A very versatile vehicle

  • Author : Annalise Micallef
  • Date : December 2012
ABOUT THE AUTHOR: Annalise Micallef TEP is a Notary Public at Micallef & Associates, Malta

Unlike trusts, which were introduced as a domestic instrument in Maltese legislation in 2004 and have since been a prime example of the hybrid nature of Maltese private law, with its sui generis combination of civil-law and common-law elements, foundations can be considered innate to the civil-law nature of Maltese private law. In effect, foundations were recognised in Maltese court judgments dating back to the early 19th century. The legislative framework of foundations was laid down, clarified and buttressed by Act XIII of 2007, and this led to the promulgation of a Second Schedule to the Maltese Civil Code, Chapter 16 of the Laws of Malta.

In terms of Maltese law, a foundation is defined as an organisation that consists of a patrimony that is constituted by the founder, with the assets (in cash or in kind) being destined to fulfill a scope that can be either for the benefit of a named person or class of persons (the ‘private foundation’) or for the fulfillment of a charitable, philanthropic, social or other non-profit purpose (the so-called ‘purpose foundation’).

A private foundation requires a minimum bequest or endowment of EUR1,164.69, whereas the minimum capital requirement is lowered to EUR232.94 for a purpose foundation.

The duration of the existence of a foundation cannot exceed 100 years, except for the exceptions applicable to a purpose foundation, a foundation used as a collective investment vehicle or a foundation used in a securitisation transaction.

Registration of a foundation with the Registrar for Legal Persons imbues the foundation with a legal existence of its own, and, reminiscent of the corporate analogy, the foundation henceforth acquires a separate legal personality.

The registration requirement in Maltese law is not in contradistinction with the crucial confidentiality that underlies the constitution of a private foundation, and the legislative framework ensures that this element is safeguarded despite the registration of the legal entity.

Maltese law also recognises the possibility of a foundation establishing segregated cells within itself. This allows particular assets in a foundation to be earmarked for the fulfilment of particular purposes, although the particular cells do not acquire a separate legal personality, the assets and liabilities of each cell constitute a segregated patrimony that is separate and distinct from that of other cells, as well as from the foundation in general.

A Maltese foundation cannot be set up for the fulfilment of trading or commercial activities, and the only exceptions to this rule are prescribed legislatively, and allow the foundation to do any of the following:

1The foundation may be the passive owner of commercial property or a shareholding in a profit-making enterprise, a franchise, a trademark or an income-producing asset, or a ship.2The foundation may operate as a collective investment vehicle and issue units to investors for the passive holding of a common pool of assets.3The foundation may be employed as a vehicle for securitisation purposes.

A Maltese foundation must be constituted by a deed published by a notary public in the case of an inter vivos foundation, or by a will whenever the founder intends the foundation to operate causa mortis.

The founder who establishes the foundation must appoint the administrators empowered with the management and safeguarding of the assets of the foundation, as well as compliance with the statute of the organisation.

The law establishes the minimum number of administrators required depending on the type of foundation, as well as other criteria for the eligibility of the administrators. The founder may be an administrator and beneficiary, although in the latter case, the founder may not be the sole administrator. Accordingly, the founder may retain an active role in the administration of the foundation.

Moreover, the founder may opt to establish a supervisory council, which is empowered to supervise the actions of administrators in their fiduciary role.

The law of foundations, alongside the law of trusts, enhances the plethora of estate-planning tools available for individuals under Maltese legislation. Furthermore, it is possible to redomicile foundations in and out of Malta, as well as to convert a foundation into a trust and vice versa. Maltese law is undoubtedly equipped to meet the varied needs of individuals as they devise the best route for their estate-planning requirements, mainly owing to its malleability and versatility, which enable it to provide myriad planning opportunities.


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