Under Article 2 of the Trusts and Trustees Act, Chapter 331 of the Laws of Malta (the “TTA”), the settlor is defined as ‘the person who makes the trust and includes a person who provides trust property or makes a disposition on trust or to a trust’. Therefore, the settlor is the person who establishes the trust and transfers the ownership of the property to a trustee, which property as a result, becomes the trust property. It is important, for a valid trust to be established, that the settlor:
- Has the intent and knowledge to do so;
- Is the owner of the property transferred; and
- Chooses the beneficiaries of the trust.
A settlor can be either a natural or a legal person, as long as (if natural) that person is of age, has full capacity to contract, and has free disposition of the assets settled on trust. For a legal person to become a settlor, it is important that the creation of the trust is ‘pursuant to the achievement of the objects for which the body corporate was incorporated’. This can be deducted from the Memorandum and Articles of Association of the company, should the legal person be established as such.
Not everyone who transfers property to a trustee is deemed to be a settlor. The settlor must have established the trust, and any person who transfers his/her property to an existing trust is not considered as the settlor of the trust, but of the transferred property. Why is this distinction important? This is because the settlor of the trust retains certain powers provided under Article 14 of the TTA. As follows, these are some of the reserved powers of the settlor:
- Retains a beneficial interest in the trust asset;
- Retains the power to appoint, add, or remove trustees, protectors, or beneficiaries from the trust; and
- Retains the power to appoint or remove investment advisors or investment managers.
It is important to note that the settlor loses any right over the property, whose ownership was transferred to the trustee. This is established under Article 3(6) of the TTA. However, the settlor can retain certain rights if these are retained under the trust deed.
Generally, once the property is transferred, the role of the settlor ends, unless the settlor is also a beneficiary (as per Article 9(6) of the TTA) or a trustee. However, the person performing such roles would not be acting as a settlor.
We invite you to contact us should you wish to receive further information on the creation of trusts.