Trust Formation and Trustee Services in Cyprus

Discretionary Trusts are the most commonly used because they provide the most flexibility. The trustees of a discretionary trust are given wide powers as to how the trust fund may be invested and who and when beneficiaries may benefit, and how much. No one beneficiary has an absolute right to benefit because this decision lies in the hands of the trustees. Whilst not binding on the trustees, the settlor may provide a note of his or her wishes, which the trustees may use as guidance when exercising their powers.

Charitable Purpose Trusts – The Law provides for the creation of charitable purpose trusts, where the trust fund must be used for a purpose that is charitable. The document establishing the trust must state the purpose or purposes for which the trust has been created and must appoint an enforcer, whose role is to enforce the terms of the trust. The enforcer cannot be the trustee. There is no requirement to appoint beneficiaries to a non-charitable purpose trust but they can be added at any stage after the trust has been created.

An Excluded Property Trust can be any type of trust, absolute, interest in possession or discretionary. However, in most cases, a settlor would use a discretionary trust due to its flexibility. The settlor can be a beneficiary under this trust, without the gift with reservation of benefits applying. Even when the settlor becomes UK-domiciled for IHT purposes, They are still able to benefit under the trust because the legislation only requires the settlor to be non-UK domiciled “at the time the settlement is made”.

Provided the settlor is non-UK domiciled at the time the gift into trust is made, and therefore has no IHT liabilities, then no IHT reporting or IHT is due at that time. Provided the property remains within the definition of excluded property, exit charges and periodic changes are also not applicable. As such an Excluded Property Trust can be an effective tax planning solution for those who are non-UK domiciled but intend to move to the UK and will become UK domiciled.

An Interest in Possession Trust is a trust where a beneficiary has an absolute right to the income of the trust. They are often referred to as ‘life tenants’ and this type of trust is often referred to as a ‘life interest trust’. Even though the income is paid to the trustee, it must all then be passed on to the beneficiary, net of any trust expenses.

In addition to a life tenant, an Interest in Possession Trust must also have at least one ‘remainderman’. This beneficiary will be entitled to the capital of the trust at the point when the interest in possession (life interest) comes to an end.

Life Interest or Fixed Interest Trusts can be created to provide income, capital or other benefits to a specific beneficiary, either during their lifetime or until a certain event occurs (e.g. marriage or reaching a certain age). The trustees then distribute the trust fund to the settlor’s chosen beneficiaries. The trustees have no discretion over the distribution of trust assets.