Cyprus trust law is essentially based on the English system. Trusts are mainly regulated by the Trustee Law, Chapter 193, enacted in 1955 and based on the English 1925 Trustees Act. This is supplemented by the English doctrine of equity and English case law prior to 1960. In 1992, Cyprus enacted the International Trusts Law. This was done to update and modernise the law and establish Cyprus as an offshore and financial centre and a serious trusts jurisdiction.
The Law does not provide a comprehensive definition of ‘trusts’. Trusts law was principally developed by Cyprus case law. Accordingly, a trust arrangement entails the following:
a) an obligation on the holder of property (the “trustee”)
b) to manage that property (the “trust property”)
c) for the benefit of another (the “beneficiary”).
The legal title to the trust property is vested in the trustee by its previous owner (the “settlor”) and the trust property is managed by the trustee in accordance with the instructions of the settlor, which are usually given in writing or expressed in a trust deed (the “trust instrument”). The instructions may also be oral.
It is of utmost importance to note that although the trustee has legal ownership of the trust property, it does not belong to him. The beneficial owner/s of the trust property is/are the beneficiary/ies and the trust property is only available to them.
For a valid trust to be created, the following three certainties must be present:
a) Certainty of intention – there must be evidence of the express intention of the settlor to create the trust. This is usually evidenced by the trust instrument (it is possible to have orally created trusts);
b) Certainty of subject matter –the assets that are to become the trust property must be readily identifiable, i.e. money, property, shares etc;
c) Certainty of objects –the identity of all the intended beneficiaries of the trust must be ascertained or ascertainable at the time of setting up the trust.
Trusts may not exist indefinitely.
The general rule is that trusts may continue to exist for the lifetime of a life in being plus 21 years, or in the case that the life in being is not a natural person, merely for 21 years.
The perpetuity rules do not apply in the case of charitable or purpose trusts which may continue forever.
Types of Trusts
Trusts are divided in the following main categories:
a) expressly created by the settlor.
b) can be created by deed, in writing, by will and, with some exceptions, orally.
c) The intention of the settlor must be made absolutely clear. The three certainties listed in paragraph 1 above must be present. The beneficiaries have enforcement powers in respect of the trust.
Express Private Trusts
Express trusts are, as their name suggests, expressly created by the settlor. They can be created by deed, in writing, by will and, with some exceptions, orally. The intention of the settlor must be made absolutely clear. The three certainties listed in paragraph 1 above must be present.
Resulting trusts arise from the implied, rather than the express intention of the settlor. This intention can be inferred by the way the settlor acts or behaves.
They are imposed by law independently of what anyone intended.
An example of a constructive trust would be where A gives money to B to hold for C. If B then gives the money to D and D knows that B was holding the money for C, then D will be construed as to also hold the money on trust for C. These are trusts that arise from the implied intention of the settlor and will either be resulting or constructive trusts.
These are trusts that arise from the implied intention of the settlor and will either be resulting or constructive trusts.
There is no legal definition of what constitutes a charity. Usually a trust that is set up for the relief of poverty, the advancement of education or religion or any other purpose that is beneficial to the community is considered to be a charitable trust. In particular they are set up for certain public purposes. They are enforced at the suit of the Attorney General acting on behalf of the state.
It is possible to set up an international charitable trust in Cyprus under the International Trusts Law.
These are trusts where the share or interest of the beneficiaries in the trust property is specified by the settlor.
These are trusts where the trustees may, at their discretion determine what share or interest of the trust property should go to each member of a class of beneficiaries.
Appointment and Discharge of Trustees
Trustees are appointed by the settlor. There are no rules as to how many trustees should be appointed in respect of each trust although it is advisable to appoint more than one trustee. A trustee does not have to accept the appointment and may refuse to act as trustee either expressly or by implication.
If none of the appointed trustees of a particular trust accept the appointment, then the trust property will revert by resulting trust back to the settlor or his personal representatives. Under the 1955 Trustees Law, the courts may in certain cases discharge or replace trustees and appoint new ones.
Trustees’ Main Duties
a) to administer the trust property prudently; and
b) to comply strictly with the terms of the trust.
The general rule is that the trustees do not have the power to vary the terms of the trust under any circumstances. The only case when they may vary the trust is when all the beneficiaries are of full age and capacity. The beneficiaries can then authorise the trustees to deal with the trust property in a different manner to that specified in the trust instrument.
In trusts where the beneficiaries belong to certain specific classes (i.e. unsound of mind, incapacitated, infant) the court may vary the terms of the trust if satisfied that the variation is in the best interests of the beneficiary.
The trustees in their private lives may not act in any way that brings them in conflict with their duties as trustees. They are also not allowed to make any profit from their position as trustees unless they are expressly authorised by the trust instrument.
Also, with some limited exceptions, they may not delegate their duties. The exceptions provided for in the law include the right to employ a solicitor, a banker etc.
Any action taken by the trustee that is in excess of their powers or contravenes the terms of the trust instrument is a “breach of trust” and the trustee is personally liable for the full extent of any loss incurred as a result of such a breach.
The beneficiaries have the right to enjoy their interest in the trust property. In the case of breach of a private trust, the beneficiaries may bring an action in court to force the trustees to administer the trust property in accordance with the terms of the trust. The following actions are available to them:
1. They may pursue a personal action against the trustees;
2. They may be able to follow the trust property itself or to claim anything into which it has been converted. This is an equitable claim and the beneficiaries may try to trace the trust moneys even where the trustee has mixed it with his own money. The beneficiaries are held to have a first charge on the traced assets. But there are limitations to this as the tracing must end where no traceable product can be found, or where the trust is traced in a bona fide purchaser without notice of the trust, or they may be able to institute criminal proceedings against the trustees.