Peace in mind with solid and modern solutions – the Cyprus International Trusts
A trust is a settlement or legal agreement affecting at least three parties:
A trust is a fiduciary relationship in which the settlor gives the right to the trustee to hold title to a property (trust property) for the benefit of the beneficiary. The trustee has the legal title to the trust property, whereas the beneficiary has the beneficial title to the trust property. The ultimate beneficial owners of the trust property is/are the beneficiaries.
Consequently, the trustee is the legal owner of a trust’s assets, but not the beneficial owner, which is the beneficiary or beneficiaries or classes of beneficiaries.
Trusts are established to provide legal protection for the settlor’s assets; for the purposes of wealth management, investment, social goals, charities, succession planning or sometimes tax planning.
The law imposes a strict duty of confidentiality on the trustee about the trust and the identity of the settlor and beneficiary. It is only possible to disclose such information in case of a court order in any civil or criminal proceedings when the court is convinced that such information is important to the outcome of the proceedings.
The main duties of a trustee is to administer the trust property prudently and to comply with the terms of the trust. The terms of a trust are set in the Settlement of Trust, also referred to as Trust Deed or Trust Instrument. Any action taken by a trustee that contravenes the terms of the trust deed is a ‘breach of trust’ and makes the trustee personally liable for the full extent of any loss incurred.
The Settlor has the right to reserve some powers, such as to revoke or amend the trust or to remove and appoint trustees.
All trusts related matters are determined in accordance with Cyprus Law.
In addition to the Trust Deed with its provisions and instructions how the assets of the trust shall be managed etc., a settlor may additionally opt to draft and hand over to the trustee a so-called Letter of Wishes.
A Letter of Wishes is not legally binding for the trustee but shall provide guidance to the trustee on how to manage the trust. A Letter of Wishes is not mandatory.
Unlike a Trust Deed, a Letter of Wishes remains discretely with the trustee. Neither courts nor beneficiaries have the right to demand disclosure of a Letter of Wishes.
Certainty of Intention: Evidence of express intention of the settlor to create the trust. This is evidenced by the Trust Deed.
Certainty of Subject Matter: The trust property must be readily identifiable otherwise the trust is void for uncertainty.
Certainty of Objects: The identity of all the beneficiaries of the trust must be ascertained or ascertainable at the time of setting up the trust.
There are various forms of trusts existing, based on certain details; for a list of trust types, please see the end of this article.
Cyprus discretionary trusts are trusts with now specific individual beneficiaries defined and the selection of beneficiaries as well as their benefit left to the discretion of the trustee.
In case of defining specific individuals or entities as beneficiaries, the settlor, in the trust deed, defines classes of beneficiaries. There is no limit to the definition of classes of beneficiaries, which could be, for example, “all current and future children of Mrs X”, or “charity organisations providing education for refugees and their children in the UK”, or “the elderly houses in my city”.
The settlor may define projects or areas in the Trust Deed, for which the assets, or if preferred so, the gains from the assets, shall be used. A brief example of definition of benefits and beneficiaries: “education costs and financing of viable startups of my children and grandchildren”.
It is then left to the trustee to decide when and how the trust will fulfill those provisions of the Trust Deed. If, after having finalised their education, only one of three children runs a viable startup, only that one child qualifies for benefiting from startup financing by the trust.
An advantage of a Cyprus Discretionary Trust is that none of the members of the class of possible beneficiaries has a right for claims against the trust.
The members of a class of beneficiaries become beneficiaries once the trustee decides as per the provisions of the Trust Deed, and perhaps of the Letter of Wishes.
As long as the members of the class of beneficiaries did not become actual beneficiaries, they cannot be held tax-liable for any assets and gains of assets of the trust, because they cannot be assumed as beneficiaries.
It is important that a settlor chooses a person of trust as the trust’s trustee. Furthermore, a trustee should have asset management and business qualities and experience, because the trustee will be the person who will manage the assets of a trust, as per the provisions of the trust deed and a possible letter of wishes and under the supervision of a possible protector.
The merely appointment of a staff member of a law office or trusts service provider will definitely not suffice. Simple “appointees” without management background might even lead to the undesired result that a trust is recognized as a sham trust or illusionary trust, because it cannot be assumed that a trustee without the necessary management capabilities is able to manage the assets of a trust without a substantial involvement of the settlor.
A substantial involvement of a settlor, though, would be contradictory to the idea and spirit of a trust, to which a settlor entrusts assets for the management by the trustee and for the benefit of the beneficiaries. In such cases, despite the settlement of a trust, that trust might be recognized by courts as not existing.
The law imposes the obligation on resident trustees to register all Cyprus International Trusts with one of the three Competent Authorities i.e. the Cyprus Securities and Exchange Commission (CySEC), the Institute of Certified Public Accountants of Cyprus (ICPAC) or with the Cyprus Bar Association. The Trust registries maintained by the supervising authorities shall contain the following information about the Trusts:
The identity of the settlor and the beneficiaries is not disclosed in the Registry. The Registers of Trusts are not available to the public, but they are available for inspection by the Competent Authorities.
Asset protection
Confidentiality and reporting
Managing family wealth, estate planning, inheritance planning
Tax benefits
Reservation of Powers
Perpetuity period
No exchange control regulations