Preserve Your Wealth By Jarl Moe

TRUST SERVICES

When you speak to the President of TaxWizards Mr. Jarl Moe you will learn that a fiduciary structure can not only help to preserve your wealth but can also offer you greater flexibility over the management and distribution of your assets. The most common type of fiduciary structure is a trust, a binding arrangement whereby assets are transferred to a "trustee". The trustee is required to administer the trust assets for the benefit of specified beneficiaries strictly in accordance with the terms of the trust.

The Benefits of Offshore Trust
The placing of assets and title to property in the trust is where the lion's share of the confidentiality and protection from liability benefits of the offshore trust are garnered. While the legal title passes to the trustee, who must fulfill obligations set out in the trust, the intent of the trust is to provide for the beneficiaries, of which the settlor may be, and often is, a listed participant. These beneficiaries hold very strong rights with respect to the interests in the trust and most jurisdictions recognize that the intent is to provide the defined benefits for the beneficiaries and rule favorably in their direction when questions as to the management of the trust arise.

Because these offshore trusts are almost always found in tax havens or low-regulation jurisdictions with a reputation for the safeguarding of assets and superb confidentiality, the offshore trust also benefits from these features. Assets managed within offshore trusts are for the most part free from the sometimes suffocating legal burdens applicable in a settlor's home country or jurisdiction. If the trust is formed to arrange for the benefit of the one who formed the trust and/or spouses, children or other heirs of the settlor, for example, the offshore trust may provide a haven from intense inheritance scrutiny and taxation. Further, based on their formation in low-regulation havens, offshore trusts offer unparalleled confidentiality, increased protection from the perils of civil litigation and liability, and even from such things as divorce or business dissolutions. They are also used by many for protection of assets. In the event of home jurisdiction political or economic turmoil it is extremely difficult, save in situations of accusations of a severe criminal offense, for an outside entity to pierce the confidentiality shield inherent to an offshore trust in most jurisdictions.

Where to form an Offshore Trust
Offshore trusts are often formed in low-taxation or low-regulation havens that have a proven reputation for the successful management and execution of trusts and trust funds. Jarl Moe is of the opinion however that it's not absolutely necessary for a suitable location to be a tax haven or have lax regulations - many of the successful trust formation jurisdictions and countries simply offer renown, experienced trust companies coupled with superb confidentiality and with substantial asset shields. One common denominator is that these jurisdictions base their trust regulations and statutes on the English common law. This is because the very idea of trust formation is an old English idea dating back to the time of the Crusades. Other European jurisdictions that offer successful trust administration, such as Luxembourg, Malta, Switzerland, etc., have adapted their statutes and regulations to conform with the proper trust administration models set forth by those based on the English common law.

Other Considerations
The formation of an offshore trust requires a realistic assessment of the goals and intent of a potential settlor, and will usurp some resources in its establishment and maintenance. Thus, serious, committed research, and advice and assistance from experienced and knowledgeable agents is a must.

Forming an offshore trust provides for substantial protection for assets from untoward scrutiny, litigation, and civil strife. It should be apparent that while the cost of formation and maintenance may be considered substantial, the establishment of an offshore trust will provide for sound peace of mind for those looking to protect their substantial assets or provide for their children in the long term.

Advantages of a Cyprus Trust
There are many situations where Cyprus Trusts can prove advantageous. Some of such situations are listed below, though this list is by no means exhaustive:

  • an individual who has income arising overseas which he does not wish to remit to his country of residence, can arrange for such income to be directed to the Trustees of a Cyprus Settlement to be held on Discretionary Trusts, in accordance with the Trust Deed and his Letter of Wishes
  • an individual with assets outside his country of residence, whose country of residence could 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 a Discretionary Trust
  • an individual who wishes to divest himself of personal assets for fiscal or other reasons can achieve it by transferring them to a Cypriot International Trust
  • persons permanently leaving one country and taking up residence in another, may obtain fiscal advantages in their new country by placing funds in an appropriate Settlement in Cyprus
  • an individual who wishes to ensure that the profits and dividends received are not remitted to the country of his residence, may set up an Offshore Settlement to in-vest in overseas business
  • an individual who wishes to keep the ownership of a company anonymous and confidential, can do this by setting up a Discretionary Trust which owns the shares in the company. This is a particularly useful and popular vehicle for carrying out trading and financial activities, particularly for residents of countries which do not recognise the concept of Trust
  • a Trust can be used in one country to own an underlying investment holding company in another. This type of tax planning device has many advantages providing the maximum possible protection for both Settlor and Beneficiaries alike.

