Rights of Beneficiaries in Cyprus Trusts

This guide provides an overview of the rights of beneficiaries of trusts under Cyprus law and how these can be varied.

A beneficiary is often referred to as the true owner of property on trust. This is true in all commonwealth jurisdictions recognizing trusts, including Cyprus. A beneficiary’s rights consist of a bundle of property and personal rights. However, a trust is a fundamentally flexible institution, and the rights of a beneficiary can be molded greatly by the trust instrument, subject only to certain limits to ensure that the trustees do not benefit from the trust and the beneficiaries are recognized as the true owners.

Rights of Possession of Trust Property

A beneficiary of real property under trust in Cyprus is entitled to possession of the said trust property, provided that other persons do not have interests in the trust and that this is not inconsistent with the trust deed. For instance, the trustee may not be under a duty from the Trust instrument to manage the Cyprus property. Even in such cases, the Beneficiary may obtain the permission of the Cyprus Court to stay as a tenant or may be given that right under the Trust instrument itself.

Right of Advancement

Beneficiaries under the age of 18 have the right to seek an allowance from the trustees towards their maintenance. The Trustees have a corresponding power of advancement under Cyprus Trust legislation to use part of the trust fund for the maintenance of such minors.

Right to Direct the Trustees in Respect of Shares in a Company

While beneficiaries have no general right to direct the trustee on how to exercise his discretion, they do have, as an exception, a right to direct a trustee-shareholder on how to vote with the shares. Such a right, however, may be given to the Beneficiaries in the trust instrument but can pose taxation and other dangers.

Right to Terminate the Trust

Under the rule in Saunders v Vautier, an adult beneficiary (or a number of adult beneficiaries acting together) who is sui juris and has (or between them have) an absolute and indefeasible interest in the trust assets may at any time terminate the trust and require the trustee to transfer the property to him (or them).

Right to Compel the Trustee to Pay Money into Court

If the trust money is in danger, the beneficiary has a right to seek a court order for the Trustee to pay the money into court.

Right to Compel Performance of the Trust and Restrain Breaches

Any one of the beneficiaries of a trust in Cyprus may initiate proceedings to compel the performance of the trustee’s duties or to protect their beneficial interest. The Beneficiaries also have a right to apply for an injunction to restrain a breach of trust and to apply for the appointment of a receiver of the trust property.

Right to Equitable Remedies and Equitable Rules of Evidence for Breach of Trust

In case of a breach of trust, the beneficiary has a right to:

1. Follow the trust property in the hands of a third party and claim it back from the third party, if that third party is not a bona fide purchaser for value without notice of the breach.
2. Trace the converted value of the trust property into a new asset.
3. Seek proprietary as well as personal equitable remedies such as rescission, equitable compensation, account of profits against the trustee, his representatives, and third parties who acted dishonestly or received trust property without consideration.

Rights of Disclosure

Right to be Informed about the Trust

On an inter-vivos trust, the trustee is obliged to inform the protector or beneficiary of the existence of the trust and its terms, whether or not the beneficiaries requested the information. However, on a trust created by will, there is no such obligation on the executors unless required by the will itself.

Disclosing Documents

Disclosure does not depend on the ownership/proprietary rights of beneficiaries but instead on the inherent jurisdiction of the court to supervise the trust and order disclosure where appropriate and in the best interests of the trust.

Right to Seek the Amendment of the Trust Deed

Under s.10 of the Cyprus International Trusts Law 69(I)/1992, the beneficiaries have a right to apply to the Cyprus Court for the amendment of the Trust deed.

Amending the Rights of Beneficiaries

The rights of Beneficiaries may be amended in the Trust Deed to the extent that there is adequate control over the Trustee to ensure that he does not have an uncontrollable power of disposition. Both administration and information rights may be varied, whether giving them force or limiting them.

Conclusion

Cyprus trusts are inherently flexible, limited only by the “irreducible core” which protects against the Trustee having an uncontrollable power of disposition and maintains the true nature of the trust; that the beneficiaries are, in equity and when they wish so, in law, the owners of the trust assets.

Accordingly, trusts in Cyprus may be molded as necessary to ensure that the Settlor’s initial aims when creating the trust are achieved while at the same time ensuring that the Beneficiaries are protected. Common considerations for amending the rights of beneficiaries may be to ensure confidentiality or limiting the powers of control of the trustees when the beneficiaries are not in good terms between them or allowing the beneficiaries to take property after a specific event (such as time or health reasons).

This is a guide for information purposes only and should not be relied upon without legal advice.