CYPRUS INTERNATIONAL TRUSTS
The Law does not provide a comprehensive definition of ‘trusts’. Trusts law was largely developed by the courts on a case-by-case basis. It is the development of this case law which provides us with a better understanding of what a trust arrangement entails:
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”). The trust property is managed by the trustee in accordance with the instructions of the settlor. These instructions are usually written and expressed in a trust deed of will (the “trust instrument”). They may also be oral.
The most important thing to note is that, even though the trustee has legal ownership of the trust property, it does not belong to him. Beneficial ownership of it belongs to the beneficiaries. So, the trust property, is an independent fund held by the trustee but available only to the beneficiaries.
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 settler to create the trust. This is usually evidenced by the trust instrument (although 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, ie 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.
Cyprus Trust Law
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.
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.
International trusts are exempt from this rule. They may exist for a period of 100 years from the date of their creation.
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.
A resulting trust arises from the implied, rather than the express intention of the settlor. This intention can be inferred by the way that the settlor acts or behaves.
An example of a resulting trust would be where A gives money to B to buy an asset. If there is no evidence that A intended for B to keep the asset, then B is presumed to hold the asset on trust for A.
But if, in the above example, A was B’s father and A had given money to B so that B could purchase books for school, then the presumption arises that A intended for B to keep the books and therefore there is no resulting trust.
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; and
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
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 appointing 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. If so, then they can together authorise the trustees to deal with the trust property in a manner different to that specified in the trust instrument.
In trusts where the beneficiaries belong to certain specific classes (ie 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. they would be paid out of the trust property.
Unless the trust instrument expressly provides otherwise, trustees are not entitled to any payment for their services. They may, however, be reimbursed from the trust property for any expenses they incur in performing their duties.
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.
Trustees in Cyprus manage the trust property and follow the settlor’s wishes as expressed to them in the letter of wishes.
There are no stamp duties on the settlement of property in a Cyprus trust. A stamp duty of CYP 250 is payable on the creation of an international trust. A trust can be created within a few days and the cost of creation will vary, according to the complexities involved. The annual cost of administering the trust depends on the work involved and the time spent. The fee is not calculated as a percentage of the trust property.
The main right of the beneficiaries under a trust is their 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:
a) They may pursue a personal action against the trustees;
b) 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:
a) no traceable product can be found, or
b) where the trust is traced in a bona fide purchaser without notice of the trust, or
c) they may be able to institute criminal proceedings against the trustees.
International Trusts Law
For the purpose of attracting foreign investors to create in international trusts in Cyprus, the International Trusts Law of 1992 has been passed and deals with the regularization of international trusts. This law is not a self-contained law on trust but it builds on the existing Cyprus Trust Law, which is based on the English Law. This Law offers freedom of movement of funds and it removes certain doubts as to whether the existing legislation could cover arrangements such as those, which are common in other jurisdictions.
An international trust may be described as a trust created by a non-resident settlor for the benefit of non-resident beneficiaries. A trust can still qualify as an international trust for the purposes of law even if the settlor, trustee or the beneficiaries are international business companies or international partnerships.
In order to establish an international trust:
a) The settler must not be a permanent resident of Cyprus.
b) No beneficiary other than a charity is a permanent resident in Cyprus.
c) The trust property does not include any real property situated in Cyprus.
d) There must be at least one trustee resident in Cyprus at all times.
There is no longer a requirement to inform the Central Bank of Cyprus and get their respective permission in respect of the trustee of the International Trust since Cyprus’s accession to the EU.
A trust will still qualify as an international trust even if the settlor or the local trustee or a beneficiary (or a combination of them) is a Cypriot international business company or partnership. The perpetuity rules do not apply to international trusts and they can remain in force for up to 100 years.
The Law confirms the validity of a trust created by any person who is of full age and of sound mind regardless of any provisions relating to Inheritance or Succession of the Law of Cyprus or the law of any other country. The International Trust is irrevocable unless a specific power of revocation is reserved in it and cannot be set aside by the settlor’s creditors unless and to the extent that the creditors can show that the trust was made with the intent to defraud them. The burden of proof of such intent lies with the creditors and an action against the trustees to avoid the trust, on grounds of fraud, must be brought within two years from the date when the relevant transfer of assets is made to the trust.
Under section 7 of the Law, the trustees of an international trust have extensive investment powers, which must be exercised with the prudence and diligence of a reasonable person.
Cyprus courts may amend the terms of international trusts or the powers of the trustees to manage the trust property if satisfied that the proposed amendment will be in the interest of the beneficiaries and will not adversely prejudice their interests.