Types of Trust
As already mentioned my Jarl Moe most types of Trusts can be set up in Cyprus. The choice of type will obviously depend on the circumstances of the Settlor and the objectives he is trying to achieve in creating the Trust.

Discretionary Trust
A Trust which is common in Cyprus is the Discretionary Trust which gives the Trustees discretion to exercise their own judgment as to the manner and amount by which the Beneficiaries might benefit.

The Beneficiaries may be defined either by name or by reference to a class or per-sons (i.e. the Settlor's children or grandchildren) or merely left to the full discretion of the Trustees. It is usual for the Settlor to indicate to the Trustees his wishes as to the disposal of the Trust property by means of a Letter of Wishes.

Where the Settlor wishes to give a more positive guidance than relying on a Letter of Wishes, it is possible to include a further party into the Trust Deed who is known as the "Protector" or "Nominator". The Protector's role is negative in that he can only prevent the Trustees from exercising their discretion in certain circumstances. The Trustees will usually exercise their discretion with prior consent of the Protector or Nominator.

Fixed Trust
Another type of Trust is a Fixed Trust which does not give the Trustees any discretion when distributing the Trust assets to the Beneficiaries. An example of this type of Trust is one which requires the Trustees to distribute the income of the Trust property to a particular individual during that individual's lifetime and thereafter distribute the capital to a named Beneficiary or Beneficiaries in specified shares.

Fixed and Discretionary Trust
It is possible to have a combination of a Fixed and a Discretionary Trust. The Trustees may have discretion as to the distribution of income for a period of time, but are required to distribute the capital ultimately in fixed proportions. Conversely, they may be required to distribute the income to a specified person or persons in fixed proportions but may have discretion as to how to distribute the capital amongst a class of Beneficiaries.

Protective Trust
A Protective Trust may be created by virtue of which a Beneficiary may be given a life interest which may become effective upon the happening of certain defined events such as the bankruptcy of the Beneficiary.

The simple Declaration of Trust
This form is a variation of the Discretionary Trust. 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 this case, the Trustees accept a Letter of Wishes.

Trading Trust
Under a Trading Trust the Trustee is usually a limited liability company which has powers to carry on business and the Trust has trading functions and has employees to manage its business. Third parties are not aware of the existence of the Trust as all documentation used is in the name of the Trustee company.

Contents of a Deed setting up a Cyprus Trust

  • the transfer of the Trust property from the Settlor to the Trustees
  • a provision whereby the Trustees can accept further property as part of the Trust property
  • the length of the Trust period. The maximum period in Cyprus is a life in being, plus 21 years
  • a statement of the Beneficiaries by name and/or class
  • the powers and duties of the Trustees
  • a statement of the law the Trust Deed is subject to
  • a statement of the period during which income may be accumulated. Accumulations may be made for the whole period of the Trust.

TAXATION

Cyprus International Trusts enjoy important tax advantages, providing significant tax planning possibilities to interested parties. Although taxation considerations relating to Trust are fairly complicated, the following advantages are perhaps worth mentioning:

  • the income of an International Trust is not taxable in Cyprus. The “deeming” provisions are also not applicable in the case of an International Trust because the Beneficiaries are not resident in Cyprus
  • if the Trust money is placed on deposit with a local bank in Cyprus, the interest earned is exempt, because interest earned on foreign capital imported from abroad and deposited with a bank in Cyprus is exempt. Interest on deposits with Cyprus Offshore Banking Units or with any bank around the world is also exempt, as it is not considered as income accrued, derived or received in Cyprus.
  • an alien who creates an International irrevocable 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. If the retired Settlor remits income to Cyprus other than Trust distributions, which is of investment nature, he is taxable at 5 per cent. The same applies to Trust distributions of an investment nature
  • an International Trust created for estate duty planning purposes would not be subject to estate duty in Cyprus, as the Settlor who is not domiciled in Cyprus, has divested himself of property and the Trust has no property in Cyprus. Whether the Settlor and the Beneficiaries avoid estate duty in their own country will depend on that country's legislation. The existence of a double taxation treaty may be an advantage but they may have to be resident or domiciled in Cyprus.