What is a Trust?
A trust is a legal arrangement in which one party, known as the “Settlor” transfers ownership of assets to another party, known as the “trustee,” for the benefit of a third party, known as the “beneficiary.” Settlors can be beneficiaries, too.
There are several key components of a trust:
- Settlor. The person who establishes the trust and transfers assets into it. The settlor outlines the terms and conditions of the trust.
- Trustee: The person or entity responsible for managing the assets within the trust according to the terms specified by the settlor. Trustees have a fiduciary duty to act in the best interest of the beneficiaries.
- Beneficiary: The individual or individuals who will receive the benefits of the trust, such as financial support, property, or other assets, as outlined by the trust agreement.
- Trust Agreement: The legal document that outlines the terms, conditions, and instructions for how the trust’s assets should be managed and distributed. This document specifies the rights and responsibilities of the trustee and beneficiaries.
Trusts can serve various purposes, including:
- Estate Planning: Trusts can help individuals distribute their assets after death according to their wishes, potentially minimizing estate taxes and avoiding the probate process.
- Asset Protection: Certain types of trusts can shield assets from creditors or legal claims, providing a level of protection.
- Charitable Giving: Charitable trusts allow individuals to donate assets to a charitable organization while still providing income or benefits to themselves or their beneficiaries.
- Special Needs Planning: Trusts can be established to provide for the financial needs of individuals with disabilities without jeopardizing their eligibility for government benefits.
- Privacy: Trusts can keep asset distribution details private, as opposed to Wills, which become part of the public record during the probate process.
Benefits of using a Trust for a Cyprus property…..
No probate, ever! A potentially tremendous saving in costs and delay.
The Trust owns the property, and the Trust does not die.
The Settlor (property owner) is usually the primary beneficiary, so can benefit from the sale of the property.
The Settlor chooses the beneficiaries entirely at their discretion and is not subject to forced heirship rules.
The Trust is not subject to public scrutiny, as a Will would be.
The property does not automatically become part of the beneficiaries estate, which means it can be excluded from divorce settlements. The beneficiary doesn’t automatically own the property, so has no rights over it, except as given by the Trust Deed.
Potential downsides….
- The process is similar to gifting and a tax clearance certificate is needed.
- Council of Ministers approval is required, but usually a formality.
- Capital Gains Tax relief may be reduced on the eventual sale.
- Annual Trustee fees may apply.
- May not be effective for UK IHT reduction if the settlor is a beneficiary or continues to use the property as their own.
