It is known that trust relationships are formed for many reasons and purposes. A settlor may indeed tailor a trust for any purpose provided that it is not against public policy, illegal or in contravention of the fundamental tenets of trust law. Within such limits, the purpose for which trusts may be set up are infinite and it is impossible to have an exhaustive list of "types" of trusts.

Lawyers will agree that it is a very common occurrence to come across clients who are concerned about the risks of their irresponsible child recklessly spending a lump sum received upon inheritance or who is naturally unable to control his spending and so forth.

Such a problem could be addressed by setting up a so-called "spendthrift trust" which would be created for the benefit of the child as beneficiary of the trust. In such case an independent trustee would have exclusive authority to decide on the manner in which the trust funds may be managed and made use of for the benefit of said beneficiary.

These trusts would be normally created by parents with the specific aim of distributing money to their children as beneficiaries of the trust at a regular rate but do not typically permit the distribution of large lump sums. These trusts are also designed to protect the trust fund from any legal actions of potential creditors of the spendthrift children on the ground that creditors of beneficiaries generally cannot reach the funds in the trust. The funds are not actually under the control of the beneficiary since his interest (cash or property) in the trust would only belong to him once that interest is actually distributed to him or her by the trustee.

We have recently seen on the news that the late Michael Jackson's largest asset is likely to be held in a "spendthrift trust". This asset which appears to be his 50 per cent interest in the Sony/ATV music publishing catalogue with a reported value ranging between $500 million and $1 billion was described as an asset "shielded from creditors".

Once settled in this trust, the asset did not form part of the star's estate any longer and assuming that the right conditions are present, this asset could not in future be attacked to pay his reported $500 million debt.

In parallel with spendthrift trusts, special needs trusts are likewise created to ensure that beneficiaries who are disabled or mentally ill can enjoy the use of property which is intended to be held for their benefit. Such trusts are extremely useful to parents who wish to provide for their mentally or physically disabled children whose disability renders them incapable of sustaining themselves.

Parents would in such cases want to ensure that following their demise the responsibility for the well-being of their disabled children is not left solely in the hands of the other siblings. Instead they have the peace of mind that an impartial and reliable trustee is managing the trust property with the aim of providing for the beneficiaries' ultimate protection.

We have recently seen very interesting innovations in Maltese laws which seek to further safeguard the interests of a beneficiary subject to a mental or physical disability. Such an amendment refers to situations where the benefit to a beneficiary with special needs consists in the use and enjoyment of property and it appears that the value of the trust fund exceeds the disposable portion of the estate of the settlor.

In such a case, if the opinion of the trustee is that the trust property is not susceptible of division, sale or reduction to fulfil the claims of a legitimary without materially prejudicing the interests of the said beneficiary, the trustee may apply to the Court and the Court may order that the property not be sold, divided or reduced until the death of the said beneficiary.

In such case, the law gives the trustee the additional power and legal interest to pursue any claim for the reserved portion due to this beneficiary against any other person and to receive any sum due in this respect into the trust.

The author specialises in trust law at Fenech & Fenech Advocates.

monica.galea@fenlex.com, www.fenechlaw.com