Section 9 of the Law allows for the applicable law of the international trusts to be any foreign law (other than Cyprus law) provided that the new law recognises the validity of the trust and the interests of the beneficiaries. In the same way, an international trust in a foreign jurisdiction may be subject to Cyprus law.
International Trusts do not have to be registered with any Cyprus authorities but there is a fixed stamp duty of CYP 250 payable on their creation.
International Trusts and Asset Protection Planning
The most important provision of the Law is found in section 3 that allows the Cyprus trust to be used as an asset protection vehicle.
Looking at Section 3 in more detail:
3 (a) A Cyprus non-resident of full age and capacity who sets-up a Cyprus international trust is deemed as having the capacity to transfer property. The section goes on to provide that no foreign law relating to inheritance or succession shall be capable to invalidate the trust or affect any transfer relating to the creation of the trust.
International Trusts Law
This section, read together with section 9, set out above, has the effect of rendering a Cyprus international trust immune from forced heirship and ‘claw-back’ rules. This is especially useful in civil law jurisdictions that have forced heirship rules applicable on death
3 (b) provides that a Cyprus International Trust is not void or voidable in the case of the settlor becoming bankrupt or insolvent This provision will not apply if the court is satisfied that the trust was set up specifically for the purpose of defrauding the creditors of the settlor at the time of setting up the trust. The law will also not apply where there were claims on the assets prior to the creation of the trust.
The key test is whether, at the time of setting up the trust, the settlor had sufficient property to meet all his liabilities, other than the trust property. If this test is met and provided that the settlor did not anticipate bankruptcy at the time of setting up the trust then the intention to defraud cannot be proven.
The burden of proof is on the person alleging the fraud and the standard is the balance of probabilities. For the trust to be set aside, it must be the creditor and not any other party that was defrauded.
No definition of ‘creditor’ is provided in the Law and this remains a question of fact and interpretation by the courts.
3 (c) provides that any claim under section 3(b) above must be filed within a two year period from the date of transfer of the property to the trust.
After the lapse of the two year period, no action can be brought against the trustees.
Parties to a trust which has been properly and validly created may successfully resist a claim that the trust is not really a trust but some other legal arrangement such as an agency or a nomination, or merely an empty pretence, on the basis that equity looks to substance, not form. This applies to both local and international trusts.
If an arrangement masquerading as a trust is found to be a sham, any transfer of property to the purported trustees will be rendered ineffective, no title will have been transferred and the transaction will be set aside. The purported trustees will have never been more than nominees or bare trustees, holding the property on a resulting trust for the settlor who will have remained the sole beneficial owner. Any action of the purported trustees inconsistent with the continued beneficial ownership of the settlor will have been unlawful and the trustees will have to make good any losses caused, unless they can demonstrate that they were not aware that the settlor lacked the necessary intent and they were not knowing participants in the sham.
1976 Convention on Recognitions and Enforcement of Foreign Judgements (Forced Heirship)
With regard to local trusts, there appears to be no legislative or common law provisions relating to forced heirship. It seems likely that a local trust would not be defeated by a forced heirship claim in the Cypriot Courts especially where the trust assets are situated in Cyprus.
For International Trusts, the International Trusts Law expressly provides that no foreign law relating to inheritance or succession shall invalidate such a trust or affect any transfer or disposition relating to the creation of such a trust in any way. Article 1 of the 1976 Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, which was ratified by Cyprus clearly states that the provisions of the Convention do not apply to decisions concerning the capacity of persons or questions of family law, including personal or financial rights and obligations between parents and children or between spouses and questions of succession. It seems clear, therefore that international trusts are immune from forced heirship claims.
Trusts, as such, are not taxable in Cyprus but the beneficiaries are taxable through the trustees.
Provided that there is no local profit then there is no taxation on the income, capital or distribution of Cyprus International trusts.
It should be noted that dividends and/or other income received from an underlying Cyprus international business company will not be regarded as Cyprus-source income for Income Tax purposes.
Cyprus International Trusts enjoy important tax advantages, providing significant tax planning possibilities. The following advantages are indicative of the possible options for tax minimization:
- All income, whether trading or otherwise, of an International Trust (i.e. a Trust whose property is located and income is derived from outside Cyprus) is not taxable in Cyprus.
Dividends, interest or other income received by a Trust from a Cyprus international business company are neither taxable nor subject to withholding tax.
Gains on the disposal of the assets of an international Trust are not subject to capital gains tax in Cyprus.
