Cyprus Trust Law is essentially based on the English Trust Law and Legal System. Trusts are mainly regulated by the Trustee Law, Chapter 193, enacted in 1955 and based on the English 1925 Trustees Act. This is supplemented by the English Doctrine of Equity and English case law prior to 1960.
In 1992, Cyprus enacted the International Trusts Law. This was done to update the law and establish Cyprus as an offshore and financial centre and a serious trusts jurisdiction.
Trusts may not exist indefinitely. The general rule is that trusts may continue to exist for the lifetime of a life in being plus 21 years, or in the case that the life in being is not a natural person, merely for 21 years.
International trusts are exempt from this rule. They may exist for a period of 100 years from the date of their creation.
The perpetuity rules do not apply in the case of charitable or purpose trusts which may continue forever.
Types of Trusts
Trusts are divided in the following main categories:
- Private Trusts
- expressly created by the Settlor;
- can be created by deed, in writing, by will and, with some exceptions, orally;
- the intention of the Settlor must be made absolutely clear.
All three certainties listed above must be present.
- Express Private Trusts
Express trusts are, as their name suggests, expressly created by the Settlor. They can be created by deed, in writing, by will and, with some exceptions, orally.
The intention of the Settlor must be made absolutely clear. The three certainties listed above must be present.
- Resulting Trust
A resulting trust arises from the implied, rather than the express intention of the Settlor. This intention can be inferred by the way that the Settrol acts or behaves.
An example of a resulting trust would be where A gives money to B to buy an asset. If there is no evidence that A intended for B to keep the asset, then B is presumed to hold the asset on trust for A.
But if, in the above example, A was B’s father and A had given money to B so that B could purchase books for school, then the presumption arises that A intended for B to keep the books and therefore there is no resulting trust.
- Constructive Trust
They are imposed by law independently of what anyone intended.
An example of a Constructive trust would be where A gives money to B to hold for C. If B then gives the money to D and D knows that B was holding the money for C, then D will be construed as to also hold the money on trust for C.
These are trusts that arise from the implied intention of the Settlor and will either be resulting or constructive Trusts.
- Implied Trusts
These are Trusts that arise from the implied intention of the Settrol and will either be Resulting or Constructive trusts.
- Charitable Trusts
There is no legal definition of what constitutes a charity. Usually a trust that is set up for the relief of poverty, the advancement of education or religion or any other purpose that is beneficial to the community is considered to be a charitable trust. In particular they are set up for certain public purposes. They are enforced at the suit of the Attorney General acting on behalf of the state.
It is possible to set up an International Charitable Trust in Cyprus under the International Trusts Law.
- Fixed Trusts
These are Trusts where the share or interest of the Beneficiaries in the trust property is specified by the Settlor, and
- Discretionary Trust
These are Trusts where the Trustees may, at their discretion determine what share or interest of the trust property should go to each member of a class of Beneficiaries.
Appointment and Discharge
Trustees are appointed by the Settlor. There are no rules as to how many trustees should be appointed in respect of each trust although it is advisable to appoint more than one Trustee.
A Trustee does not have to accept the appointment and may refuse to act as Trustee either expressly or by implication.
If none of the appointed Trustees of a particular Trust accept the appointment, then the trust property will revert by resulting trust back to the Settlor or his personal representatives,
Under the 1955 Trustees Law, the courts may in certain cases discharge or replace trustees and appointing new ones.
Trustees’ Main Duties
a) to administer the trust property prudently; and
b) to comply strictly with the terms of the trust.
The general rule is that the Trustees do not have the power to vary the terms of the Trust under any circumstances.
The only case when they may vary the Trust is when all the Beneficiaries are of full age and capacity. If so, then they can together ask the Trustee(s)to deal with the TrustPproperty in a manner different to that specified in the Trust Iinstrument.
In Trusts where the Beneficiaries belong to certain specific classes (ie people of unsound mind, incapacitated, infant(s)) the court may vary the terms of the Trust if satisfied that the variation is in the best interests of the Beneficiary.
The Trustees in their private lives may not act in any way that brings them in conflict with their duties as Trustees. They are also not allowed to make any profit from their position as trustees unless expressly in the Trust Instrument.
Also, with some limited exceptions, they may not delegate their duties. The exceptions provided for in the law include the right to employ a solicitor, a banker etc. they would be paid out of the trust property.
Unless the Trust Instrument expressly provides otherwise, Trustees are not entitled to any payment for their services. They may, however, be reimbursed from the Trust Property for any expenses they incur in performing their duties.
Any action taken by the Trustee(s) that is in excess of their powers or contravenes with the terms of the Trust Instrument is a “breach of the trust” and the Trustee is personally liable for the full extent of any loss incurred as a result of such a breach.
Trustees Services in Cyprus are only offered by Professionals Licensed by Cyprus Securities and Exchange Commission and Eligible Professionals (i.e Lawyers regulated by the Cyprus Bar Association and Certified Accountants regulated the Institute of Certified Public Accountants in Cyprus. The Trustees
should manage the Trust Property and follow the Settlor(s) wishes as expressed to them in the letter of wishes.
There are no stamp duties on the settlement of property in a Cyprus trust. An once -off stamp duty of Euro 427.15 is payable on the creation of an International Trust. A Trust can be created within a few days and the cost of creation will vary, according to the complexities involved. The annual cost of administering the trust depends on the work involved and the time spent. The fee is not calculated as a percentage of the trust property.
The main rights of the Beneficiaries under a Trust is their right to enjoy their interest in the trust property.
In the case of breach of a Private Trust, the Beneficiaries may bring an action in court to force the Trustees to administer the trust property in accordance with the terms of the Trust.
The following actions are available to them:
a) They may pursue a personal action against the Trustees;
b) They may be able to follow the trust property itself or to claim anything into which it has been converted. This is an equitable claim and the beneficiaries may try to trace the trust moneys even where the trustee has mixed it with his own money. The beneficiaries are held to have a first charge on the traced assets.
But there are limitations to this as the tracing must end where:
a) no traceable product can be found, or
b) where the trust is traced in a bona fide purchaser without notice of the trust, or
c) they may be able to institute criminal proceedings against the trustees.