Foundations Vs Trusts

In Malta, foundations complement the law of trusts quite well, and in fact share a number of similarities.

Similarities

  • Possibility of appointing a protector to supervise the acts of the administrators or trustees.
  • Both private foundations and trusts are created for the benefit of beneficiaries who are identifiable or ascertainable.

Differences

  • The duration for foundations is limited to a maximum period of 100 years whilst the duration for trusts is limited to a maximum period of 125 years.
  • The extent to which the settlor and founder may be involved in the trust, distinguishes these two institutes in a significant manner. The amount of control given to the founder exceeds that given to the settlor. This is due to the fact that whilst the trustee must at all times act in accordance with the terms of the trust, the founder is able to exercise supervision over the administration of a foundation.
  • Whilst a settlor may only amend the trust instrument if the terms of the trust provide as such, with private foundations, founders can amend the foundation deed and add or remove beneficiaries (always subject to the terms of the deed of foundation).
  • In the case of a trust, the beneficiaries may require the trustee to terminate the trust and distribute the trust property, and this notwithstanding the terms of the trust. On the other hand, with a private foundation, the beneficiaries can only make such a request if the founder has not expressly excluded the right to revoke the foundation. In addition, if the founder has not done so and is still alive, this right is subject to the founder’s consent. This clearly provides added protection for the founder and ensures that the beneficiaries benefit out of the foundation in accordance with the wishes of the foundation.
  • A further area where the control highlighted by the founder is manifested pertains to the addition of property to the original trust or foundation. Whilst in the case trusts, a trustee may accept additional property only subject to the same terms of the trust, the founder may add to the assets of the foundation by additional endowments at any time.
  • The most significant difference between a trust and a foundation arises from the fact that unlike a trust, a foundation is a juridical person enjoying separate legal personality. Therefore, whilst the trustee holds the trust property in his own name or under his control, an administrator has control over the foundation property but would not hold the same in his own name.

Advantages of foundations over trusts

  • Maltese foundations are able to offer much more in terms of scope, and, in fact, more purposes may be considered and attained when using a foundation as compared to a trust.
  • It is significant to note that with respect to the duty of information owed by both the administrator of a foundation and the trustee, the founder is placed in a more advantageous position as this duty is always present. However, the settlor only enjoys this right subject to the terms of the trust.
  • The foundation enjoys all the advantages that arise from it being a juridical person, distinct from its founders, administrators and beneficiaries, and effectively binds no one but itself.

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