Practical Implications of Foundations – a Maltese Insight

25th Annual Transcontinental Trusts Conference, Geneva

30th June – 1st July 2010

Practical Implications of Foundations – a Maltese Insight

Presentation delivered by Dr Anthony Cremona LL.D., M.A. (Fin.Serv.), Mag. Jur. (Intl Law) TEP

acremona@jmganado.com

Dr Anthony Cremona, a Partner at Ganado & Associates Advocates Malta, was invited to address the prestigious Annual Transcontinental Trust Conference held in Geneva on the 30 June 2010 and the 1 July 2010, which conference was, this year, celebrating its silver anniversary.  Having been developed originally by leading practitioners, this conference is widely regarded in the industry as being one of the most prestigious in the trust field.  The conference was very well attended by various leading practitioners and world-renowned experts in the field, coming from various jurisdictions and financial centres (including a good delegation from Malta).  Dr Cremona delivered a presentation entitled the “Practical Implications of Foundations – a Maltese Insight”. The Conference was co-sponsored by Finance Malta who were also manning a stand at the event and promoting Malta as a prominent international financial services centre.

Dr Cremona, who is the Partner responsible for the Trusts Department at Ganado & Associates, delivered the breakfast briefing on the second day of this big event and provided the delegates with an in depth analysis of Foundations from a Maltese perspective and also examined the practical uses and characteristics of foundations.  He started the presentation by highlighting the most important milestones in Maltese legislation with respect to the regulation and recognition of foundations outlining the fact that the experience of the Maltese jurisdiction with foundations is as rich as its history. He emphasised how the enactment of the Second Schedule to the Civil Code served the purpose of codifying existing judicial authority on the subject and creating a legal regime that addresses the various rules and principles applicable to all organisations, such as foundations and associations, in a holistic manner.

The presentation then moved on to provide an overview of the jargon and terminology that is synonymous with foundations. By way of comparison, Dr Cremona compared the jargon associated with companies and trusts and illustrated how they differ or resemble the jargon relating to foundations. He highlighted the importance of distinguishing the institute of foundations from other legal institutes, especially trusts. Dr Cremona explained that by making this distinction one can appreciate better the similarities and differences between the various institutes and in that way ensure that the appropriate institute is proposed to the person seeking advice.  The presentation considered the various distinguishing features and similarities between foundations and trusts. Dr Cremona explained that, whilst the objective that the two institutes can achieve may indeed be similar, it does not necessarily follow that the institutes themselves are similar. Some distinguishing features between the institute of trusts and that of foundations highlighted in the presentation include:

  • the origin of the two institutes – the fact that trusts are indigenous to Common law countries whilst foundations find their roots in Civil law countries;
  • legal personality – whereas a foundation enjoys legal personality, the trust is not endowed with such personality;
  • scope – purpose foundations are often able to offer much more in terms of scope.
  • control – the amount of control given to the founder of a foundation in a number of areas exceeds that given to the settlor of a trust.

Even though there are divergences between trusts and foundations, Dr Cremona argued that a number of similarities between the two institutes also existed.  By way of example both trusts and foundations can be established for the private benefit of beneficiaries or for a charitable purpose and both the trustee of a trust and the administrator of a foundation are bound by fiduciary obligations.  Dr Cremona also argued that foundations may elect to be treated as trusts for tax purposes. Finally, Dr Cremona compared the foundation with a company and concluded that here again one can notice certain similarities between foundations and companies, such as:

  • legal personality;
  • similar amalgamation, division, conversion and re-domiciliation rules;
  • the possible personal liability of administrators (in the case of a foundation) and directors (in the case of a company);
  • the fact that foundations, by default, are treated as companies for tax purposes.

The presentation proceeded with the examination of the various players within a foundation and their respective roles. Dr Cremona discussed the various features of the founder, his role with respect to the foundation and his powers. He then analysed the characteristics of the administrator, together with his duties and responsibilities, the beneficiaries as well as the protector and the supervisory council (that may also be involved in a foundation). In his presentation Dr Cremona went into an in depth analysis of the protection which Maltese law gives to the beneficiaries’ interests within a foundation. This study examined the rights of the beneficiaries, the various powers of the court, together with other protective measures available for the safeguarding of the beneficiaries’ interests.

After providing some interesting statistics on the use of foundations in Europe – which demonstrate the international interest in this institution, Dr Cremona proceeded to discuss the features and uses of foundations in Malta. Even though traditionally foundations were associated with charitable activities, Dr Cremona argues that Malta is also reaping the benefits and advantages which are inherent in Private Foundations. A Private Foundation may, in fact, be used to achieve several purposes also within the estate planning field. Furthermore, even though a Maltese Foundation cannot trade, there are a number of activities of a ‘commercial’ nature that can be undertaken such as the holding of shares in companies or the holding of other revenue-generating assets (including a ship), their use as Collective Investment Schemes and their use as vehicles for the purpose of securitisation transactions.

In his concluding remarks Dr Cremona emphasised the advantages of jurisdictions moving away from their traditional concepts and embracing new institutes, thus reducing the sense of ‘competition’ between the various legal institutes and leaving it up to the professional advisors to choose the most appropriate institute in the particular circumstances. He contends that one should not lose sight of the real picture and when setting up a trust or a foundation one has to plan to the advantage of those who will ultimately benefit therefrom since the attraction of one institute over another may also depend on whose interest one is principally seeking to safeguard.

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