You have spent your life making investments, saving cash, and building a diverse portfolio. You now want to safeguard your hard-earned money with a comprehensive asset protection plan. If you are looking for a safe place to protect your assets from creditors, or if you simply want to set aside certain assets to bequeath to your children, a Cyprus Trust can provide an effective form of asset protection.
As an international jurisdiction, Cyprus offers favorable tax regulations for trusts. You need to select the right type of trust for your purpose, whether that’s asset protection or estate planning. To best protect your financial future, learn the benefits and challenges of Cyprus Trusts and how they compare to trusts in other offshore jurisdictions.
What Is a Cyprus Trust?
A Cyprus Trust is a form of an asset protection trust governed under the laws of Cyprus, an island country south of Turkey with favorable tax policies for foreign assets.
A trust is a legal agreement between a business or asset owner (the settlor) and another person (the trustee). You and the trustee sign the trust deed, which outlines the terms, duties, and powers of the trustee. As the settlor, you sign over the legal title of your property or other asset to the trustee, who distributes or cares for the asset according to the terms of the trust and for the benefit of the beneficiary.
You can use a trust to protect your assets from legal threats. Whereas domestic trusts have a history of creditor challenges, Cyprus Trusts are not subject to United States law, so they are a secure and reliable form of asset protection.
Types of Trusts in Cyprus
To protect your assets with a Cyprus Trust, you will choose one of the following types.
To establish an express trust, you (the settlor) outline clear terms in writing. The trust can be either private or public, but it must adhere to specific requirements to maintain its validity. This is the simplest and most common type of Cyprus Trust.
Fixed Interest Trusts
In a fixed-interest trust, you dictate specific terms and proportions under which the beneficiaries receive assets. You can establish a trust and dictate that each of your children (the beneficiaries) receive a third of the assets in certain amounts each year.
With a fixed-interest trust, the trustee has less control over distributing assets to the beneficiaries since they simply follow the terms in the trust agreement.
Accepted Assets in a Cyprus Trust
You can designate a wide variety of assets as part of a Cyprus Trust. The most common assets protected within a Cyprus Trust include:
- Shares, stocks, or debentures for an incorporated entity
- Cash and cryptocurrency
- Money held as liquidity in bank accounts
- Jewelry and precious gemstones or metals
- Deeds for land ownership
- Houses, apartments, or other real estate assets
- Paintings and other valuable artwork
Benefits of Cyprus Trusts
Establishing an international trust in Cyprus offers the benefits detailed below.
A Cyprus Trust is a secure method of protecting your assets for your beneficiaries. Not only does a Cyprus Trust impose a two-year limitation period for challenges to the trust’s transfer of assets, but only challenges able to prove the defrauding of creditors are valid under Cyprus law.
Laws of succession in your home country, including court orders, won’t affect the validity of your Cyprus Trust, making it an ideal solution to circumvent governmental legal action.
Protecting your assets through a Cyprus Trust is one of the best ways to plan for your estate to pass to your inheritors. By setting up an explicit or fixed-interest trust, you can determine how much money your beneficiaries will receive without worrying about how much they’ll have left after taxes.
Challenges and Risks in Cyprus Trusts
While a Cyprus Trust is one of the most secure and reliable methods of sheltering your assets, the process has several challenges you need to be aware of.
Changing Legal and Regulatory Environment
Even in the most asset-friendly countries, laws and regulations can change. While investors foresee a bright and stable future for trusts in Cyprus and comparable countries, establishing an international trust is never without risk.
If Cyprus or international law changes in a way that disadvantages your assets, Blake Harris Law can work with you to discover other avenues to secure the financial future for your beneficiaries.
Cyprus’s most recent major tax changes occurred in 2021 and attempt to prevent tax abuse and more adequately comply with guidelines in the European Union. These changes affect the tax rate on dividends, interest, and royalty payments for Cyprus residents and thus don’t affect Cyprus Trusts.
However, the recent change in the tax code highlights the minimal yet potential risk to Cyprus Trusts. Tax codes can change, but Blake Harris Law can help you navigate those changes to minimize the effect these changes have on your assets.
The only event that can challenge a Cyprus Trust is a creditor claiming you’re using the trust to defraud them. The burden of proof lies with them, however. As long as the operation of your trust is legal, your trust is safe from creditor claims, which isn’t true with domestic trusts (Cyprus International Trust Purposes – #1 Asset Protection – Panayiotis Z. Toulouras LLC).
Cyprus Trust Taxation Framework
Cyprus Trusts maintain a transparent tax framework with the following characteristics:
- The trustee is responsible for providing all relevant information about the trust, including its beneficiaries.
- The trustee must maintain the compliance and legality of the trust.
- Dividends and passive income are exempt from income taxes in Cyprus, however, taxes in your home country still may apply.
Comparison with Other Jurisdictions
When considering a Cyprus Trust, or any asset protection trust, it’s crucial to compare all elements of each option.
Cyprus Trusts vs. Other Offshore Trusts
Cyprus consistently ranks near the top of lists for the best offshore trust locations. Two other popular options consistently compete with Cyprus as secure and reliable offshore trust locations:
- A Cook Islands Trust offers the same protection against challenges from creditors and has comparable tax frameworks and protections.
- The Cayman Islands remain a popular source of offshore trusts because it requires the challenging creditor to fund the trust challenge while maintaining a high burden of proof.
Cyprus Trusts vs. U.S. Jurisdictions
When compared to trusts under common law jurisdictions, a Cyprus Trust maintains significantly better reliability and security against government or creditor intervention. The rules and regulations governing a common law trust differ depending on the state in which it’s established. Many states, such as Delaware, have constantly changing regulations surrounding trusts, making them a complex and risky endeavor when compared to the offshore trusts of Cyprus, the Cook Islands, and the Cayman Islands.
Asset holders who wish to better protect their wealth and mitigate both challenges and complications to their trusts are wise to consider offshore trusts over those of domestic jurisdictions.
Consult Blake Harris Law for Reliable Asset Protection With an Offshore Trust
If you want to protect your business or personal assets, Blake Harris Law has extensive experience in domestic and international asset protection planning. Our experience allows us to establish Cyprus Trusts as well as trusts in other jurisdictions, allowing us to effectively establish asset protection in places like the Cook Islands.
To protect your assets from scrutiny or legal action, don’t wait another day to decide how to protect yourself. Contact Blake Harris Law today and start the process of establishing your Cook Islands Trust to secure your future.