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September, 18 2019
September, 12 2019
TRUSTS IN PRACTICAL USE by Emilios Lemonaris Barrister-at-Law
The concept of the Trust is an anomaly of the English Legal System. The right of ownership in all other legal systems is undivided. Under the English Legal System ownership is divided into the legal estate and the Equitable Estate. The division of the right of ownership under the English Legal System into the legal estate and the equitable estate led to the birth of the Trust concept. The Trust concept is the creation of Equity and it is a unique feature of English Law. It is a useful device which enables the owner to dispose his property and at the same time to retain his control over it. Control over the property can be retained through the wishes of the Donor which the Trustees are bound to observe strictly. When property is transferred to a trust it ceases to belong to the Donor. It belongs to the Trust which is a distinct legal entity different from the donor. The Trust can sue and be sued in its own right through the Trustees. The division of property into legal and equitable estate enables the owner of property to transfer the legal estate to trustees and to vest the equitable estate in the beneficiaries. The legal estate is usually the title to the property. The equitable estate is usually the income from the property. The trust concept is a useful vehicle which enables the owner to arrange his property and other assets in a way which suits his tax obligations. It enables the owner to get rid of surplus weight which will increase his tax obligations. The trust is a perfect tax planning device. Through the trust the owner can make suitable provision for persons outside the strict family circle.
A trust can be created either inter vivos by a Trust Declaration or mortis cause by will. The duration of a trust is "for a life or lives in being and twenty one years after". Cyprus before 1960 was a British Colony. The Principles of equity were implanted into the native corpus juris. The Trustee Law Cap. 193, which was enacted on 1st October 1955, provides for the appointment of Trustees and regulates their powers and immunities. The various investments to which trust property can be applied are enumerated in the Trustee Law. The law provides for the application of trust funds for the maintenance, education, or advancement of beneficiaries during their minority. The Law also makes provision for the creation of Protective Trusts. A protective Trust is a trust where income from property is placed under trust for the benefit of a named person for his lifetime or for a lesser period. The Principles of equity and the Law of Trusts were part of the law of Cyprus long before Cyprus became an independent Republic. Cypriot Lawyers and the courts of the Republic are familiar with the formalities of the Law of Trusts and with the benefits which can be had when applied to practical purposes which are diverse and numerous. Many Cypriot lawyers and judges were educated in England and are well aware of the Principles of Equity and of the Law of Trusts. The English language is widely spoken among Cypriot lawyers and judges. There is a wide pool of experienced professionals (Lawyers, Bankers and Accountants) from which it is possible to select and appoint suitable trustees for managing a Cyprus Trust.
Cyprus is a world center for the supply of services. Its geographical position at the threshold of three continents and the certainty of the law make Cyprus a popular forum for carrying out business. Trusts are among the products provided by Cypriot professionals. The International Trusts Law No 69(I)/1992 makes provision for the creation of International Trusts.
An International Trust is a Trust in which:
(a) The settlor is not a permanent resident of the Republic of Cyprus
(b) At least one of the Trustees during the whole validity of the Trust is a permanent resident of Cyprus
(c) Non of the beneficiaries, other than a charity, is a permanent resident of Cyprus and
(d) The Trust estate does not include immovable property situated in the Republic.
A settlor transferring property to an international Trust is deemed to be competent if at the time of the transfer he was of age and mentally healthy according to the law of the country of his domicile. The law of Inheritance and succession prevailing in Cyprus or in any other country does not affect in any way the transfer, disposal or validity of the International Trust. An International Trust is not void or voidable in the event of Bankruptcy or liquidation of the property of the settlor notwithstanding the fact that it was constituted voluntarily and without consideration, for the benefit of the settlor or his wife or children unless it is proved that it was constituted with the intent at the time of the transfer to defraud the creditors of the Settlor. The onus to prove intent to defraud is on the creditors. An action against a Trustee must be brought within two years from the date of the transfer or disposal of assets to the Trust.
An International Trust is irrevocable unless it provides expressly that it can be revoked. The duration of an International Trust is for one hundred (100) years. A condition contained in the Instrument creating an International Trust concerning the accumulation of income is valid for any period of time during the validity of the Trust. Subject to the conditions of the instrument creating the International Trust Trustees may invest the whole or any part of the trust fund in any form of investment.
The only restrictions are that
(a) they must observe the wishes of the settlor as expressed in the instrument creating the Trust and
(b) they must exhibit the diligence and prudence which a reasonable person is expected to display when making investments.
If permitted by its terms the proper law of the International Trust may be changed from or to the law of the Republic provided that
(a) in the case of a change from the law of the Republic to another law the new law which will regulate the Trust must recognize the validity of the Trust and the rights of the beneficiaries and
(b) in the case of a change from another law to the law of the Republic the change must be recognized by the law which regulated the Trust before.
International Trusts are protected by secrecy. Unless ordered by a court of law in a civil or criminal case pending before it Trustees as well as Government Officials and Officers of the Central Bank of Cyprus cannot be compelled to disclose information to ineligible persons about the identity of the Settlor or about any other matters concerning the Trust. Income or profits of an International Trust derived from sources outside the Republic are exempted from all taxes levied in the Republic and the assets of an International Trust are not liable to inheritance Tax. An International Trust is subject to a stamp duty of Euro 427,15 (C.P. 250). There is no obligation to Register an International Trust. An International Trust may be kept by the Bankers or by the lawyers of the Trust.
Besides the Protective Trust to which mention is made above there are also other types of Trust.
(a) The Express Private Trust,
(b) The Constructive Trust
(c) The Resulting Trust
(d) The Implied Trust
(e) The Secret Trust,
(f) The Purpose Trust,
(g) The Charitable Trust
(h) The Express Public Trust and
(i) The Discretionary Trust.
The most important types of Trust are
(a) The Express Trust,
(b) The Secret Trust,
(c) The Purpose Trust and
(d) The Discretionary Trust.
As seen earlier the law respects the Confidentiality of International Trusts. Unless there is a court order in a civil or criminal case in which the Trust is a party information concerning the trust cannot be disclosed to third persons who do not have an interest in the trust. A purpose trust is a trust created for a specific purpose such as the education of a minor. A discretionary Trust is a trust in which trustees hold property on trust for a group of beneficiaries and are required by the terms of the trust to pay or apply the income or capital of the trust in favour of beneficiaries as the trustees shall in their discretion think fit. In a discretionary trust the Settlor can influence the Trustees in the way they exercise their discretion either through personal consultation, if the Settlor is alive, or by giving them a written statement (Letter of wishes) of the ways in which he hopes that they will exercise their discretion. The Trustees are obliged to abide by the wishes of the settlor.
The golden rule about Trusts is that:
(a) they should carry out the wishes of the settlor and
(b) they should not be void for uncertainty.
The drafter of a Trust should invariably speak with the settlor in order to understand his intentions and prepare the proper type of trust containing all necessary provisions. Trustees are under the supervision of the court to which the beneficiaries and other persons interested can apply for relief if the Trustees exceed their powers or the limits of their discretion. It is also possible to appoint commissioners to oversee how Trustees exercise their duties. If applied to good use the trust concept is a very useful vehicle for tax planning and wealth management.
Emilios Lemonaris law offices know all the secrets of the trust. They are able to advise clients how to apply the trust concept in their tax planning and in the management if their wealth.
Prepared by: Emilios Lemonaris Barrister-at-Law, Legal Consultant