An alien who creates an International Trust in Cyprus and retires in Cyprus is still exempt from tax if all the property settled and the income earned is abroad, even if he is a beneficiary.
The assets of an international trust are not subject to estate duty in Cyprus.
Trusts are usually used by wealthy individuals for the purpose of protecting their inheritance or capital gains taxes in their home country. They can also be used by expatriates settling into a trust before repatriating, assets acquired while working abroad, to protect such assets from the tax net of their home country.
Double Tax Treaties
It is possible for trusts to come under the score of double taxation treaties. This will depend on whether the other signatory state recognizes trust structures and principles of equity and whether the trust itself meets the eligibility criteria set out in the given treaty.
Advantages of a Cyprus Trust
Trusts created in Cyprus can prove advantageous for a number of reasons. The following are examples:
Divesting of Personal Assets
An individual who wishes to divest himself of personal assets for fiscal or other reasons can achieve this by transferring them to an International Trust created in Cyprus.
Individuals moving to a high tax country may obtain fiscal advantages in their new country by placing funds in an International Trust created in Cyprus.
Investing in Business Overseas
An individual, who wishes to invest in business overseas but wishes to ensure that the profits and dividends received are not remitted to the country of his residence, may set up an International Trust in Cyprus to invest in overseas business.
Investment Holding Company
A trust can be used in one country to own an underlying investment holing company in another. This type of tax planning device has many advantages in providing the maximum possible protection for both settlor and beneficially alike.
An individual with assets outside his country of residence and whose country of residence may in future extend its exchange control restrictions to include remittance of overseas funds, may wish to retain the flexibility of overseas funds by transferring them to an International Trust created in Cyprus.
Global Estate Planning
An individual, through the use of a trust can arrange to be succeeded in inheritance by persons who due to the legislation of the individual’s country would otherwise be excluded from the inheritance.
The legal system is a common law system with trust legislation and case law.
Cyprus offers both political and economic stability. In addition to the latter, Cyprus is full Member State of the European Union since 1st of May 2004.
There is no registration or reporting requirements for trusts established in Cyprus nor are the names of trust or of the persons referred to in the trust deed disclosed. The only authority to be informed of the creation of an International Trust is the Central Bank of Cyprus and only in cases where bank accounts are opened in Cyprus. Again no names are disclosed.
Cyprus law allows the removal of a trust from its jurisdiction and vice versa. In this way it provides the necessary flexibility if such transfer would be advantageous because of change of circumstances.
THE CYPRUS INTERNATIONAL TRUST
FREQUENTLY ASKED QUESTIONS
ASSET PROTECTION & CYPRUS LNTERNATIONAL TRUSTS
A. WHAT DOES ASSET PROTECTION MEAN? Asset protection is the adoption of advance planning techniques which place one’s assets beyond the reach of future potential creditors. In our practice, it does not involve hiding assets, nor is it based upon secret agreements or fraudulent transfers. It is based upon proven sophisticated combinations of business and estate planning techniques. The methods employed vary from outright gifts to the sophisticated use of limited partnerships and offshore trusts.
B. WHO SHOULD CONSIDER ASSET PROTECTION PLANNING? Any high income, high net worth individual whose business, investment, or other activities expose him or her to potential litigation. Clearly, doctors, lawyers, accountants, real estate developers, corporate directors, executives, and persons in similar occupations are exposed. A net worth of approximately $500,000 is a guideline point where the benefits of sophisticated asset protection planning begin to outweigh the costs. However, many levels of asset protection planning are available, and some strategies are available to almost everyone.
C. HOW DO LAWYERS DECIDE WHETHER TO SUE SOMEONE? When a potential client consults a litigator, the attorney will analyze the merits of the client’s case, and, if the case looks strong, make a determination regarding whether a judgment, if won, can be collected. If the lawyer does not believe he can collect the judgment-the source of his fee - he will not take the case. Sophisticated asset protection planning reduces or eliminates the ability of a creditor to collect a judgment from you, making you an unattractive target for the litigator.
D. THE CONCEPT OF TRUSTS GENERALLY
The various types of trust vary in complexity but they have one common fundamental feature. A "person" being either an individual or a company (’4he trustee") agrees to hold certain assets ("the trust fund") in its name for the benefit of another person ("the beneficiary") on certain terms and with certain powers (which are usually set out in the Trust Deed). The assets comprising the trust fund are legally held and registered as owned by the trustee and the trustee is under a duty, enforceable in the Courts, to hold those assets and the income arising from them for the benefit of the beneficiary (ies).
