Legal aspects of International Trusts in Cyprus and the EU. Maria Kyriacou Partner and Advocate Andreas Neocleous & Co LLC

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1 Legal aspects of International Trusts in Cyprus and the EU Maria Kyriacou Partner and Advocate Andreas Neocleous & Co LLC

2 Who is a fiduciary? A fiduciary is a person who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust, confidence and loyalty.

3 Types of fiduciary services Corporate services Custodian services Asset protection Tax planning Management of trusts Investment trustee portfolios Financial planning of family property Managing funds for listed public companies Trustees for insurance companies portfolios Employee benefit trust for international staff Administration of funds Flexible wealth structures Unit trusts Etc, etc..

4 Types of expertise involved Taxation and tax planning Inheritance and succession Financial analysis Trust law Accounting Financial management Employment law Administration Property management Family law

5 REGISTRATIONS OF TRUSTS & FIDUCIARIES IN CYPRUS Approx TRUST Entities Approx. 40 FIDUCIARY Entities First Trust in 1968 Hellenic Bank Trust & Finance Corporation First Fiduciary in 1994 Bonalbo Fiduciaries (Cyprus) Ltd

6 Registrations of trusts and fiduciaries for the last 3 years 2009 TRUSTS 74 FIDUCIARY

7 Addressed to: Traditional family needs, or special family needs; Wealthy individuals property planning; Small to major multinational companies; International citizens; Inheritance and succession; Business and family residence; Employers and employees.

8 Cyprus legislation on trusts The Trustee Law Cap 193 enacted 1955 The International Trusts Law 69(I)/1992 Both remain unchanged to this day

9 International law on trusts The Hague Trust Convention 1984

10 What is a trust? A trust is an equitable obligation, created by a person (the settlor) and binding a person (the trustee) to deal with the trust property over which the trustee has control for the benefit of the beneficiaries.

11 Parties to a trust Settlor Trustee Beneficiary Enforcer Protector

12 Characteristics of a trust The assets are a separate fund, not the trustee s own estate; Title to the trust assets stands in the name of the trustee or on behalf of the trustee; The trustee has the power and the obligation to manage, employ or dispose of the assets under the terms of the trust and his duties under the law.

13 Types of trust Private trusts for the benefit of individuals Public trusts charitable or Fixed trusts the interest of the beneficiary is specified Discretionary trust the trustees hold the property for the beneficiaries at their discretion Resulting trusts a form of trust implied by the conduct of the parties Constructive trusts imposed by law not by the intention of the parties (a remedy against unjust enrichment) Implied trusts arise from the implied intention of a settlor and takes the form of a resulting or constructive trust

14 Validity of trust - the three certainties Words the intention to create a trust Subject matter property Objects - beneficiaries

15 Trustees One or more trustees may be appointed and must accept the appointment. Duties of trustees to administer the trust property prudently to comply strictly with all the terms of the trust Cannot delegate their powers (except lawyer, banker, stockbroker). Cannot receive remuneration unless expressly authorized in the trust instrument or by the court.

16 Breach of trust - rights of the beneficiaries A personal action against the trustee. Follow the property and claim it. Criminal proceedings against the trustee.

17 The Cyprus International Trusts Law 1992 Provides that: The settlor must not be a permanent resident of Cyprus. No beneficiary, other than a charitable institution, can be a permanent resident of Cyprus. The trust property cannot include any immovable property situated in Cyprus. At least one of the trustees must be a permanent resident of Cyprus.

18 The more modern trust regimes in Europe promote: Settlor autonomy Effective investment Estate planning Fire wall provisions Good regulation

19 Validity of a Cyprus International Trust Must be determined at the time the trust is created.

20 Maltese law in brief Maltese trusts may hold any property for any person irrespective of nationality or residence.

21 The life of a trust Under Cyprus law the life of a trust is limited to 100 years In most jurisdictions trusts may be in perpetuity

22 Variation of trusts The trustee can apply to the court for variation of the trust only for the benefit of persons under incapacity, infancy, or of unsound mind Other jurisdictions allow the variation of trust for the benefit of any person.

23 Protecting the Cyprus trust firewall provisions The current law protects trusts against foreign inheritance provisions only. As in other jurisdictions, to secure stability and predictability, matters affecting a Cyprus International Trust should be resolved in the Cyprus courts.

24 Cyprus trust companies acting as trustees Private trustee companies Professional trustee companies

25 Private trustee Acts as the trustee of a single trust or a limited number of trusts. The share capital may be held by one or more beneficiaries of the trust or by the settlor or by the settlor and one or more of the beneficiaries.

26 Professional trustee company or partnership Registered to offer international trustee services to its clients on a professional basis. Currently not subject to regulation

27 Pending draft law on regulation of fiduciaries, administration businesses and company directors To implement the Third EU Anti-money Laundering Directive, which extends to trust and company service providers.

28 Provisions of the draft law Trustee and company management service providers must be run by at least two individuals of skill and experience. They must be licensed and authorized as fit and proper by the Central Bank of Cyprus. They must have adequate internal controls, policies and procedures. They must meet prescribed accounting and reporting requirements as regards settlors, trustees and beneficiaries. They must act with integrity and skill.

29 Special exemptions from applying (but subject to the same duties and obligations, registration and licensing requirements) Advocates practicing in Cyprus. Persons qualified to be appointed as auditors in Cyprus. Entities controlled and where the majority interest is beneficially owned by locally-registered advocates, banks, investment firms or cooperative credit societies as defined in the respective domestic legislation. Any person regulated by a competent regulator in any other EU Member State, provided that there is reciprocity between Cyprus and the Member State.

30 Inspection The Central Bank of Cyprus may appoint inspectors to investigate the affairs of a licensed fiduciary or other business offering fiduciary services.

31 Name No company may use trust, trustee, fiduciary, nominee or other similar words in its name except with the approval of the Central Bank of Cyprus.

32 Confidentiality Disclosure is permitted only with consent except in the interests of the client, the public, or under the law.

33 Transitional provisions Persons carrying on any regulated activity by way of business may continue to do so provided they are qualified and apply to be registered and licensed.

34 Know your client The trustee and management company must have a clear understanding of: the client s identity; and the pattern of the client s business.

35 THANK YOU FOR YOUR ATTENTION