If you are conducting an international business, you probably came across such a concept as a “trust”, or perhaps you even wanted to register a trust in Cyprus or, for example, open a trust in the BVI. In today's article we will consider the following:
- The history of trusts;
- The structure of a trust;
- Participants of a trust;
- Trust agreement;
- Types of trusts;
- Features of trusts in different countries.
History of trustsThe concept of “trust” arose relatively recently, but the transfer of property to the trusted persons to handle it for the benefit of the family was practiced for many years by knights participating in the Crusades.
Later, the transfer of assets to “trusts” had become a kind of protection from the creditors of trust founders, as well as from the monarchs. The church was appointed the trustee, as it had special rights, and its property could not be confiscated.
Later, the church also began to provide the services of property management, taking advantage of this position. But periodically there were situations in which the trust managers refused to return the property, citing the fact that it was donated.
Thus, it became necessary to resolve such disputes legally. Through the king’s instructions to “find a way of solving the problem” the so-called “Equity law” was appeared.
Later, in the 16th century, such a transfer of property became an alternative to testaments and an effective way to evade inheritance tax.
What is a “trust” according to lawyersA trust is a fiduciary relationship in which the founder of the trust transfers property to the trustee to handle it in the interests of the beneficiary.
If you want to register a trust in the Isle of Man or in New Zealand, then refer to our company specialists for professional help and advices.
Main specifications of a trustYou should know that a trust exists only through a trust agreement and is not a legal entity. In addition, the trust does not belong to the beneficiary, nor the founder of the trust, nor the trust.
If you decide to register a trust in Cyprus or set up a trust in Singapore, note that a trust will be considered as legally formed when you meet these 3 conditions:
- Specification of intention. The founder of the trust must show a strong desire to register a trust;
- Specification of the object. Identification of the beneficiaries;
- Specification of the subject. The subject of trust should be clearly named and specified.
Key participants of the trustThey are:
- The founder. He creates a trust and its conditions; contributes the property;
- The trustee (other names: property manager). It has obligations to the beneficiaries and must perform asset management in their interests;
- The beneficiaries. They benefit from the trust, do not manage the trust, do not control the actions of the trustee. A trust cannot have a beneficiary (s);
This is the classical structure of a trust, but if you decide to set up a trust in Panama or register a trust in Liechtenstein, you should know that it also includes a protector. He has the right to challenge or control the actions of the trustee.
Trust agreementThere is a written document under which you can set up a trust in the Czech Republic or in other jurisdictions of your choice.
It is called a “trust agreement” and is intended to specify:
- The structure of the core and additional trust funds;
- Procedure for payments to beneficiaries;
- Procedure for registering a trust fund;
- Manager protection and payment for his services;
- Removal or addition of trustees;
- Current legislature.
Those wanting to register a trust in Hong Kong or in any other state must know the structure of the trust agreement:
- Trust conditions: the names of the parties, transfer of property, consent of the trustee, declaration of trust;
- The role of the founder: the powers of the trustee (for example, the right to revoke property, add or exclude beneficiaries, etc);
- Beneficiaries and their rights: beneficiaries are not yet another party to the trust agreement. They have the right to benefit, to get information, the right to demand the dissolution of the trust and claim a part of the property, and, in some cases, may sue the trustee if there is reason to believe that he violated fiduciary duties.
- Protector: this person has the right to consent to certain actions of the manager, exclude him or appoint a new manager, add and appoint beneficiaries, and also, change the rules of the trust agreement
- Period of validity: to set up a trust in the UK or another country, you must specify the period of its validity.
- Other: applicable law (which regulates the trust), competent court (usually at the location of the trustee) and signatures. The signatures are drawn up depending on the requirements of a particular jurisdiction.
The structure of a trustTo set up a trust in Cyprus you should choose a suitable trust structure. As we said earlier, there are simple (founder-manager-beneficiary) and standard (founder-manager-beneficiary-protector) structures of trusts, but there can also be a complicated scheme where a private trust company is included and the trustee manages the shares of such a company.
