Trusts vs Foundations: the Similarities & Differences

Whether you work in business, finance, or law, or are just an individual who holds property and assets, the chances are that you have heard of Trusts and Foundations. But what are they, what are the differences and similarities between them, and how can you utilise these vehicles to best suit your situation?

Malta is unique in that its legal system combines both continental Civil Law and elements of British Common Law. When it comes to fiduciary mechanisms, a Trust has its roots in Common Law but it has been enacted into Maltese law by means of the Trust and Trustees Act, which governs the setup, the maintenance, and the obligations of those holding particular roles within the Deed of Trust. Foundations on the other hand, are managed by the Civil Code.

Set-Up

A Malta Trust is set up by the drafting of a Deed of Trust. This document must nominate and provide details of a Settlor (who provides the assets to be held in trust), a Beneficiary (who will benefit from the assets held in trust at an appointed time), and a Trustee. the individual who is obliged to ensure the wishes of the settlor are met and to administer the assets of the trust in the best interest of the beneficiary, thereby owing fiduciary obligations to the beneficiaries of the trust.). In the Deed, a list of full obligations, terms, and specifications are highlighted such as the term of the Trust, any special conditions, and what would happen to the assets as a result of various situations. Once the Trust is signed, it becomes binding and comes into effect  without the need to register, or to make it public in any way.

Setting up a trust is a relatively short-term process, in theory, because as soon as the Deed is drafted and signed, it enters into force.

A Malta Foundation can be set up by any individual as long as they comply in full with the applicable regulations in the Malta Civil Code. It can be set up by means of a publicly registered deed, or through a last will and testament, and it must have a name which includes the word “foundation” so that it is clearly identifiable as such. The foundation must also have an address in Malta so that anyone wishing to ask questions, or for more information on its activities, can do so easily.

Before setting up a foundation, the founders must endow assets of at least €1164.69 into the foundation, with the sole exception of foundations set up for non-profit making, or sociable purposes- in which case the endowment is €232.94.

The Deed of Foundation must also state the clear purpose of the foundation, the identities of the board of administrators, the legal representation, and the details of first administrators. Foundations may opt to name the Beneficiaries in a Beneficiary Statement, therefore leaving them unnamed in the Statute of the Foundation. A Beneficiary Statement is a private writing and therefore remains completely private.

Purpose

A Malta Trust is useful in the cases of passing on assets such as an estate for inheritance purposes. It is also used in the cases of holding valuable in assets until the beneficiary reaches an age that they are responsible enough to manage the ownership of it themselves.

A Malta Foundation. A foundation is defined as a patrimony, constituted by a founder with all assets being designed to fulfil a purpose for the benefit of an individual, or a group of individuals. The assets can also be used for a specific purpose such as charity, philanthropy, or non-profit. Requirements

Legal Autonomy

A Malta Trust is unique in that it does not have any separate legal personality and cannot be sued, or be subject to bankruptcy, or requests for repayment of debts, should the beneficiary be targeted as such. It is also completely private and can be kept secret between the individuals named on the Deed. It requires no registration or public notification of any kind.

A Malta Foundation is its own legal entity with a name and its own identity which must be registered with The Registrar of Legal Persons, and if it chooses to be taxed like a company, it will be subject to annual checks such as audits.

Responsibilities.

A Malta Trust is run by its trustee(s) whereas a Malta Foundation is run by administrators but both Trustees and Administrators have fiduciary responsibilities to the beneficiaries of the trust.