Cyprus International Trusts

What a trust does, and what this page states

A trust lets you place assets under the control of trustees, to hold and manage for chosen beneficiaries. People use trusts for succession planning, for asset protection, and for providing for a family over time. On trusts we advise on formation, administration and planning for private and corporate clients under the Cyprus International Trusts Law of 1992, whether the purpose is wealth protection, estate planning or tax planning.

This page is deliberately short. A great deal is written about Cyprus trusts, much of it confident and some of it wrong, and a page that repeated it would be worth less than one that does not. What follows is what the firm can stand behind: the general law of trustees in Cyprus, the position of a trust that is to hold immovable property here, and the relationship between a trust and the reserved portion of a Cyprus estate. The conditions, periods and tax treatment under the 1992 Law itself are addressed on the facts of a particular structure rather than asserted here.

If a structure has been proposed to you by someone else, the useful first step is not to ask whether a Cyprus trust is a good idea in the abstract. It is to establish what the assets are, where they sit, who is to benefit, and what is meant to happen on a death. Everything else follows from those four answers.

Trustees in Cyprus

Alongside the 1992 Law there is a general statute, the Trustees Law, Cap. 193, and two of its provisions come up often enough in practice to be worth stating.

A trustee who is going to be away

Section 25(1) of Cap. 193 allows a trustee who is about to be absent from the Republic to delegate, by power of attorney, to any person the execution or exercise, during his absence from the Republic, of all or any of the trusts, powers and discretions vested in him as such trustee. Whether a particular absence engages the section is a question on the wording of the section as in force and on the facts. The instrument has formalities of its own. Under section 25(4) it must be certified in accordance with the law on certifying officers, and a true copy must be deposited at the office of the Chief Registrar together with an affidavit. A power of attorney that has not been deposited is not the same document as one that has.

The limits of delegation

Three limits apply to delegation generally, and they apply here. An agent may not appoint a substitute agent without express authority, under section 153 of the Contract Law, Cap. 149. Nothing outside the express or necessarily implied scope of the authority is covered, so an instrument drawn for one purpose does not serve another. And certain acts cannot be done by an agent at all: the making and signing of a will, and the application to the court for a grant of probate or letters of administration, which under section 17 of the Administration of Estates of Deceased Persons Law, Cap. 189, is a judicial process on an application to the court. What can be delegated is the exercise of the powers that flow from the grant, not the obtaining of it.

Cap. 193 also touches the administration of estates. Section 15 provides that a personal representative may accept property, distribute funds, discharge debts, accept compromises and settle claims of the estate. Where a family is dealing with a Cyprus estate from abroad, that subject has a section of its own: administering a Cyprus estate from abroad.

A trust and Cyprus land

This is the point on which the firm most often has to correct an assumption, and it is worth stating plainly because getting it wrong is not easily undone.

The definition of alien in section 2 of the Acquisition of Immovable Property (Aliens) Law, Cap. 109, expressly includes a trust for the benefit of an alien, alongside a company controlled by aliens and a foreign company. It excludes, among others, citizens of European Union member states and of states party to the European Economic Area agreement, and legal persons formed under the law of a member state with their registered office, central administration or principal establishment in such a state. Section 3(1) prohibits the acquisition of immovable property by an alien without the prior permit of the Council of Ministers.

Three consequences follow. Under section 3(3) a contract providing for the acquisition of immovable property by an alien is valid as a contract but confers no right of acquisition until the permit is granted. Under section 3(5) any registration of immovable property effected in breach of the section is void. Under section 3(4) the right to deposit the contract at the Department of Lands and Surveys under the Sale of Immovable Property (Specific Performance) Law is expressly preserved, so priority can be secured while the permit is pending. The Law fixes no period within which the Council must decide, which is why the question belongs at the design stage of a structure rather than at completion.

One further rule of Cyprus private international law is worth knowing wherever Cyprus land is in a structure. Under section 5 of the Wills and Succession Law, Cap. 195, succession to immovable property situated in Cyprus is governed by Cyprus law where the deceased was not domiciled here, and Cyprus law governs the whole estate where he was. Cyprus land does not escape Cyprus succession law by the nationality or residence of its owner.

A trust and the reserved portion

A trust is not a device for defeating the reserved portion, and it should not be presented as one. It is a structure for holding and passing assets over time, and whether it suits your purpose is a question to be answered before it is set up rather than afterwards.

The framework it sits against is this. Section 21 of Cap. 195 allows a person to dispose by will of the whole or any part of the disposable part of his estate, and the word disposable is doing the work: what exceeds it is caught by section 41. Section 41(1) fixes the disposable part at not more than one quarter of the net value of the estate where the deceased leaves a spouse and a child or descendants of a child, or a child or descendants of a child without a spouse; at not more than one half where he leaves a spouse or a father or a mother but no child or descendant of a child; and at the whole estate where he leaves none of them. Where a will disposes of more than the disposable part, section 41(2) reduces and abates the disposition proportionately so as to confine it to the disposable part, rather than invalidating the will. Section 44 sets out the surviving spouse's entitlement within the undisposed and non-disposable parts, and section 42 identifies the categories to which the restrictions in section 41 do not apply at all.

Against that background, the honest answer to the question we are most often asked is that whether assets placed in trust form part of the estate for these purposes depends on the facts and on when and how the trust was created. Anyone who gives you a general answer to that question has not read your documents. The related subject of what a Cyprus will can and cannot do is covered in Making a Will in Cyprus: What You Can Actually Leave, and to Whom.