The above relationship can be summarized as follows: The trustee has legal title to the trust assets and the beneficiary has beneficial or equitable title (it is the beneficial title which is of value when one is considering asset ownership).
The other important parties of the trust are:
• The settler: This is the person that creates the trust. In some jurisdictions the settlor could not act as trustee or be a beneficiary. In the Cyprus jurisdiction, the settlor can also be a trustee or beneficiary.
• The protector: This is the person(s) that has the power to restrict key powers (such as add beneficiaries, etc.) of the trustee so that they can only be exercised with the consent of suitable person.
E. THE CYPRUS INTERNATIONAL TRUST
The international trust is a trust whereby:
• The settlor is not a permanent resident of Cyprus
• The trust property does not include immovable properly in Cyprus
• At least one trustee is resident in Cyprus.
The nature of me Cyprus international trust could be "discretionary".
As the name suggests the discretionary trust allows the trustee to exercise a large element of discretion with regard to distribution of income and assets, and to choose from a large "pool" of potential beneficiaries. The selection of beneficiaries from the "pool" could vary every year.
F. BENEFITS OF CYPRUS INTERNATIONAL TRUSTS
The following benefits relate to Cyprus International Trusts:
• Income, gains and profits are exempted form income tax, capital gains tax, special contribution or any other taxes in Cyprus.
• No estate duty or inheritance tax in Cyprus
• Registration is optional therefore confidentiality is safeguarded (expect under a disclosure order by a court in Cyprus).
• There is no taxation of International Trusts or their income in Cyprus.
• May be used to reduce or eliminate inheritance tax of the settlor.
• May be used to distribute untaxed income in Cyprus to the beneficiaries, i.e. family member
• Ideal for "high worth" individuals
• Especially ideal for "high worth" individuals with slightly complicated family structures i.e. divorced and children from different spouses.
• Trust may hold shares of Cyprus company with Cypriot nominees for confidentiality.
• No exchange control regulations.
• The same person can be the settlor, the trustee (through Cyprus offshore company, in which he/she can be the sole director and he/she can be the only beneficial owner of the shares) and also a beneficiary• i.e. a n individual could have directly absolute control and ownership of the trust fund.
• An International Trust may from a Cyprus international business company, partnership or branch and obtain the benefits available to them.
• An International Trust may carry out business in Cyprus subject of course to the laws of the country which are imposed on the beneficiaries and not on the trust itself.
• There are no reporting requirements in Cyprus for the International Trusts.
• Trust capital received in Cyprus by a foreigner resident or retired in Cyprus from trusts not resident in Cyprus is not taxable on the trustee.
• Dividends, interest or royalties received by an International Trust from a Cyprus international business company are not taxable and not subject to any-withholding tax.
Asset protection - Time limit for filin2 actions against an International Trust
An International trust shall not be void or voidable in the event of the settlor’s bankruptcy or liquidation or in any action or proceedings against the settlor or at the suit of his creditors not with standing any provision of the law of Cyprus or any other country.
An International Trust may be set aside by the settlor’s creditors to the extend that is proven to the satisfaction of the Cyprus Court that the International Trust was made by the settlor with the intent to defraud the creditors. The onus of proof of this intent shall be on the creditors. The creditors shall prove that the trust was made with the intent to defraud them and uoat they were creditors at the time of the making of the trust. An action by creditor against a trustee of an international trust shall be brought within a period of two years from the date when the transfer or disposal of assets was made by me Settlor to the trust.
Inheritance & Succession Law
The Inheritance and succession Law of the Republic of Cyprus as well as of any-other country does not affect in any way the transfer or disposition of assets by the Settlor or the validity of the International trust.
Removal from the Jurisdiction
Cyprus Law allows for the removal of a trust from its jurisdiction, hereby providing for the necessary flexibility in cases where a change of circumstances may mean such transfers would be advantageous for fiscal or other reasons.
Confidentiality and non-disclosure
Confidentiality is of paramount importance. No government or Central Bank of Cyprus official may disclose to anybody any information or documents in connection with:
с. Trustees and their duties
d. Accounts or property of the trust
However, a beneficiary is entitled to request from the trustees information about the accounts of the trust. Furthermore, the court may order the disclosure of information or documents in criminal or civil proceedings cases, where the disclosure is important.
A Cyprus international trust is subject to stamp duty of € 430. If the trust deed is stamped more than 30 days after the date of creation of the trust, a late payment fine is charged. The amount of the late payment fine depends on the length of the delay.
