TRUST

General

Trust refers to the legal relationship created by a settlor (the instigator of the trust) when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a special purpose.

A trust is essentially created when these assets are transferred from the settlor to the trustee. The trustee then becomes the legal owner and is responsible for managing those assets in accordance with the terms of a trust deed. The trustee is the legal owner, whilst the beneficiaries are the equitable owners.

The trust concept dates back to England at the time of the Crusades, during the 12th and 13th centuries. When a landowner left England to fight in the Crusades, he conveyed ownership of his lands in his absence to a person of trust to manage the estate and pay and receive feudal dues, on the understanding that the ownership would be conveyed back on his return.

For an in depth article on the history of equity law and the trust concept, please click here.

Trusts in Cyprus made their appearance in 1925 with the enactment of the Trustees Act.

The regulatory framework evolved in 1955 with the Trustees Law (cap 193) and culminated in 1992 with the adoption of the Cyprus International Trust (CIT) Law 69/92.

The Cyprus trusts legal framework was further modernised in 2012 with the passing of a much anticipated amendment to the 1992 law, establishing the CIT as one of the best trust structures in Europe.

In December 2012, Cyprus passed yet another bill regulating trustees, company administrators and directors, further consolidating the island’s position in the trust and corporate services arena. The Law Regulating Companies Providing Administrative Services and Related Matters of 2012, as it is called, regulates the management and administration of companies and trusts in and from Cyprus, ensuring the legitimacy, professionalism, accountability and regulatory compliance of company directors and trustees.

Under the new law, all individuals or companies offering trustee, administration or related services, now have to be authorised as ‘fit and proper persons’ and be regulated by the Cyprus Securities and Exchange Commission (CySEC) or their individual professional body.

Types of Cyprus Trusts

There are a number of different types of trusts but usually they fall into one of the following categories:

  • Bare Trusts, also known as simple trusts
  • Discretionary Trusts, which are the most widely used in Cyprus
  • Interest in Possession Trusts
  • Accumulation and Maintenance Trusts
  • Resulting and Constructive Trusts

There are also fixed, trading, protective and charitable trusts.

Kinds of Cyprus Trusts

There are two main kinds of Cyprus trusts: Local Trusts and the Cyprus International Trust (CIT), with the latter being the most popular and useful tool in the island’s trust services legislation.

Cyprus International Trust

CITs achieve a variety of estate, personal, financial, tax and other business planning objectives. They can be used for tax planning purposes, as an instrument of estate planning, for asset protection and for confidentiality purposes.

CITs are set up by virtue of the CIT Law of 1992, which was enacted with the aim of providing incentives for the establishment and administration of trusts in Cyprus by non-residents. Taking into account the realities of the Cyprus economy in the present day and the need to comply with EU law and directives, the 1992 Law was amended in March 2012.

Under the last amendment, CITs may now hold immovable property in Cyprus, while both settlors and beneficiaries may become Cyprus residents the year of the trust’s creation.

The 2012 amendment also successfully improved such issues as jurisdictional protection, confidentiality, trustee responsibilities, trust duration and the application of foreign jurisdictional laws.