We have heard a lot about trusts of late. However, there is also a great deal of confusion and misconception about the use of a trust, its real purpose and the benefits from an estate planning point of view.
Trusts have been established in the UK since medieval times as a valuable estate planning structure. Over more recent times Malta has positioned itself as a reputable and efficient jurisdiction for the establishment of trusts as changes in legislation have been enacted under the Trust and Trustees Act. Trust companies in Malta are regulated by the Malta Financial Services Authority (MFSA).
A trust and how it works
The person who sets up a trust and provides the assets is known as the ‘settlor’. The assets held within a trust are held for the benefit of persons known as the ‘beneficiaries’. The settlor can be included as a beneficiary. Assets in a trust are held in the name of the ‘trustees’ but the trustees cannot benefit; instead they must hold the assets under the terms of the written document signed by the settlor and called the ‘trust deed’. The assets are held for the benefit of the beneficiaries. There are professional trustee companies that provide this service.
There are various types of trusts which can be constructed by the terms of the deed. A good example is a discretionary trust whereby the settlor assigns to the trustee all his or her interest in the assets to be settled into a trust. Trustees are given wide powers and distribute the income and capital of the trust fund at their discretion. The potential beneficiaries could include, among others, the settlor, the settlor’s spouse, the children and remoter issue of the settlor or any charity or charitable purpose or lawful object. A discretionary trust can allow the trustees to appoint additional beneficiaries or to remove existing beneficiaries, and also allows the trustees to distribute the income and capital of the trust to the beneficiaries, as they see fit.
Trusts can prove to be extremely valuable for estate planning and wealth preservation
A settlor must give some indication as to the limits of the class of people intended to benefit, but they need not be named in the trust deed specifically. In accordance with the power vested in the trustees, they can nominate additional beneficiaries or exclude existing beneficiaries at any time.
The trustees will be guided by an informal and confidential letter from the settlor to the trustee, setting out their wishes on such matters as to the amount and timing of distributions, investments, employment of advisers, split of assets and so forth. The memorandum of wishes is non-binding as it is not a legal document, but intended for the trustees’ guidance only.
Purpose of a trust
Trusts can prove to be extremely valuable for estate planning and wealth preservation. The main benefits include a more simplified transfer on death; the preservation of family property; ongoing management of assets; tax planning and confidentiality of ownership.
A trust also provides the settlor with peace of mind that the assets will be managed professionally and can tumble down future generations in a diligent manner, under the guidance of the professional trustee. In certain cases, for example where children with disabililty are beneficiaries of an estate, it makes perfect sense to have a trust. Individuals who are unable to assume the responsibility of handling large sums of money, such as those with addictive problems, or persons suffering from mental disabilities are typical beneficiaries of such a structure.
In order for a trust to be effective it is imperative that the trustee becomes the legal owner of the trust assets. Common property that is usually settled into trust would include (and is not limited to) financial assets, real estate, jewellery, art and collectibles, antiques, coins, stamps, shares in companies, copyrights and patents. Anything that is not so titled when you die will have to go through probate and may not go to your intended heirs. As always, specialist advice should be sought.
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Kevin Cassar is regional manager, Blevins Franks.