Insights

Proving that this is indeed a dynamic area, these amendments are aimed at improving Malta’s legislative framework regulating:

• trusts governed by Maltese law; and
• trustees resident or operating in or from Malta.

It achieves this by providing for greater certainty and at the same time bringing Malta’s trust law provisions in line with international developments in the area.

Click here for a consolidated version of the TTA as amended.

Below is a brief outline of the salient amendments to the TTA which have come into force.

1. The Term of the Trust

The TTA has been amended in order to extend the permitted duration of Maltese law trusts by 25 years (or to 125 years, thus bringing the duration of trusts governed by Maltese law in line with English law trusts. This amendment effectively enables a settlor to provide for an additional generation and while some requests from the industry for the legislator to consider allowing private trusts to continue in perpetuity were, for various reasons, not accepted, charitable trusts and trusts set up in connection with a commercial transaction (as defined in the TTA) do not fall within this rule and can continue indefinitely.

Currently there is a mis-match between the permitted duration of private foundations and that for private trusts (with the former still subject to the 100-year rule) but the two are expected to be brought in like soon.

2. Settlor Reserved Powers

A new article 14A has been introduced in the TTA dealing specifically with the powers that a settlor can reserve in a trust instrument. According to this new provision a settlor may:

• reserve or grant to himself any beneficial interest in the trust property,
• any power to appoint, add or remove trustees, protectors or beneficiaries; and
• any power to appoint an investment adviser or investment manager,

and this without such reservation or grant affecting the validity of the trust or delaying the trust from taking effect. This new provision applies without prejudice to certain other powers which can be reserved by the Settlor in accordance with other provisions of the TTA, such as the power of revocation of the trust (where this is included) and the power of amendment. While reservation of these powers was already possible under the law prior to its amendment the intention behind this amendment was that of bringing Maltese law in line with the trust laws of other jurisdictions that specifically tackled settlor-reserved powers. While not in any way seeking to sanction excessive control by the settlor in the administration of the trust, it is clear that the core rules and principles governing the validity of a trust (including the knight vs. Knight principle of certainty of intention) the purpose behind the amendment was that of providing further certainty to the settlor. The provision, indeed, merely acknowledges powers that are already frequently customarily reserved by the settlor.

3. Protective Trusts and the rule in Saunders v. Vautier

The TTA, as amended, also provides for certain limitations on the applicability of the express provision which mirrors the rule laid down in Saunders v Vautier found in article 17(3) of the TTA. This provision states that all the beneficiaries who are in existence and have been ascertained, provided that none of them is interdicted or a minor, may request the trustee to terminate the trust and distribute the trust property. The new amendments preclude this rule form applying in the case of protective trusts e.g. when the interest of a beneficiary is subject to restriction on alienation or dealing, and this in order to better safe-guard the interests of such protected beneficiaries.

4. Duties of the Trustee

The amendments to the TTA specifically include an express duty on trustees to avoid any conflicts of interests together with a definition of the term ‘conflict of interest’ thus highlighting the importance which Maltese trusts law places on the integrity of the office of trusteeship and to the onerous duties which this office entails.

The TTA, as amended, also states that upon accepting their appointment as such, trustees are duty-bound to draw up an inventory of the trust assets in writing and declare that the inventory includes all the trust property of which the trustees are aware.

The new amendments to the TTA have also clarified that trustees are obliged to keep accounts and records of their trusteeship for a period of at least 10 years from the date of the termination of the trust or their trusteeship, whichever happens earlier.

5. The office of Enforcer

Two new articles 24B and 24C enabling the terms of a trust established for a charitable purpose to provide for the appointment of an enforcer have also been introduced. The duty of the enforcer is that of ensuring that the trustee administers the trust in accordance with its terms, and promoting the terms of the trust. The enforcer is also given certain other duties, e.g. the duty to take action against the trustee in case of breach of trust, thereby ensuring that even in the case of a charitable trust, where there are no beneficiaries, the terms of the trust and its purpose may be duly and effectively enforced.