G. TYPES OF CYPRUS TRUSTS
Under this trust, the trustees have a general discretion over the amount of benefits and the manner by which the beneficiaries might enjoy such benefits. The beneficiaries may be defined according to name or reference to a class (ie the settllor’s children) or simply left to the full discretion of the trustees. Usually, the settlor indicates to the trustees his wishes of the disposal of the trust property by means of a Letter of Wishes.
Should the settlor wish to give a more positive guidance than relying on a Letter of Wishes, it is possible to include a third party in the trust deed known as the "protector" or "nominator". The protector’s role is to prevent the trustees from exercising their discretion in certain circumstances. The trustees will usually exercise their discretion with the prior consent of the protector or nominator.
Under a fixed trust the trustees have no discretion in distributing the trust assets to the beneficiaries. For example, under such a trust the trustees are directed to distribute the income to a designated individual for a fixed period of time and thereafter distribute the capital of the trust to a specific beneficiary or beneficiaries.
Fixed and Discretionary Trust
This type of trust gives discretion to the trustees over the distribution of income for a period of time. However, they may be required to distribute the income to a specified individual or individuals in fixed amounts, while maintaining discretion over the distribution of the capital amongst a class of beneficiaries.
This trust is appropriate when a beneficiary is given a life interest which may become discretionary on certain defined events, such as the bankruptcy of the beneficiary
Declaration of Trust
This is a variation of the discretionary trust in which the settlor is not named in the trust deed and the trustees declare that they hold the assets which were transferred to them on trust In such a case, the trustees accept a Letter of Wishes.
Under this trust the trustee is usually a limited liability company which has powers to carry on business, and the trust has trading functions and employees to manage its business. Since all documentation used is in the name of the trust company, third parties are not aware of the existence of the trust.
H. PROTECTIVE TRUST CLAUSES
The protection available through the use of a Cyprus International Trust may be enhanced through creative drafting. The following is a brief description of certain provisions which may be included in the International Trust in order to achieve such enhancement.
Trust Protector Clause: The trust protector clause, enables a designated person or persons, other than the trustee, to exercise certain powers with respect to the trust.
Examples of common trust protector powers include: removal and replacement of trustees, veto of discretionary actions of trustees, consent lo trust amendments proposed by trustees. Properly structured, the provision can permit the trust protector to retain significant negative controls over any specified aspect of the trust. As with provisions appointing trustees, the trust protector provision should include language addressing vacancies, succession, and related issues.
Duress Clause: As discussed above, a trust may empower a person or persons other than the trustees to advise the trustees, or to direct or veto an act or decision of the trustees, and/or trust may grant a non-trustee the power to remove and replace a trustee with or without cause. The typical duress clause will direct the trustee to ignore any such advice, order, or instruction where such is given under duress by the person granted such powers under the instrument. A duress provision is quite effective where the power holder is located in one jurisdiction, and the trustee, who can ignore a duress driven directive, is located in another jurisdiction (as would be the case with a typical offshore trust). As a result of such jurisdictional diversification, a carefully constructed duress provision can have the effect of permitting the retention or granting of significant control over the trust, by or to non-trustees, such as the settlor or other persons, while at the same time precluding the effective forced exercise of such powers.
Flight Clause: The flight clause permits the trustee to change the trust situs and/or governing law if the trustee deems such change to be advisable in order to protect the trust from a potential threat of any kind. Such a provision is commonly included in a trust to address various situations, not the least of which is civil unrest, or an unfavorable change in the law or political climate of the situs jurisdiction. The functionality of the flight clause can be substantially enhanced by coupling it with a power of attorney held by the trust protector to effect title changes in specified circumstances.
Thus structured, the flight clause provides a substantial safety net for a trust in the event of an unfavorable change in the lex domicilii, civil unrest or political change in the situs jurisdiction, or in the event of an anticipated attack on the trust by a creditor. Such a provision would permit a trust to change its situs, governing law, and the courts in which litigation concerning it must be brought - an important asset protection tool in the face of an oncoming creditor challenge against the trust.
Spendthrift Clause: A spendthrift clause is a restraint on the voluntary or involuntary alienation of a beneficiary’s interest in a trust. Such clauses are sometimes augmented by language which provides for a forfeiture of a beneficiary’s trust interest upon an attempt by the beneficiary to transfer it, or by this creditors to reach it, or language which converts required trust distributions into discretionary distributions upon the occurrence of certain creditor related events.
Significant asset protection advantages can be gained through the use of a Cyprus International Trust. The very fact that the Asset Protection Trust is a Cyprus International Trust will have a significant deterrent effect on the Creditor’s decision regarding whether or to what extent to pursue assets. Advance Planning is the key to effective asset protection.