Trusts in Cyprus

A trust describes the relationship existing when a person holds the property on behalf of another in the exclusion of his/ her own interests. The traditional English definition mentioned by Snell’s Equity (32nd edition, p.623) is the following: “…a person in whom property is vested (called “the trustee”) is compelled in equity to hold the property for the benefit of another person (called the “beneficiary”), or for some legally enforceable purposes other than his own.” A trust is a fundamentally flexible institution and can be modified according to the needs of the persons seeking to create a trust.

Why use a trust in Cyprus

Trusts in Cyprus are predominantly used for estate planning, tax planning and asset protection purposes as property settled in trust no longer forms part of the Settlor’s property. In fact trusts have been the cornerstone of the corporate services evolution in Cyprus having been used in various forms for nominee shareholders/directors, tax planning for high-net-worth individuals or the asset protection of people in risky professions. Trusts are being used by everyone, not simply high net-worth individuals and as a law firm we have on several occasions acted for people who wanted to achieve the following:

-To provide how the assets of the settlor will be divided between his family without forced heirship limitations.

-To provide for the inheritance of assets while the settler and the wife enjoy a life interest.

-To cater to a person who cannot take care of him/herself due to old age or mental incapacity.

-To provide benefits to underage people.

-To allow people to accumulate benefits from business abroad and utilize them for the education and well-being of the owner’s family.

-To protect the assets of people in risky professional environments.

Benefits of a trust in Cyprus

Cyprus trusts offer amongst other the following benefits:

-Confidentiality (as far as permitted by anti-money laundering rules).

-Tax benefits for the settlor and the beneficiaries.

-Asset protection: for example against creditors or forced heirship rules.

-Flexibility when used as a special purpose vehicle.

-Low costs in relation to a company or an administration of estates.

No obligations to prepare or file audited accounts or any reports.

Forms of Trusts: Express and Implied Trusts

There are express trusts and implied trusts. The latter, implied trusts, are divided into constructive and resulting trusts and arise by operation of the law in specific circumstances. Implied trusts are typically used in disputes which often end up in Court. Express trusts are the ones used in tax and estate planning.

Express trusts sub-categories: Cyprus International Trusts and Common Law trusts

In Cyprus, there are two kinds of express trusts. The common law express trust and the Cyprus International Trust. The latter was introduced by statute by the government in order to attract wealth. The Cyprus International Trust has modified provisions to enhance amongst other the asset protection functions of trust and allow the Settlor or a protector of the trust to reserve powers controlling the trustee’s exercise of functions and duties. For a trust to qualify as a Cyprus International Trust, the Settlor and the Beneficiaries must not be resident in Cyprus at least for a year preceding the creation of the trust and at least one of the trustees must be domiciled in Cyprus during the life of the trust.

The difference between a Cyprus International Trust and a common trust

As with wills and other estate or tax planning arrangements, trusts may come under attack from a disgruntled family member, a divorced spouse, or tax authorities. The Cyprus International Trust has some defining features to address situations where attacks against trusts may succeed. For example, the Cyprus International Trusts Law allows the Settlor or a protector to maintain powers to add or remove trustees, direct trustees on how to exercise their functions (including distribution powers and investment choices), recall or amend the trust. Such exercise of power does not under the law give any presumption that the trust is a sham or give rise to a breach of trust. However, people should get legal advice when retaining powers as dangers still exist. In addition, the Cyprus International Trusts law allows purpose trusts (which under common law are not allowed unless they are for charitable purposes), specifies an express obligation for confidentiality, and does not give rise to tax in Cyprus if the beneficiaries are not tax residents in Cyprus. The defining asset protection feature of a Cyprus International Trust is the two year limitation period imposed for claims against assets contributed or settled into a trust. Not only is the two-year limitation period imposed on claims irrespective of the claimant’s knowledge of the transfer but also such a claim can only proceed on the basis of defrauding existing creditors at the time of transfer. Finally, a Cyprus International Trust can also exist without an expiry date.

How am I protected from the Trustee?

The law recognizes the beneficiaries of a Cyprus trust as the owners of the trust property. Effectively the trustee holds or manages the trust property for their benefit and cannot in any way benefit unless authorised either by the trust deed or the beneficiaries. The office of a trustee is so onerous that trustees who do not agree to their payment, they do not have a right to be paid in their capacity as trustees. The law protects the beneficiaries (and of course, the bargain between the Settlor and Trustee), by imposing very strict duties and even unfair on many occasions against the trustee. The so-called fiduciary duties of the trustees are duties of loyalty, prohibiting the trustee from making any unauthorised profit and even putting himself in the possibility of conflict. If the Trustee benefits from the Trust property he may be facing criminal consequences as well as civil. In other words, not only will he be liable to account for any profits made but may in addition may face imprisonment. There is a core of duties owed by the trustee, certain information that must be given to the protector or beneficiary and limits on exemptions for breaches of trust that need to be maintained in order to have a trust and which the Court will enforce without exception.

Which Trust is right for me?

This depends on the circumstances. No trust should be the same as they must be tailored to every person’s peculiar needs. By properly assessing the circumstances and creating a specific plan, people can feel confident and peaceful that they are doing what is best for their future and the future of their loved ones.


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