Emanuel Magri, Senior Trusts Services manager at HSBC Bank Malta plc, replies to some of the frequently asked questions in relation to trusts and the trust services offered by the bank.
When did HSBC Bank Malta plc acquire the licence to operate as a trustee from the Malta Financial Services Authority (the Regulator)?
HSBC Bank Malta plc was the first financial institution in Malta in February 2005 to be granted permission to operate as a trustee under the new Trust and Trustees Act 2004. A dedicated Trust Services Department was set up for the trusts operations.
Is the trust services business new to HSBC?
The HSBC Group has been offering the Trustee Services for more than 100 years and a lot of knowledge and experience has been gained throughout this period. Systems have been developed which cater for this specialised service in a highly professional and confidential manner.
Can you briefly explain what a trust is and what is meant by preservation of wealth?
In simple terms, a trust is a legal agreement entered into between a settlor and a trustee for the benefit of third parties known as beneficiaries. By virtue of this agreement the settlor (the individual/body corporate owning the assets) parts with the ownership of the assets by transferring this to the trustee. The law imposes an obligation on the trustee to administer these assets in the best interest of the beneficiaries. Beneficiaries may also include settlors.
Preservation of wealth refers to the settlor's intention and the trustee's ability to safeguard present wealth for a later period, such as retirement or for future generations (for example, children and grandchildren). Trust assets may be protected from financial claims made against the settlor if a trust is set up in good faith.
Who can establish a trust in Malta?
Anyone who has contractual capacity can establish a trust, that is, those who are over 18 and are not prohibited at law to enter into contractual agreements.
What are the main uses/purposes for a trust, and is it different from a will?
A trust instrument is a flexible agreement which is much suited for estate planning, asset protection (that is, risk management - protection from future personal claims as the assets transferred onto trust will be distinct from the personal estate of the settlor), preservation of family wealth, generation financial and asset planning, provision for family members who may be unable to cater for their own well-being, and provision for charities.
A trust deed is not a public document and consequently provides settlors with confidential solutions to personal needs.
A trust is much wider in scope than a will and offers a number of advantages over wills. Under a will, upon the death of the testator, the executor will bequeath and distribute the assets/property of the deceased in line with the terms of the will. Under a trust, the settlor may direct the trustee, through the terms of the trust and possible letters of wishes, to hold on to the assets and distribute these upon the happening of an event or at a particular point in time.
A major benefit of trusts over wills is that the assets held on trust will be freely available to the surviving beneficiaries unlike in a normal succession situation where the assets of the deceased are frozen until all formalities (which may take several months) are completed.
Are there any tax benefits in setting up a trust in Malta?
The legislator meant the trust instrument to be tax neutral which means that setting up a trust should not put an individual or a body corporate in a better or worse tax position.
The principle of 'transparency' applies, that is, the trustee would need to pay tax due in the same way the individual or body corporate would have paid had he remained the owner. Having clarified this issue, there is still some tax planning which can be done in particular when it relates to trusts set up by non-residents.
Any interest or income generated from investments of trust assets (save a few exceptions) by trustees for non-resident beneficiaries is received gross of tax and is only taxable in the hands of the beneficiaries when they receive a distribution or an allocation of trust assets.
What are the duties and obligations of a trustee?
The trustee has the duties of a prudent and diligent owner and above all has what are known as fiduciary obligations towards the beneficiaries. Fiduciary obligations are very onerous. Duties must be carried out in the best interest of the beneficiaries. The concept of 'bonus paterfamilias' applies, which obliges the trustee to carry out his duties with diligence and integrity and with reasonable care and skill as if the assets were actually his own.
The Act requires the trustee to:
i. act impartially and administer the trust assets for the benefit of all the beneficiaries as considered necessary;
ii. act according to the terms of the trust deed and consider also any wishes conveyed to him by the settlor from time to time;
iii. maintain proper accounting records which will enable him give accurate and timely information to beneficiaries on the performance of the trust assets under his management;
iv. pay the taxation due and file the necessary tax returns where applicable.
How does a settlor pass on his/her wishes to the trustee?
A settlor will normally make use of what is called a letter of wishes. A letter of wishes allows the settlor to express his/her wishes to the trustee for consideration and guidance. In practice, a letter of wishes encompasses a wider meaning to include all forms of communication which the settlor has at his/her disposal to overtly express his/her desires on how s/he would like the trustee to operate with regard to any trust matter.
Although letters of wishes do not form part of the trust deed and are not legally binding, the trustee usually considers such documents in the course of the administration of the trust assets/property. The trustee may disregard letter of wishes if they are not for the benefit of beneficiaries or are in direct conflict with the terms of the trust deed, which is the legal binding document. There is no limit as to the number of letters of wishes that settlors may send to the trustees during the term of the trust.
What are the main types of trusts?
There are different types of trusts, however the most common and mostly resorted to are the discretionary and fixed interest trusts. In a fixed interest trust, the beneficiaries have a predetermined entitlement to a portion of the income or capital of the trust. Under a discretionary trust, which is perhaps the most widespread type of trust, the trustee has full discretion on how to manage the assets, when and who to appoint as beneficiaries and when and how much to distribute to the appointed beneficiaries.
Under a discretionary trust the beneficiaries may be individuals who are named or identified by reference to a class, for example, "my brothers, sisters and cousins".
Can a settlor revoke a trust that he himself has set up?
The trust deed can be expressly drafted as revocable or irrevocable. This is acceptable under the present Trust and Trustees Act. If a trust is revocable, then the settlor can exercise his power of revocation which will cause the trust assets to revert back to him. In most cases, trusts are created as irrevocable and may therefore not be terminated by the settlor once the agreement is signed.
Are there any fees involved for the setting up and administration of the trust?
Yes there are fees involved for the setting and administration of a trust and these vary according to the type of trust.
The one-time establishment fee will cover all the work involved in the drafting of the deed, the preparation of documentation and accounts, setting up of relative databases of beneficiaries or potential beneficiaries etc.
The annual administration fee will cover all the consultancy work involved in the administration of the trust, including the filing of tax returns where appropriate, the payment of actual tax to the Inland Revenue, effecting distributions to beneficiaries as considered necessary, and investment of settled funds in income generating products in line with the risk profile of the trust.
There may also be ancillary expenses related to the transfer of property to the trustees such as notary fees and stamp duty.
What does one have to do if he is interested in discussing a trust set-up and why should he choose HSBC Bank Malta plc as his trustee?
HSBC has set up its Trust Services Department, at Hexagon House, Spencer Gardens, Blata l-Bajda. This department is made up of qualified and very enthusiastic officials who would be delighted to discuss and offer customers a full range of private trust solutions according to their specific requirements and needs.
The department has drawn on the expertise and systems of its trust business within the HSBC Group worldwide. The trust business at HSBC Group has been up and running for more than 100 years and the bank can boast of a solid and robust business set-up, with trust relationships carried out with the strictest confidentiality and with full integrity and fiduciary responsibility. The HSBC brand is synonymous with 'trust'.
Further information may be obtained by contacting HSBC Malta on 2293-2263, 2293-2918, 2293-2298 or send an e-mail to emmanuelmagri@hsbc.com or jansammut@hsbc.com Alternatively, you may contact your local branch to arrange an appointment.