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Trusts Formation

A common term in the offshore industry is a Trust, but with so many to choose from and so many different laws in place it is easy to get confused. Therefore we at Chesterfield hope to simplify the idea for you.

The concept of Trusts actually date back to the 12th century in England. At that time many lords were leaving for the Crusades and had the problem of who would run his estate in his absence and what if he were to died abroad, so to remedy this he would often sign over his lands to an acquaintance on the understanding that upon his return the ownership would automatically revert back to him. In a lot of cases upon his return he found it difficult to get his land back and ended up petitioning the king, these matters were referred to the Lord Chancellor who was relied upon to do what was just, the Crusader was always favored in this cases. This led to the original idea of a Trust which went on to become part of the Common Law of England.

The basic principles are simple, property of any sort can be held by a Trust, also investments and growth assets. These assets are placed into the Trust by the ‘Settlor’ and then managed by the ‘Trustees’ on behalf of the ‘beneficiaries’. The main advantage of using a Trust is privacy – the terms of a will are public whereas the terms of a Trust are not. One of the main uses of Trusts that Chesterfield see on a day to day basis is where an individual wishes to keep the ownership of a company confidential and therefore a Trust is set up to hold the shares. 

Although there are many different types of Trusts that can be used Chesterfield favor the Discretionary Trust. This is where the beneficiaries and/or their entitlements are not fixed. There are several uses for this.
- To protect potential beneficiaries against creditors – as the beneficiary has no certain claim over the assets of the trust they cannot be classed under their personal wealth
- It allows more control by the Trustees in the case where a beneficiary is under the legal age or perhaps not considered capable of managing their own finances
- Discretionary trusts can be changed as circumstances change
- These are often used to protect family assets in the evident of a divorce

There are many different jurisdictions in which to set up a trust each with their own advantages and disadvantages. In this piece we would like to focus on the Cyprus Trust. The Cyprus Trust is a very popular jurisdiction and is based on English Trust law. The Trustee Law Cap 193 was enacted in 1955 and the International Trusts Law 69 (I) was passed in 1992. On 23 March 2012 the Trust law was amended as it was felt that after twenty years the laws were very dated when compared to modern requirements and that Cyprus now fell behind other jurisdictions which were becoming much more attractive.

- The original law stated that the Settlor could not be a resident of Cyprus, this led to confusion as what was to happen if the Settlor wished to move to Cyprus in the future. The law has been amended so that the Settlor may not be a Cyprus tax resident only in the year preceding creation of the Trust
- The original law stated that the beneficiary cannot be tax resident in Cyprus, this has been removed.
- The original law stated that immovable property situated in Cyprus could not be an asset of the Trust, this has been removed.
- Any question relating to a Cyprus Trust will now be determined by the laws of Cyprus.
- Dispositions to a trust may not be challenged just because they are inconsistent with the laws of another jurisdiction
- Under the original law the life of a trust was limited to 100 years, this has now been abolished

These amendments along with other technical amendments have dealt with a lot of problems with Cyprus Trusts and it is now considered a very advantageous jurisdiction indeed.

Although there is no general governing body for Trusts and they generally fall under the law in which they are established, The Society of Trust and Estate Practitioners (STEP) is considered the leading professional body for practitioners in the field of Trusts. Chesterfield itself have several members.
This is a very brief delve into the world of trusts which can become very in depth indeed. However, if you wish to know more about Trusts or how they can benefit you please feel free to contact Chesterfield for a consultation.

Use the the link below to contact us and more about Trust Formation or call us on our offices on the

Phone number: 44 20 7097 1385

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