese public notary. 
  •     Their establishment; 
    • Whereas a Malta trust is created due to the settlor setting it up through an initial settlement, a Malta foundation is set up by its founder. 
  •     Their funding;
    • A Malta trust is funded by the initial and subsequent settlement/s by the settlor/s and the consenting trustee/s. A trust, by default, cannot come into existence without its trust assets. Nevertheless, a Malta foundation is ‘endowed’ with assets by its founders and, the initial endowment needs to amount to at least EUR 1.200.  
  •     The retainment of their powers; 
    • It is often argued that a founder has a greater degree of control of foundation assets, than the settlor does on trust assets. Whereas a settlor retains settlor-contained powers under a Malta trust, an abuse of these powers can constitute in the trust being declared a ‘sham trust’. Thus, once the settlor settles the property on trust, he no longer has control over the trust property. However, the founder of a foundation retains his power upon its establishment. Maltese law grants this right.
  •      Their existence; 
    • A Malta trust is to expire upon its 125th year. With regards to Malta foundations, there is generally no time limit for their existence, unless the local law declares otherwise. This is the case with privately set up foundations in Malta, whereby they are made to expire on their 100th year. Despite this, purpose foundations, foundations used for collective investment vehicles and foundations used for securitization transactions may be set up for an unlimited period of time. 
  •     The way they are run;
    • While a Malta trust is administered by its trustees who in turn have fiduciary responsibilities to the beneficiaries of the trust, a Malta foundation is run by its founders. 

It is to be noted that the above list is not exhaustive in nature. There are more grounds on which trust law and foundation law differ, due to the drafting of the trust deed and the of the deed of foundation used to determine the rights, limits and freedoms of the persons involved.  Although there are many features which define trust law from foundation law, the two institutions also enjoy similar features. Optimally, one cannot determine the preference to one over the other unless a unique scenario crops up and subsequently assessed. 
 



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