6. Limitation of Actions

The amendments to the TTA have made it impossible for trustees to acquire by acquisitive prescription since the 30 year limit within which action could be taken against trustees for fraud or for the recovery of trust property has been removed. In this way the amendments have also facilitated the task of interested persons suing a trustee for fraud by removing the prescriptive period of 30 years that preciously rendered an action time-barred after 30 years.

7. Authorisation and Regulation of Trustees and other Fiduciaries

Various important amendments of a regulatory nature have been introduced. While the MFSA’s proposed amendment to limit authorisation only to corporate trustees has not made it to the final amendments as entered into force, the amendments provide for clarity and certainty in this respect by stating that any person (whether an individual or a body corporate) who is residing in Malta or who operates in or from Malta, requires authorisation to act as trustee.

This same position has also been reflected in the TTA as amended with regards to those persons (whether individuals or bodies corporate) who act as mandataries, or administrators of private foundations. As a result, as a general rule, these also require authorisation to the extent that they are:

• either residing in Malta; or
• operating in or from Malta. Mandataries, however, are only required to be authorised to the extent that they are acting as such in the holding of securities or immovable property.

New sub-articles have also been included in order to list the requirements which mandataries and administrators of private foundations need to fulfil in order to be granted authorisation, and these largely mirror those applicable to trustees.

The relevant provisions of the TTA were also revised to clarify that those trustees that are not required to obtain authorization in terms of article 43 or 43A of the TTA, are nonetheless still obliged to comply with the various other provisions of the TTA and to fulfil the various obligations and duties that the TTA imposes on trustees generally (with the exception of those provisions dealing with authorization or the registration of trustees).

7.1 Minimum Capital and Insurance Cover

New additional requirements have been imposed on trustees and mandataries (whether individuals or bodies corporate) in order for them to fulfil the conditions required for authorisation to be granted. These requirements consist of a minimum share capital requirement of €15,000 (down from €25,000 in the original proposal by the MFSA),which capital must be maintained on an ongoing basis, and the obligation to maintain at all times an insurance cover which is proportionate to the nature and size of the trustee’s business operations.

7.2 Auditor Reporting Duties

A new article which imposes a duty on auditors of authorised trustees to report to the MFSA has also been introduced. Such auditors are required to report facts or decisions of which the auditor becomes aware and which relate to the trustee, and which are likely to lead to a serious qualification or refusal of the auditor’s report, constitute or are likely to constitute a material breach of the laws applicable to trustees or gravely impair the trustee’s ability to continue as a going concern.

7.3 Transitory Provisions

Trustees and other fiduciary service providers who are already authorised to provide such services, are given certain time-frames within which they need to comply with the new requirements:

8. Family Trusts and Private Trust Companies

Possibly one of the most – if not the most – noteworthy amendments is the introduction of the ‘Private Trust Company’ or PTC for family trusts in the new article 43B. A ‘family trust’ is defined as “a trust created to hold property settled by the settlor or settlors for the present and future needs of family members and family dependants’. This new article provides that a trustee company:

• whose objects and activities are limited to acting as trustee in relation to specific settlors and providing administrative services in respect of specific family trusts;
• which does not hold itself out as trustee to the public; and
• which does not act habitually as a trustee (in any case in relation to more than 5 settlors at a time)

is not require to be authorised but is required to merely register with the MFSA. The aim of this new provision is that of incentivising the use of Private Trust Companies in Malta, in the context of family trusts, by facilitating the authorisation procedure in view of the fact that they are typically designed around the needs of a specific family and in any case would not be offering their services to the general public. PTC’s offer some very interesting opportunities to HNWI’s and families who favour a tailor-made trustee solution in the design of which they can take part (and possibly also a role) when compared to the mainstream professional or institutional trustees.

9. Powers of the MFSA

A new article has been introduced in order to give the MFSA the power to take certain measures in order to protect the public interest. Such measures include the power to appoint a person to advise the trustee in the proper conduct of its business and the power to appoint a person to assume control over the business of the trustee, which powers may be exercised where the MFSA is satisfied that sufficient circumstances exist.

For more information or for advice on the recent amendments to the TTA please contact:

Dr Anthony Cremona