Summary: Protecting one's assets and wealth may be carried out through the formation of a trust or foundation. In deciding which to use, it is important to take into consideration the different elements, that pertain to each and how this would impact the protection of the assets in question.

When deciding which vehicle to use within a particular situation, it is important to consider the distinguishing features between the essential elements of trusts and foundations. In doing so, persons would be able to derive further benefits and protect their assets in a better manner.

Traditionally, trusts and foundations used to pertain to different types of jurisdictions. Trusts traditionally existed in common law jurisdictions, whilst foundations were found in civil law jurisdictions. This is no longer always be the case, particularly in jurisdictions like Malta, where separate legislative frameworks have been developed for both trusts and foundations. Trusts are governed by the Trusts and Trustees Act ("the Act"), Cap. 331 whereas the law which applies to foundations registered in Malta can be found in the Second Schedule to the Civil Code, Cap. 16.

The Distinction between these Vehicles

The table below highlights a few key differences between trusts and foundations under Maltese law.

Malta Trusts

Malta Foundations

Do not have separate legal personality. All assets are owned by, and transactions are carried out through, the trustees.

Enjoys separate legal personality. A Foundation therefore owns assets and carries out transactions directly its own name.

Registration is not required, unlike most other jurisdictions. As a result, there are no initial registration fees.

Malta foundations are set up through a notarial or testamentary deed and must be registered with the Registrar for Legal Persons.

The settlor bears the responsibility of setting up the trust through an initial settlement.

The founder bears the responsibility of setting up the foundation.

The trust must be funded through the initial, and potentially subsequent, settlements, that are made by the settlor/s and accepted by the trustees. Under Maltese law, a trust cannot exist without trust assets.

A foundation is 'endowed' with assets by its founder. The initial endowment must be of minimum €1,200.

The settlor may reserve certain powers, however, if these are so wide-ranging as to render the trustee merely a rubber stamp, the trust may be deemed a sham trust and be forced by a court to wind up. Once the settlor settles the property within a trust, he/she should no longer exercise control over such property, beyond the provisions of the trust deed.

The founder will retain powers within the foundation. Upon comparing this power to that of the settlor, he/she is deemed to have more control over the assets of the foundation.

The trust may not be set up for a period longer than a maximum of 125 years.

The time frame of foundations is dependent on the purpose for which it has been set up.

In the case of a private foundation, the limit established by law is that of 100 years.

However, purpose foundations which are used for collective investment vehicles as well as foundations used for securitisation transaction, benefit from an unlimited term.

The trust is administered by the trustees, who have a fiduciary obligation to the beneficiaries of such trust.

The foundation is run by its administrators, who also have a fiduciary obligation.

These essential distinctions between trusts and foundations must be taken into consideration upon the drawing up of the trust deed or of the deed of foundation to determine the limits, freedoms and rights of the parties involved. Prior to this decision being taken, due consideration must be given to the circumstances surrounding the assets and their trustees or founders.

Our Trust & Foundation Team

As a result of their flexibility, and with specific legislation for both trusts and foundations, including the unique facility to convert a trust into a foundation (or vice versa), Malta has witnessed a significant increase in popularity with foreign wealthy individuals and families seeking to protect their assets. The Trusts & Foundations team at Chetcuti Cauchi Advocates have the qualifications and experience to assist clients in the determination of the appropriate vehicle, the setting up of such vehicle as well as its administration. As a multi-disciplinary firm, the taxation department will also be able to advise on tax planning and fiscal efficiency.

As one of the leading players within the field, Chetcuti Cauchi Advocates offer a wide range of services by acting as professional trustees and foundation administrators, as well as advising other trustees and Private Trust Companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.