3. Trusts

a. Introduction

Cyprus law expressly adopts common law and equitable principles of English law but within the constitutional architecture.

b. Most frequently used trusts

The CIT is the most common arrangement for international structures. It may not own directly any immovable property situated in Cyprus, be settled by a permanent resident, or be applied for the benefit of permanent resident beneficiaries other than qualifying charities.

c. Proper law of a trust

Cyprus is a signatory of the Hague Convention on Private International Law. Although a signatory of the Hague Convention on the Law Applicable to Trusts and on their Recognition, 1 July 1985, Cyprus has not yet ratified the treaty. Cypriot courts would take the Convention into account when considering trust matters of private international law.

In reaching a decision about jurisdiction, the court takes into account the place of administration, situs of the trust’s property and objects of the trust.

The courts would accept jurisdiction over a CIT where it is compliant with the ITL.

d. Creation of a trust

i. Validly constituted trusts

The creation of a valid trust follows equitable principles, save that there is a presumption of validity on the part of persons of majority and sound mind that settle a CIT.

There is no requirement for the registration of a trust other than where the trust’s property in some part is comprised of immovable property situated in Cyprus.

ii. Duration and termination of a trust

Both CIT purpose trusts and public trusts may endure in perpetuity. The CIT private trust may endure for up to 100 years while the private trust follows the rule of ‘life in being plus 21 years’.

iii. Beneficiaries

The CIT purpose trust may have objects rather than beneficiaries, as long as there is an appointed enforcer of the trusts, and the distribution of trust property upon cessation is clearly defined.

iv. Trustees

The powers granted to a trustee are primarily found in the trust instrument, although other powers may be granted by statute or court order.

The number of trustees shall not exceed four in number. Trustees must act unanimously, unless the trust instrument provides otherwise.

A single trustee may give a valid receipt for capital monies, except that a trust for the sale of immovable property requires two trustees.

v. Protectors

Although the law is silent in this regard, protectors of trusts are being appointed.

vi. Role of courts

The court may enforce trusts on behalf of beneficiaries. Furthermore, the court may appoint and replace trustees, as well as provide authorisation, indemnification and directions in certain circumstances.

e. Trust administration

i. Investment

There are special provisions for CITs allowing investments subject to the terms of the trust and the satisfaction of the ‘prudent person’ test. Private and public trusts must invest in statutorily authorised investments.

ii. Maintenance and advancement

Trustees are authorised under CAP193 Trustees to advance up to half of a presumptive share of capital to a beneficiary, subject to any beneficiary’s prior interest. In addition, trustees may accumulate income during a beneficiary’s minority or apply it for the minor’s maintenance, advancement or general benefit.

iii. Variation of a trust

The court may authorise the variation of the trust deed of a CIT provided that no material adversity accrues to interested parties.

f. Confidentiality and disclosure

The disclosure of confidential information follows equitable principles.

g. Rights of creditors

i. Transfers into trust

Under the basic law contained in CAP 5 Bankruptcy, trust settlements (other than marriage settlements and settlements made more than ten years before becoming bankrupt) are set aside and returned to the bankrupt’s creditors. Fraudulent transfers are also set aside. However, an untainted settlement made more than two years before bankruptcy is not returned to the bankrupt’s creditors where it is shown that the bankrupt was solvent following the settlement. In these cases, the burden of proof rests on the bankrupt.

CIT rules, however, require a creditor of a CIT to prove on the balance of probabilities that at the time of settlement the settlor was trying to defraud him. Such proceedings are out of time if brought more than two years after the date of transfer of the relevant property.

ii. Limitation period

Actions against trustees must be commenced within six years of the cause of action. Where the cause of action has been concealed by fraud, the period of limitation begins to run from the time of discovery. For minors, incapacitated persons, the unborn, and beneficiaries with a future interest, the limitation period does not begin until discovery of the cause of action.

iii. Rights of trustees and beneficiaries

Trustees may be indemnified from and have lien over trust property. Beneficiaries possess the rights and remedies ordinarily found in a common law jurisdiction.

© 2012 Society of Trust & Estate Practitioners