Maltese Segregated Cell Foundations
Foundations have been a long time staple in the world of estate planning and asset protection, particularly in Civil Law jurisdictions where the Foundation's separate legal personality is a necessity.
In recent years a number of international financial centres have recognised the importance of foundations and the role they can play in attracting and servicing clients from civil law jurisdictions. This has led to the likes of Guernsey, Jersey, and more to introduce their own legislation, governing the use of foundations each with its own unique provisions in an attempt to differentiate their offering. Malta has followed a similar path and the purpose of this article is to highlight some of the unique provisions in Maltese Law that make Maltese foundations a potentially attractive estate and succession planning tool when advising High Net Worth families.
The Maltese legal system is a mixed legal system containing strong elements of Roman Law and the Code of Napoleon but which has also been strongly influenced by English Law. This mixed legal system means that foundations have long been recognised in Malta although it is only as recently as 2007 that the necessary law was passed to deal comprehensively with the various aspects pertinent to foundations.
There are two types of foundations in Malta:
- Private Foundation which can be set up for the benefit of named persons or a class of persons
- Purpose Foundation which has no ascertainable beneficiaries and as the name suggests is to fulfil a specific purpose (which may include charitable or philanthropic purposes)
Foundations in Malta cannot be used for commercial purposes. However a foundation may be endowed with commercial property or a shareholding in a company or other asset which gives rise to income as long as the foundation is only the passive owner of such assets. It is quite clear that private foundations in Malta are designed primarily as wealth structuring and asset holding tools.
Another noteworthy aspect of Maltese foundation law is that the actions of foundation administrators are governed by rules against the conflict of interest whereas in certain other financial centres conflict of interest provisions only form part of the fiduciary codes of practice. Indeed Maltese law goes out of its way to safeguard the beneficiaries' rights, and grants extensive powers to the courts to ensure such protection.
Finally the reader may be familiar with the concept of the Protected Cell Company (PCC) which was first pioneered in Guernsey for the Insurance industry and has been adopted and replicated in many financial centres over the years. The PCC is a single legal entity taking the form of a company but which has separate compartments referred to as cells that essentially ring-fence the assets and liabilities of a cell from other cells within the PCC. Each Cell has its own shareholder which may be completely unrelated to the shareholders of other cells within the structure.
This concept has been transposed into Maltese Foundations to create a unique wealth structuring opportunity for large High Net Worth Families whose foundation has multiple generations of beneficiaries each with their own risk profile and investment outlook. It may be possible to establish multiple cells within their foundation each catering to a particular beneficiary or group of beneficiaries.
Whilst the segregated cell does not enjoy its own separate legal personality it is designated its own distinct name and constitutes a distinct patrimony from all other assets and liabilities of the foundation. Hence the general assets of the foundation or other cells will not be available to settle any liabilities due by a specific cell.
The Maltese Segregated Cell Foundation is thus a viable alternative to the traditional and more costly private trust company. High Net Worth families benefit from enhanced peace of mind regarding legal remedy against wayward administrators and can hold greater influence over the administration of foundation assets by means of the Supervisory Council which is granted oversight over the actions of the administrator. The segregated cell structure further allows the family to separate assets into different cells each catering to a particular family member of class of beneficiaries that have a common interest or risk profile.