STEP Chairwoman Nicky Xenofontos: Why trusts are for everyone and the four main benefits of setting up one in Cyprus

Trusts are seen as an effective way for people to secure their assets for future generations and Cyprus has become an attractive destination for trusts, which offer the highest possible degree of asset protection for the purpose of estate planning internationally, along with tax benefits and strict confidentiality.

Nicky Xenofontos, Chairwoman of STEP (The Society of Trust and Estate Practitioners) in Cyprus, elaborates.

Tell us about STEP’s activities in Cyprus.

STEP is a global professional body, with more than 22,000 members comprising lawyers, accountants, trustees and other practitioners that help families plan for their futures. Its mission is to inspire confidence in families as they plan for their assets across generations, by setting and upholding high professional standards, informing public policy, promoting education and connecting practitioners globally to share knowledge and best practices.

Full STEP members, known as Trust and Estate Practitioners (TEPs), are internationally recognised as experts in their field, with proven qualifications and experience. With a total of 180 members, STEP Cyprus is one of the most active and largest branches worldwide per capita. It holds its annual international conference every April, attracting local and foreign professionals either as speakers or participants. Apart from the annual conference, throughout the year, the Branch offers various free webinars and seminars to its members on specific industry topics, the core of which is trusts, enhancing its members’ knowledge and bringing them up to date with the latest industry developments. The Branch also participates actively in parliamentary sessions providing views and suggestions on draft bills of law, shaping law reform, offering its expertise and knowledge to government authorities and educating those who have the power to influence decisions, laws and regulations.

The Branch is also in the process of establishing its own education programme – a postgraduate diploma in Trust Law for professionals who wish to obtain a specialised certification. More information about this programme, which will be provided in association with a local university, will be available in the near future.

As specialists in inheritance and succession planning, STEP members draft wills and trusts, administer estates, act as trustees and advise families on how best to structure their finances to ensure compliance and preserve their assets for future generations, in addition to providing guidance to their fellow members on best practices in their day-to-day work.

How has Cyprus developed as a destination for trusts? What are the benefits available in Cyprus for non-domiciled individuals wishing to establish a trust?

Historically, Cyprus being a common law jurisdiction and having adopted the principles of English law of equity, has years of practice in the legal field of trusts. It is not something that popped up overnight or was introduced into the legal system recently. The advantageous Cyprus International Trust regime enables non-domiciled individuals to create a trust in Cyprus and enjoy the highest possible degree of asset protection and estate planning internationally, along with the accompanying tax benefits and strict confidentiality. If I had to pinpoint the four most beneficial reasons for setting up a trust, they would be (1) asset protection, (2) the non-applicability of foreign succession laws on the trust’s assets (avoiding forced heirship regimes), (3) tax efficiency and (4) confidentiality, insofar as it can be upheld and balanced with reporting and regulatory disclosures.

What are the limitations on a Cypriot citizen establishing a trust, given the local law of forced heirship, especially with changing family dynamics (same-sex couples, divorced individuals, unmarried settlors, etc.)?

Essentially, there are no limitations per se. A Cypriot can set up a ‘local’ trust, governed by the Trustees Law, Cap. 193 of 1959 and not the Cyprus International Trusts Law of 1992. In succession planning, a trust is a beautiful tool for dealing with forced heirship rules, allowing an individual to choose to leave his/her legacy to other individuals, charities or organisations as he/she pleases. The concept of forced heirship can significantly impact how one’s estate is distributed after death. Deeply rooted in the Cypriot legal system, it dictates that a portion of one’s estate must be allocated to specific family members, regardless of one’s personal wishes. For many people, this can create complications, especially in cases of blended families, international assets or unique inheritance intentions. Fortunately, the trust mechanism can deal with this.

You referred to families in your mission statement, and yet, to many people, the word ‘trust’ still tends to conjure up an association with the super-rich. Can you explain how trusts can be beneficial for people of different financial backgrounds?

This is a misconstrued and misunderstood notion. Unfortunately, as you say, trusts are often misunderstood as tools reserved for the wealthy but, in reality, they’re accessible and beneficial to people across a variety of financial backgrounds. They offer a unique way to protect assets, save on taxes and ensure that an individual’s wishes are respected, making them a vital component of estate planning and succession, thereby securing a legacy for generations.

Are there measures in place to prevent uncertified individuals from offering trust services?

Compared to other European countries where such services exist and are recognised, though not necessarily through specific laws, this is not the case in Cyprus. The provision of fiduciary services is regulated by Law 196/2012 on Companies providing Administrative Services and Related Matters along with other European directives and other local rules. STEP Cyprus has some proposals in the works in connection with the drafting, administering and management of trusts – a very specific topic requiring expert knowledge and experience – but these are still at an early stage of assessment.

How does STEP promote specialisation among professionals in the field of trusts?

By sharing knowledge, by providing professional training sessions and seminars. We strongly believe that one of the most important areas that we can develop as professionals is competence in accessing and sharing knowledge and this is exactly what we do.

This interview first appeared in the November edition of GOLD magazine. Click here to view it.