Trust and Asset Protection

Why Should You Consider Establishing a Cyprus Trust?

7/19/2021 8:00:00 AM
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Even if you are not a legal expert, the figure of the trust should sound familiar to you; it is one of the most popular instruments for estate planning, as it provides the key elements that a good estate plan should have, such as: a) avoiding the highest amount of taxes allowed by law, b) having the highest level of asset protection, c) having the greatest possible financial privacy, d) be able to access the most profitable investments.

A Cyprus trust can provide you with all of the benefits you seek while also offering you with a simple, agile, and flexible structure.

A trust's simple goal is to distribute to a beneficiary property or even specified property, ranging in terms of banking deposits, jewelery, products, property and all types of personal property. This estate is administered by a trustee in order to keep them for the benefit of the beneficiaries, and this estate will not be part of any personal patrimony until the condition established by the settlor is met.

We have recently witnessed an increase in the usage of this figure by parents who are prepared to save money thinking about the future of their children from an early age or even before their birth, keeping the assets intact and even making them grow for a long time. It is also a useful tool for parents with disabled children, as it ensures that their children's requirements are met for the rest of their lives.

Many astute investors have taken advantage of this legal figure in Cyprus because of the vast potential for tax optimization and asset protection, such as the fact that all trust income will be tax-free, and you will also enjoy a Mediterranean climate, beautiful beaches, and historical sites that give life to this island and provide a safe and friendly environment. It's also worth noting that Cyprus is a part of the European Union and has a strategic position, with easy access to Europe, Africa, and Asia.

How Can I Set Up a Cyprus Trust?

To begin, in order to establish a Cyprus trust, the Settlor, who will be the trust's creator, and the trustee, who will be the trust's administrator, must draft a document outlining the terms under which the trust will be administered and transferred. Another consideration is that its creator must be completely capable, that is, have reached the required age of majority and be mentally healthy according to the jurisdiction in which he or she is located.

Although they do not require formalities, they do demand three certainties: the certainty of the intention, the certainty of the object, and the certainty of the beneficiaries. These are simply the fact that the intention to form the trust must be properly expressed (typically in a document), the assets of the trust must be defined, and the beneficiaries must be determined.

What Are the Requirements for Setting up an International Trust in Cyprus?

In terms of the basic conditions that a foreigner must satisfy in order to establish a trust in Cyprus, Section 2 of the International Trusts Expressly stipulates that:

-The trust's founder must not have a permanent residence in Cyprus.

-At least one trustee or trustees must have a permanent residence in Cyprus.

-Except in the case of a charity organisation, none of the beneficiaries must have a permanent residence in Cyprus. 

-And, that the trust property cannot contain any immovable property in Cyprus

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The Benefits of Creating a Cyprus Trust

Cyprus has a growing economy that is expanding with each passing day. It provides a diverse range of financial tools and incentives. The country boasts one of the few CBI programs in Europe (Cyprus citizenship programs), which draws numerous investors and increases commercial opportunities.

As if that weren't enough, the local trust law, which is based on English "common law," aligns this island with the laws and regulations of the European Union, whose main goal is to allow cross-border investment and reduce withholding taxes.

Whatever the scenario, whether for asset protection or the preservation of family wealth, a Cyprus trust is a highly handy vehicle to store and develop cash in a fiscally beneficial way if performed correctly.

Cyprus provides clear advantages for both multinational corporations and individuals looking to invest in the country through a trust, the most notable of which are as follows.

-A trust's assets are distinct from the settlor's money and so have a high level of protection against claims.

-Non-residents of the island are permitted to establish a trust on Cypriot territory and benefit from the greatest degree of asset protection.

-A European Union member

-The existence of a Cyprus International Trust (CIT) is indeterminate.

-The beneficiary can be a foreigner

-There are no registration requirements.

-The assets entrusted to a trust are maintained and administered in complete secrecy.

-These trusts are difficult to annul since the petitioner must demonstrate to the court that the trust was established for dishonest purposes. Furthermore, this claim must be submitted within two years following the asset transfer in order to be prosecuted.

-The settlors have the power to review or change the provisions of a trust, as well as appoint or remove any trustee.

-One of the most appealing benefits is the absence of taxation on income generated outside of Cyprus, on trust capital income, and even on inheritance.

-The settlor can act as trustee or sole trustee and effectively administer the trust through a Cyprus international trading company.

Advantages of Unique Asset Protection

- To invalidate the trust, you must have the intent to deceive.

- Forced heirship or marital property rules have no bearing on trust.

- Debtors must demonstrate that they were creditors at the time the trust was created.

Types of Trusts in Cyprus

Some of the most popular forms of trusts in Cyprus are as follows:

1.Express Private Trust

The Express Private Trust is the most common, and it is formed expressly by the settlor by a deed, in writing, by will, or, in extreme cases, an oral proclamation.

2.Discretionary Trust

It is established to benefit one or several persons, with the particularity that the trustees have the discretion to decide how and when they will distribute the funds. The beneficiaries of this trust do not automatically get these assets; rather, it is up to the trustee to determine when to distribute them. Even the settlor has the authority to change the trust deed and expand the trustee's responsibilities.

3. Fixed and Discretionary Trust

It is a type of investment organization and in this case the settlor is the one who establishes the terms and benefits that the beneficiaries will get. As a result, the trustee cannot modify the beneficiaries or the rewards they are destined to get in this amount. The trustees may have discretion, but they must eventually distribute the principal in prescribed proportions.

4. Charitable Trust

We are in the presence of a charitable trust when its primary goal is to eradicate poverty or promote education, religion, health, human rights or any other purpose that benefits the community.

Some Ideas that You Can Put into Practice When Setting up a Cyprus Trust

Collective Investments

If you've considered converting your pals into partners, this might be the best way to put your trust to work. The trust will serve as the foundation for your collaboration and the sharing of your joint venture's financial results.

Possession of Property that Cannot Be Kept in One's Own Name

It is an attractive use when you want to transfer assets to your minor children or incapable persons who cannot hold property in their personal capacity, since the settlor appoints a trustee who may hold and manage them for their benefit.

Means of Management

Both investment trusts and banks can use a trust and an international commercial company to act as its administrator (trustee) to manage funds on behalf of their clients.

Protection Against Claims

What many do not know about trusts is that they cannot be touched even by litigation decisions or divorce claims, safeguarding the interests of the beneficiary.Furthermore, the laws of Cyprus, not the laws of any other country, shall govern this trust, which was established in Cyprus.

Creation of Employee Incentive Mechanisms in the Form of Bonus Funds or Pension Plans

If you own a business and want to share certain advantages with your employees, you can do so through a trust. You can set up incentive and retirement programs using a trust with your employers as beneficiaries. You may also specify the precise parameters that you wish to utilize to adapt to each scenario in the first document.

Tax Optimization

A Cyprus trust will be your greatest buddy if you live in a high-tax nation. By transferring ownership of your money to a Cyprus trust, you will instantly reduce your income or wealth taxes.

Protection Against Wasteful Spending

A trust is an option to explore in families where there are potential spendthrifts, since once created, you will be certain to be protecting the family fortune and securing your cash.

Charitable Purposes 

A trust can be used for charitable purposes such as supporting new or current initiatives, promoting religious, artistic, or educational activities, and so on.

Therefore, if you have a large amount of capital and are considering how to manage and preserve it in the future, how to avoid the highest amount of taxes on those assets, and how to keep them protected, do not hesitate to consider the numerous benefits that Cyprus has to offer you in terms of trusts and much more.

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