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Protecting Your Assets Through Trust Formation

michael chambers cyprus protecting your assets through trust formationHigh-net-worth individuals with valuable possessions around the globe need effective asset protection tools to manage and safeguard their wealth, as a respond to the differing legislations and tax regulations of the various jurisdictions. A trust is one of the most effective legal tools available for anyone who requires maximum protection of their funds. It is a legal structure that allows investors to transfer their assets into a binding document, enabling them to dissociate legal ownership of the funds from them and to help them reap numerous tax and estate planning benefits.

Defining a Trust

According to the Hague Trust Convention of 1984, a trust entails an arrangement where a physical or legal person, called the “trustee”, consents to holding certain assets, the “trust fund”, for the benefit of others, called the “beneficiaries”. This obligation is vested to the trustee by the previous owner and creator of the trust, “the settlor”, under certain conditions outlined in the “trust deed”.

In other words, when setting up a trust, a settlor divests himself of the legal ownership of the assets held in the trust. These assets are then authorised as owned by the trustee who is legally obliged to administer the trust fund and the profits derived from it, for the benefit of the nominated beneficiaries.

It is worth noting that the same individual can act as the settlor, trustee and beneficiary, through forming an offshore company in which he can be the only director and the only beneficiary of the company shares.

Setting up a Cyprus International Trust

Generally, there are no registration or reporting formalities involved in the formation of a trust in the Republic of Cyprus. The only exception to that is in the case of a trust created by a will, where the specific requirements associated to the will have to be examined.

Trusts are usually formed in writing and the settlor has almost unrestricted discretion in terms of the selection of powers, provisions and restrictions that may be encompassed in the trust deed.

However, the trust must satisfy the following three certainties in order to be valid:

  • Certainty of intention: the settlor must demonstrate explicitly his/her intention of setting up a trust.
  • Certainty of subject-matter: the tangible or intangible assets that are to be held in the trust fund must be readily outlined.
  • Certainty of objects: the nominated beneficiaries of the trust, individuals or legal entities, must be ascertainable.

A stamp duty of €427.15 is payable upon the creation of a Cyprus International Trust. The trust is usually formed within a few days, with the cost of formation dependent on the complexity involved. The annual cost of managing the trust fund would depend upon the time spent and work involved, irrespective of the amount of the trust property.

Benefits of Creating a Trust in Cyprus

There are numerous reasons as to why investors might want to set up a trust. Some of these are detailed below:

Tax Optimization

Trusts in the Republic of Cyprus enjoy significant tax advantages, providing considerable tax planning opportunities to interested individuals.

Income: Any income arising from the assets of a trust fund is tax-free in Cyprus. Due to this, investors can amass wealth with highest tax efficiency and no tax authority around the globe can question such income, as it does not constitute part of the settlor’s assets.

Dividends: Dividends, interest or royalties acquired by a trust from a company in the republic are not being taxed.

Capital Gains: Gains derived from the sale or disposition of immovable assets of a trust situated in Cyprus are not imposed on capital gains tax.

Estate Duty: A trust established for estate planning reasons is not imposed on estate duty or inheritance tax in Cyprus.

Corporate Tax Planning: Setting up a trust in Cyprus with the purpose of owning an underlying holding investment company operating in another country, is a highly efficient tax planning strategy adopted by international corporations.

Pre-immigration Planning: Investors relocating to a high tax jurisdiction may gain fiscal advantages by placing assets in a trust established in Cyprus, as a way to safeguard their assets and avoid taxation in both jurisdictions.

Repatriating to Cyprus: Even while working abroad, expatriates may set up a trust to place their assets into before repatriating to Cyprus, in order to shelter their funds from the taxation regime of their country of domicile.

Asset Protection

 

Assets under Cyprus trusts are safeguarded from all kinds of third party claims on the setllor’s personal property, as the assets held in the trust are outside the scope of such claims. In case that the settlor becomes insolvent or declares bankruptcy, a Cyprus trust cannot be deemed void, unless the Court has evidence that the trust was formed with the intention to defraud creditors of the settlor.

Estate Planning

Trusts can be used to ensure that minors, mentally handicapped persons or individuals that would otherwise be left out of the inheritance, are well provided for. Also, individuals who wish to divest themselves of any personal belongings for any reason whatsoever have the ability to transfer them into a trust.

Avoidance of forced inheritance

 

According to the International Trusts Law, no foreign legislation regarding succession or inheritance shall have an effect on any disposition relating to the establishment of a trust or invalidate a trust, provided that the settlor is an adult of full age and of sound mind. Therefore, it is apparent, that Cyprus International Trusts are immune from any forced heirship claims in the Cypriot Courts.

Absence of exchange control restrictions

An individual with income deriving outside his home country, or someone who wishes to invest in business overseas and wants to ensure that the profits and dividends are not remitted to his country of residence, may arrange for such funds to be transferred to a trust established in Cyprus. As a full member of the European Union, Cyprus has abolished all exchange control regulations.

Strict Confidentiality

As a general rule, no individual including the trustees, government officials and officers of the Central Bank may disclose any information relating to the trust. The only exception to that is when a Cyprus court specifically orders holders of such information to disclose sensitive material, as part of civil or criminal proceedings.

A powerful asset protection technique

Protecting your assets through trust formation in a favorable jurisdiction is crucial for individuals who wish to safeguard the future of their wealth. There are considerable asset protection and tax planning advantages that can be gained through the use of a Cyprus International Trust. Michael Chambers & Co. is able to advise on alternative estate planning mechanisms and tax strategies, according to each client’s personal and financial needs. If you wish to speak to one of our trust lawyers, please contact us.