The proposed introduction of the “family trust” is an interesting development in Malta’s offering as a wealth management centre.

The proposal was included in an omnibus bill presented to the House of Representatives in June 2012. It is expected that the bill will be placed on the agenda of the new House of Representatives following the recent general elections in Malta.

The “family trust” is an instrument which allows the setting up of a trust to hold property of a settlor for the present and future needs of family members, or dependants who are related to the settlor of the trust, and who are definite and can be ascertained on the creation of the trust. In practice, the individual wishing to create the “family trust” (i.e. the settlor) sets up a company, which will act as trustee of the family estate transferred to it under trust, for the benefit of the family members.

The advantage offered by this instrument is that the trustee company, as opposed to professional trustees, need not be subjected to the rigorous authorisation process set out at law and handled by the MFSA. Instead, a family trustee company is only obliged to register with the MFSA.

Of course, the family trustee will still be subject to on-going supervision. Certain restrictions on the activity of the family trustee will be in place; the trustee company cannot hold itself out as a trustee to the public or act habitually as a trustee (defined as more than five settlors at a time). The trustee company’s objects and activities are to be limited to acting as trustee in relation to a specific settlor or settlors.

The proposed corporate governance structure of the “family trust” allows the board of directors of the trustee company to consist of at least three directors, composed by both family members and independent and qualified individuals.

Settlors are often reluctant to set up a trust because they will be hesitant to transfer the wealth that they have built over the years to third parties to manage, in terms of the trust deed. The proposal seeks to address this by permitting the settlor and his/her family members to be appointed as directors; in this manner, the settlor and family members are assured that they can participate in the management of the estate.

At least one of the directors, however, must be an “approved person” (that is, a person of good reputation possessing experience and qualifications in financial, fiduciary, accounting or legal services and approved by the Authority as being fit and proper to carry out the duties of a trustee) and independent from the person setting up the ‘family trust’.

The “independence” criteria will be assessed by the MFSA on the basis of the following: the director cannot be related by consanguinity or affinity to, or have had a business relationship with, the settlor or the beneficiaries; the director cannot have been an employee of the settlor or a company owned or controlled by the settlor and should not have had close family ties with the settlor, the other directors or senior officials of the trustee company.

The composition of the trustee company’s board ensures a balance between, on the one hand, the family retaining a (limited) degree of control over the trust and the comfort in knowing that the family estate is not in the hands of persons unrelated to the family, and, on the other hand, the independent “approved person” who will bring to the ‘family trust’ a sense of objectivity and expertise, and minimising the possibility of conflicts of interest and undue influence by interested parties. The external director should also have the benefit of emotional detachment from the family.

The proposed law imposes on such external director (referred to therein as the “Qualified Director”) a number of obligations, including ensuring that the professional standards of trust management are complied with and that the ‘family trust’ is, at all times, in line with Maltese law.

The introduction of the “family trust” should offer a more suitable way in which families manage their family patrimony. The success or otherwise of such an instrument will undoubtedly depend on the availability of persons of proven ability and integrity, with the necessary relevant expertise, who are willing to provide ‘family trusts’ with such services.

 

This article appeared first as a blog post on www.miscodirectors.com on 12 April 2013.