A trust is a relationship that arises when a property is vested in a person called the trustee, which is obliged to hold for the benefit of other personas called the beneficiaries. As a general rule, equity does not insist on special formal requirements in order to create a trust as ‘equity looks at the intent rather than the form.’ In particular, a trust entails the separation of legal and beneficial interests in trust property. A settlor is the person who creates the trust by divesting his legal title to the trustee to manage the trust for the best interests of the beneficiaries. The legal ownership of the trust vests in one or more persons or legal entities namely, the trustees who act for the benefit of the beneficiaries. In a trust situation, the relationship between the trustee and beneficiaries is a ‘fiduciary’ relationship as the trustee acts in a fiduciary capacity, serving the best interests of the beneficiaries of the trust.
A trustee has a legal obligation to manage the day-to-day operations of the trust including investing the trust’s assets, disbursing payments to beneficiaries as conferred upon him by the trust instrument. A trustee can be anyone over the age of 18, however, a trust may be better served by appointing a professional as the demands of administrating a trust may become cumbersome and time-consuming. For those who are not comfortable with the idea of having an ‘outsider’ managing the trust, it is possible to have a family member acting as a co-trustee. An additional option is to appoint a ‘trust protector’ who will be able to review financial accounts and ensure that the trust is properly managed.
Letter of Wishes
A settlor may express his wishes in relation to the way of the management of the trust. However, it should be noted that the letter of wishes is not legally binding upon the trustee or the beneficiaries of the trust. However, even though the letter of wishes is not legally binding, it may provide the trustee with guidance on how the trust should be executed including the distribution of trust property to the beneficiaries.Accordingly, the trustee is not obliged to follow the wishes of the settlor as they are not binding but they may take them into consideration when making a decision regarding the management of the trust property.
Common Considerations of Trustees
It is vital for the proper creation and management of the trust, the trustee to be able to ascertain the beneficiaries or the class of beneficiaries benefiting from the trust in order to act for their best interests. A trustee should be aware of his duty to keep records of certain basic information regarding each beneficiary, such as beneficiary’s personal details, employment status and state of health in order to ascertain beneficiary’s cash-flow requirements and needs. Also, a trustee should act impartially having in mind the best interests of the beneficiaries as determined by the trust instrument. It should be noted that a trustee owes a duty of care to the beneficiaries to perform his role prudently.
Our team of Advocates have vast experience on Cyprus International Trusts and are happy to provide advice and assistance on all matters relating to the creation and administration of trusts.