Asset Protection Trust from a Maltese Law Perspective

Asset Protection Trust

The Trust and Trustees Act, Chapter 331 of Malta's Laws, governs the establishment of trusts and designates the Malta Financial Services Authority (MFSA) as the overseeing body responsible for regulation. According to Maltese Law, a trust is defined as a legal arrangement where the settlor transfers ownership of their assets to a trustee for the benefit of beneficiaries.

Trustees are legally obliged to act solely in the best interests of the beneficiaries or the specified purpose in the case of charitable trusts.

To begin, it's essential to understand the reasons for establishing a trust and the associated advantages. Trusts serve various purposes, including:

• Passing assets to future generations.
• Streamlining legal processes, tax matters, and probate when transferring assets.
• Safeguarding assets during adverse political events.
• Managing and distributing assets during the settlor's lifetime and after their passing.
• Allocating income and capital for specific needs, like emergencies.
• Creating dedicated funds for minors or individuals with disabilities.
• Serving as an alternative to a will.
• Strategically managing tax exposure by entrusting a portion of assets to a trustee.
• Shielding assets as part of a risk management strategy.

Fundamentally, a trust arrangement imposes fiduciary responsibilities on the trustee.

Trust property constitutes a distinct fund owned by the trustee, separate from the trustee's personal assets and other assets held in different trusts. This has several legal implications:

• Personal creditors of the trustee cannot access trust property.
• Trust property is not part of the trustee's personal estate in case of insolvency or bankruptcy.
• Trust property is not considered marital property or part of the trustee's estate upon their demise.

Another benefit of establishing a trust is the concept of continuity. By law, a trust can last up to 125 years, and it doesn't depend on the settlor's existence for the trustee to carry out their duties as initially outlined in the trust deed.

In the context of security trusts, this arrangement is employed to hold assets or guarantees as collateral for a debtor to one or multiple creditors, such as in a bond issue. The security can take various forms, including movable or immovable property, like hypothecs, pledges, undertakings, or any property transferred to the Security Trustee with defined rights as specified in the relevant Security Trust instrument.

CSB Trustees & Fiduciaries Ltd has played a central role in numerous commercial transactions involving security trusteeship. They have acted as a security trustee in transactions related to the issuance of securities, whether publicly or privately, as well as in portfolio management and the custody of investment instruments. Additionally, the company has often been appointed as a security trustee in securitization transactions to segregate assets of Special Purpose Vehicles (SPVs) from the originator and creditors, thereby reducing the risk of asset consolidation in bankruptcy proceedings.