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What is a Trust?
A trust is a relationship created by a person, called a settlor, where assets are placed under the control of a trustee for the benefit of a beneficiary/ies. As a result of this settlement in trust, the settlor would divest himself completely of the ownership of the assets in question in favour of the trustee who acquires legal ownership thereof, but who would be strictly bound, in terms of the trust deed and the law, to exercise his powers only for the benefit of beneficiaries.
This trust relationship is to be distinguished from a contract of mandate whereby a person (the 'mandator') gives to another (the 'manadatary') the power to do something for him. In fact, the mandator does not divest himself of the ownership of his own property, but engages the mandatary to do certain acts on his behalf and thus the mandatary, cannot do anything beyond the limits of the mandate.
Who may be a beneficiary?
It is possible, under the Malta Trust and Trustees Act, for the settlor to be a beneficiary under a trust. Nevertheless, it would not be advisable for the settlor to be the sole beneficiary of the trust as this may give rise to the arrangement being deemed a 'sham' and consequently, the relationship would be deemed one of mandate, meaning that the trustee would merely be holding the assets for and on behalf of the settlor.
The beneficiaries of the trust could be one or many, and could also include the settlor amongst them. For instance, the beneficiaries could be the spouse and children of the settlor, and the settlor himself.
It is also possible for the trustee to be given the power to add more beneficiaries provided the class, [the identifiable group of persons], from where these beneficiaries may be added is specified. The trustee may also be given the power to remove a beneficiary.
What type of trust?
A trust relationship can be tailor-made and designed to suit the particular circumstances and requirements of the settlor. Amongst others, there is the so-called fixed interest trust or a discretionary trust. In a fixed interest trust, the interest of each beneficiary is specified, for example, in equal shares. In a discretionary trust, it is left in the trustee's discretion as to the particular persons, being indicated as beneficiaries, who will benefit and in what amounts.
It may also be indicated whether the trustee is bound to distribute income generated by the trust on an annual basis, or whether this income is to be left to accumulate and to be invested at the trustee's discretion. The trustee may also be given the discretion to choose to distribute the income in any one year or otherwise.
The trustee must be given certain powers, both administrative and dispositive. Amongst others, these would include, the power to change the jurisdiction or proper law, the power to appoint replacement trustees, the power to rectify errors, wide powers of investment, power to insure, power to borrow, power to delegate, power to engage advisors, power to form companies, power to pay taxes, power to charge for professional services.
Letter of Wishes
Following the settlement on trust, the settlor is divested from the ownership and control of the trust assets and full control is vested in the trustee. Nevertheless, a settlor may indicate his wishes, other than what is specified in the trust deed, in a separate document, called a letter of wishes. This document is not binding on the trustee but may be used for guidance purposes. Naturally, the letter of wishes may not contain anything which is in conflict with or otherwise contradictory to the trust deed.
Fiduciary Obligations
A trustee is not only bound by the trust deed and other applicable legislation but is also bound by fiduciary obligations and as such is required to carry out his obligations with utmost good faith and to act honestly in all cases, to avoid any conflict of interest. Amongst others, he is also bound not to receive undisclosed or unauthorised profit from his position or functions and to return on demand any property held under fiduciary obligations to the person lawfully entitled thereto or as instructed by him or as otherwise required by applicable law.
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