Let’s be honest: estate planning isn’t anyone’s favourite topic. Thinking about what happens to your assets after you’re gone can feel uncomfortable or even morbid. But taking the time to set up a clear plan can help ensure a smooth transfer of your wishes, wealth, and assets.
As the old English saying goes, “a stitch in time saves nine,” capturing the importance of acting now to prevent problems down the road. The reality is failing to plan properly could leave loved ones facing unnecessary legal hurdles, financial strain, or even disputes that could have been avoided.
Estate planning is less about dwelling on the inevitable and more about taking control of the future to protect those who matter most.
Estate planning in Malta is influenced by civil law traditions, much like in France, Italy, Spain, and Germany. These countries follow a structured approach where inheritance laws dictate the division of assets, often enforcing forced heirship rules to protect certain heirs, such as spouses and children.
By contrast, common law jurisdictions, including the UK, the US, and Australia, provide greater flexibility, allowing individuals more freedom to distribute their wealth as they see fit. Other systems, such as Islamic inheritance law, follow a religiously mandated framework with strict rules on asset distribution. Understanding these differences is key for individuals with international ties or assets spread across multiple legal systems.
Legal Framework
Malta follows forced heirship rules, meaning certain heirs—typically spouses and children—have a legal right to inherit a portion of the estate. This makes proactive estate planning crucial, particularly for individuals with complex family structures or significant assets.
Wills in Malta
Having a valid will is fundamental to estate planning in Malta. There are two main types of wills recognised:
- Public wills: Drafted by a notary in the presence of two witnesses and registered with the Public Registry.
- Secret wills: Written by the testator, sealed, and entrusted to a notary for safekeeping.
For a will to be legally valid in Malta, the testator must be at least 18 years old and of sound mind. The involvement of a notary is highly recommended to ensure compliance with Maltese inheritance laws and, compared to other EU countries, is relatively inexpensive.
Cost of Setting Up a Will
The cost of setting up a will in Malta varies based on its complexity and whether it is a public or secret will:
- Public Will: Typically, costs start from €400, depending on the notary and legal requirements.
- Secret Will: Costs start from €500, including safekeeping fees.
Succession Laws and Inheritance
In cases where no valid will exists, Maltese law dictates intestate succession rules:
- The spouse and children inherit the estate.
- If there are no children, the spouse shares the estate with the deceased’s parents and siblings.
- In the absence of a spouse or children, assets are distributed to extended family members in a specific order.
- If no heirs are found, the estate reverts to the government.
Foreign nationals should note that Malta follows the EU Succession Regulation (Regulation (EU) No 650/2012), which allows individuals to opt for the inheritance laws of their country of nationality in their will.
A British national living in Malta may want to opt for UK inheritance laws in their will because Malta follows a form of forced heirship, meaning certain portions of an estate must go to specific heirs under local law.
If they prefer full testamentary freedom—allowing them to distribute their assets as they wish, such as leaving everything to a spouse instead of dividing it among children—they can use the EU Succession Regulation to apply UK law instead.
Taxation and Financial Considerations
Malta does not impose inheritance tax; however, certain tax obligations still apply:
- Capital Gains Tax: This may be levied on inherited immovable property if it is sold. The applicable tax rate depends on how long the property was held and the conditions of sale. If the property was the deceased’s main residence and occupied for at least three years before their passing, no capital gains tax applies upon sale.
- Stamp Duty: Heirs may need to pay a 5% duty on inherited property, though exemptions apply for transfers to direct descendants.
- Wealth Structuring: Proper estate planning can mitigate potential tax liabilities and ensure efficient wealth distribution. Strategies such as asset relocation, joint ownership structures, and succession planning through legal entities can reduce financial burdens on heirs.
Trusts and Foundations
Malta offers trusts and foundations as estate planning tools for asset protection and succession planning.
