– The law does not fix the limit where the settlor’s retained powers disqualify the trust.
– The trust deed should not give revocable powers
– The trust deed should not reserve non fiduciary powers that allow actions against the interest of the Trust.
– One question remains whether the trust deed in a Cyprus company should be replaced by a Cyprus International Trust.
Section 4a: Settlor retains control on administration
Subsection 1: Settlor retains real powers:
- a) To revoke and amend the Trust deed
- b) To give directions on the capital and salaries
- c) To appoint himself as protector and to appoint directors
- d) To retain investment power directions on the trustee
- e) To appoint and remove
- f) To select investment managers and bankers
- g) To impose the necessity of his consent on certain issues
The problem lies in the invalidity of the trust for lack of certainty of intention from the settlor or requalification of the trust as a will since once the settlor is dead the trustee has no powers left.
Revocability of trust
The Court favored the creditor against trust, the powers of the settlor were revoked so that there may be access to the property in order to pay the creditor.
The trustee’s investment powers allow him to act as if owned the asset, i.e. immovable property, the criteria for trustee liability is the reasonable person. The trustee has all powers of reasonable man next to the trust deeds listed powers. In Cyprus the case law protects trustees against beneficiaries disagreeing to orders. The trustee has a duty of care and a duty of good faith. The trustee usually cannot delegate his power and is liable to third parties in an unlimited way, and if the third party knows he is acting as a trustee the claim will be limited to the trust property.
The protector can be a person or a committee whose usual role of control is fiduciary. The protector is discharged of liability if the trustee has fiduciary duties. The trustee is discharged of liability if he follows directions based on the exclusive fiduciary powers of the protector as long as these powers are duties towards the beneficiary. The trustee can refuse to disclose information to the beneficiary if he is in the opinion that it is in the interest of the trust, however both trustee and protector must be accountable to the beneficiary.
Cyprus: The trustee can refuse disclosure in a discretionary trust. The Court has discretionary power to decide what is appropriate for disclosure.
No beneficiary described individuals, not a charitable purpose. In Cyprus a purpose trust can have a beneficiary.
Perpetuity can be amended if against public order, usually jurisdictions have fixed and unlimited periods.
There is a firewall against foreign forced heirship rules that may not be sustained if the immovable property is based in the country of the forced heirship rules.
Step 1: The settlor’s choice of Cyprus law cannot be challenged.
Step 2: Matters are exclusively reserved under Cyprus Law; i.e. validity, management of the trust.
Step 3: Cyprus Court has exclusive jurisdiction and a foreign judge cannot enforce an order to set aside the trust.
A trust for asset protection is possible unless it is proven that the settlor and the trustee had a common intention to defraud the creditors.
Court procedure delay
The time delay to take action at Court is two years.