Types of trusts
- Revocable and Irrevocable . In revocable trusts the founder has the right to withdraw the property back. In irrevocable the founder does not have the right to withdraw the property back and terminate the contract.
- Fixed and Discretionary. Fixed trusts have fixed beneficiaries and their payments. If you decide to register a discretionary trust, then in this case, the manager will independently determine the amount of payments and their distribution among the beneficiaries.
- Private and Public. We receive many requests from clients wanting to register a private trust in Singapore or in another state. This type of trust can also be called a family or investment trust. In turn, public trusts are charitable trusts, where the beneficiaries are charitable foundations.
- International and Local. International trusts are trusts registered in one jurisdiction with the property in another jurisdiction. Local trusts are registered by requirement of the local trustee. When deciding to open an international trust in Switzerland or in another loyal jurisdiction, you will be able to enjoy tax benefits and other benefits.
- Fictitious. The next type of trusts are fictitious trusts. The terms of the trust agreement in this case are not respected. For example, a trust is revocable, and the founder and beneficiary are the same person. Only a court can recognize the falsity of a trust.
- Bare. This is not an inferior form of trust, but rather a commitment. It is used for offshore, when nominee shareholders manage shares in favor of real beneficiaries, and beneficiaries and founders retain control over the assets. If you want to register a bare trust in Panama, then, of course, you understand that the purpose of this type of trust is to hide the real owner.
Why it is favorable to set up a trust in BVI or open a trust in the Isle of Man?Through the trust it is possible to maintain the confidentiality. Since the trust is not the property of the beneficiary or the founder, the property is protected from lawsuits. Therefore, we can talk about asset protection.
With proper planning and management, it becomes possible to reduce the tax liabilities. Also, the long-term ownership and management of assets become possible. It is worth noting that a trust is a great alternative to testaments with a high level of privacy.
Features of trusts in some jurisdictionsThe Isle of Man
To set up a trust on the Isle of Man, you need to contact our specialists, who will tell you in detail about all the nuances of this procedure. It is important to know that if the beneficiary is not a resident of this jurisdiction, then there is no income and capital gain taxes. The maximum period of trust validity in this state is 150 years.
According to the legislation of jurisdiction, no state registration is required. In addition, there are no restrictions on the assets of the trust and their geographical location. The interests of the beneficiaries can be protected by the court, and trustees have a high degree of responsibility.
If you are intended to open a trust in Cyprus, the founder and beneficiaries must be non-residents, and at least one trustee must be a resident. The period of trust validity in this country is not limited (previously the period of validity was 100 years). If the beneficiaries and sources of income are outside the state, then there is no need to pay tax. The stamp duty is 430 euros. The trustee must act in accordance with the law, which is aimed at anti-money laundering.
The Russian Federation
Setting up a trust in the Russian Federation at the moment can be a problematic. It is likely that things may change over time, but for now, we recommend paying attention to other jurisdictions and to register a trust in the Czech Republic or register a trust in Liechtenstein.
You can find out more about trusts in these and other countries by contacting our specialists.
About the controlIt is worth remembering that transferring the property for a trustee, the founder and beneficiary does not have the right to manage the trust and cannot control the actions of the manager.
Therefore, in order to set up a trust in Cyprus or open a trust in Singapore, you must find a reliable trustee. Also, you should be careful when drafting the contract. We will help you to draw up an agreement properly and to avoid troubles or unforeseen situations in the future.
Important notesThere are many misconceptions about the trust. Therefore, if you want to set up a trust in Hong Kong or register a trust in BVI, please, consider the following:
- Trust is not a legal entity;
- Trust can not be bought or sold;
- A trustee is not required to obey the founder or beneficiary in everything;
- Registering a trust does not guarantee a tax exemption;
- There are no guarantees regarding the inviolability of property;
- There is no guaranteed confidentiality of the beneficiary;
- The trust is not subject to state registration.
How to register a trust?If you are interested in registering a trust in England or you would like to set up a trust in Liechtenstein, then YB Case experts will provide you with a full range of consulting and qualified support services.
For more information, please use the contacts listed on the site.