- Trusts: Governed by the Trusts and Trustees Act, a trust allows a settlor to transfer assets to a trustee for the benefit of designated beneficiaries. This structure ensures that assets are managed according to the settlor’s wishes while offering flexibility and tax efficiency. Trusts can be particularly useful for individuals with international estates or those looking to protect assets from future legal claims.
- Example: John, a British expatriate living in Malta, owns multiple properties in different countries. He sets up a trust to ensure that, upon his passing, his children inherit the properties in a structured manner without going through complex probate processes in multiple jurisdictions. This also protects his assets from unforeseen legal disputes.
- Foundations: Unlike trusts, foundations are separate legal entities and provide a structured means of wealth management, often used for family estate planning.
- Example: Maria, a Maltese entrepreneur, establishes a foundation to manage her business and personal wealth. This foundation allows her to dictate how her assets should be distributed after her death while ensuring that her philanthropic interests continue beyond her lifetime. Unlike a trust, the foundation retains legal ownership of the assets, providing an extra layer of legal protection and continuity.
Cost of Setting Up a Trust or Foundation
The cost of establishing a trust or foundation in Malta varies depending on the complexity of the assets and the level of management required.
Trust Costs
- Initial Set-Up Fees: €1,500 to €5,000, depending on the legal firm and trustee services.
- Annual Trustee Fees: €2,000 to €10,000 per year, based on the level of management required.
Foundation Costs
- Initial Registration Fees: €1,000 to €3,000, depending on legal complexity.
- Annual Maintenance Costs: €1,500 to €7,000, covering administrative, legal, and compliance requirements.
Both structures offer distinct advantages, and the choice between them depends on individual estate planning needs and asset protection goals.
Power of Attorney and Guardianship
Estate planning should also account for incapacity scenarios to ensure that personal and financial matters are managed effectively if the need arises. A Power of Attorney (PoA) allows a trusted individual to handle legal and financial affairs on behalf of someone who becomes unable to do so.
Additionally, appointing guardians for minors or incapacitated individuals provides essential protection, ensuring their welfare and best interests are maintained in unforeseen circumstances.
Cross-Border Considerations
For expats and foreign investors, estate planning in Malta involves several key considerations. The EU Succession Regulation allows individuals to apply the inheritance laws of their nationality rather than Maltese law, offering greater flexibility in asset distribution.
While Malta generally recognises foreign wills, proper legal guidance is essential to ensure compliance and avoid potential disputes. Additionally, tax implications should not be overlooked, as foreign heirs may be subject to taxation in their home countries when inheriting Maltese assets.
Common Pitfalls and How to Avoid Them
Estate planning mistakes can lead to legal disputes and financial losses. Common errors include:
Not Updating a Will: Failing to revise a will after major life events—such as marriage, divorce, or the birth of a child—can lead to unintended consequences. For example, if an expat in Malta remarries but does not update their will, their new spouse may not have a legal claim to their assets, potentially leading to disputes among heirs.
Ignoring Tax Implications: Poor tax planning can create unexpected financial burdens for heirs. For instance, a British national who leaves Maltese property to their children may assume there are no taxes, only for the heirs to later face UK inheritance tax on the overseas asset.
Relying on Informal Agreements: Verbal or informal arrangements have no legal standing in Malta. Imagine a foreign investor who agrees to leave a property to a close friend without documenting it in a will. Upon their passing, Maltese law would distribute the property according to intestacy rules, completely disregarding their wishes.
Neglecting Business Succession Planning: Entrepreneurs who fail to set up a clear succession plan risk business disruptions. For example, if a company owner passes away without naming a successor, the business could face legal battles among family members or partners, leading to operational instability and potential financial losses.
Conclusion
Estate planning isn’t the most exciting topic, and none of us likes to dwell on it, but the reality is we won’t be here forever. This falls into the important and urgent category of the Eisenhower Matrix—something that shouldn’t be put off because when it’s needed, it’s already too late.
The good news? It’s not set in stone. You can update and amend it over time, but having a plan in place now ensures your wishes are clear and followed exactly as you intended. Follow us for more insights and updates.
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