It is the essence of a trust that on its creation the person setting up the trust transfers ownership of the trust property to the trustees. The settlor is the person who creates and sets up a trust, and who decides the form which the trust property may take, the interests which shall be assigned to the beneficiaries, and the persons who will be appointed trustees.

Once the trust is created, unless he has reserved an interest for himself, the settlor loses all control or interest in the trust property. He is not entitled to control the trust property or the conduct of the trustees and he is treated like any other third party.

This may naturally instil an uncomfortable feeling in a person who feels he is about to divest himself of control of his property. This person might fear that at some time or other in the future things may change and he would not be in a position to revoke, vary or terminate the trust. Although it is normally explained to the settlor that it is possible to insert clauses in the trust deed allowing changes to the terms of the trust deed, settlors tend to be reluctant to confer wide discretions on professional trustees who are usually unknown to them.

It is nonetheless important to be made clear to the settlor that in order for a trust to be valid there must be a clear transfer of ownership from the settlor to the trustee. Furthermore, excessive settlor control or influence over the powers and duties of the trustee would jeopardise the trust relationship. In such cases the trust may be treated as a sham and the assets held by the trustee treated as property owned by the settlor.

The letter of wishes has been developed to offer settlors the opportunity to express their wishes in a non-binding form. This enables settlors to explain their motives for creating the trust and to map out how they wish the trustee's discretions to be exercised. Therefore, stopping short of actual control, settlors may in actual fact "influence" the trustees' administration of the trust by means of this letter.

This degree of influence aids to a certain extent the trustee to strike the desirable balance between listening to what the settlor wants while retaining complete independence in the administration of the trust. Additionally, the fact that the trustee has followed the wishes of the settlor in whatever manner they were expressed does not automatically imply that the trustee's independence was impaired or that the trust instrument conferring discretion is a sham.

Another manner by which settlors could retain an element of involvement over property settled on trust is by requesting trustees to render regular account of the manner they administer the trust. In this respect, Maltese law imposes the obligation on the trustee to provide, on request, full and accurate information to, among others, the settlor (subject to the terms of the trust) as to the state and amount of the trust property. This information would include the accounts of the trust and the conduct of the trust administration.

Such accountability of the trustee may also imply an obligation to explain why, for example, an investment has been made as opposed to another. Other examples could include questions on the manner in which property was disposed of and why decisions were implemented and similar other questions.

It is interesting to note that English case-law has identified behaviour which would amount to wrong-doing on the part of trustees where trustees had to account for personal profits received during the course of the trusteeship.

For example, it was held that a trustee cannot purchase the trust property and he cannot put himself in a competitive position with the trust. But it appears still unclear whether any information acquired by the trustee in the course of his position is also trust property.

In the event that this is the case, not only the trustee would have to account for profits made but also third parties who have made a profit therefrom.

The author is an associate with Fenech & Fenech Advocates.