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Trusts: A bastion of stability in troubled seas
12 June 2017
“Yes, man is mortal, but that would be only half the trouble. The worst of it is that he's sometimes unexpectedly mortal — there's the trick!” - Mikhail Bulgakov, The Master and Margarita
A trust allows the individual to package the assets of his choice in a legally secure form, and appoint professionals to oversee these assets, for the benefits of the appointed beneficiaries.
There is a way, tested through centuries, to ensure the passing of wealth to future generations, safely, smoothly, and without hardships or burdens for everyone involved thus predicting what happens with the wealth we generate after we are gone. This is achieved by setting up a trust.
The trust has many advantages, including great tax planning opportunities, as well as ensuring the safe passage of the fruits of your lifetime efforts to your nearest and dearest.
It is a prudent, wise and secure way to ensure the security of your assets ad continuum, even after you are not living.
If you ask yourself the question of what will happen to your wealth in the “what if” scenario, and the answer is not crystal clear and comforting, then it is time to seriously consider a family global investment trust for your wealth.
What is a trust?
A trust is a legal agreement between the settlor and the trustee. By this agreement, a property owner (Settlor) transfers certain assets into a trust in favour of certain beneficiaries. The responsibility to manage these assets for the maximum benefit of the beneficiaries lies with the trustee. The settlor transfers the assets by giving them to the trust, and the legal ownership of the assets is registered in the name of the trustee, whereas the benefits of the assets and the income they produce passes from the settlor to the beneficiaries.
It can also be described as a gift made by the Settlor while he is still alive.
The settlor can decide with a high degree of certainty exactly what, to whom, when and how will be distributed.
Trusts (hereafter we refer to the Cyprus International Trust, or CIT) are flexible in the way changes in personal circumstances can be handled. They can be redomiciled to another country, or they can “spill” the assets over into a brand new trust under a different jurisdiction, depending on the situation.
Benefits of a Trust for Russian Residents: Russian CFC Exemption
In 2014 Russia passed a new law, the major principle of which is the introduction of taxation on profits of foreign companies or arrangements (trusts, foundations, etc) controlled by Russian tax residents. The law is commonly referred to as CFC (Controlled Foreign Companies). In the simplest terms, the effect of the CFC law is that a Russian tax resident controlling distribution of profit in a foreign entity is required to report it to the Russian Tax Authority and pay Russian tax on its profit.
However, foreign trusts that meet two key requirements are expressly excluded from the Russian CFC rules. These two key requirements are:
- The trust must be irrevocable, i.e. the assets contributed to the trust cannot be returned to the person who formed the trust and contributed the assets; and
- The trust must be discretionary, i.e. the trustees managing the assets of the trust must have the powers to do that at their own judgement and discretion.
It does take meticulous and sophisticated legal drafting to meet these requirements yet retain the flexibility to terminate the trust at any point in time should such need arise in the benefitting family. We have the expertise to achieve this for your trust.
Other Benefits of a Trust
Benefits of a trust are innumerable. We outline only the most notable.
No Forced Heirship
Many countries have forced heirship rules requiring prescribed parts of wealth to be given to the spouse, the children, and other family members upon the owner’s death. However, if the owner during his lifetime settles the assets into a trust, the forced heirship rules do not apply and the owner of the assets can appoint them as he pleases.
Appoint beneficiaries without restrictions
Trusts are unique in that it enables you to decide for several generations ahead who in your family will benefit from your assets.
Whether you choose to confer the benefits of the trust only on your existing next-of-kin or also on those unborn, you can address through a trust a number of important matters of critical importance for your family such as education and medical expenses, living accommodation and other essential needs. Distributions can be tied to conditions, such as age, attainment of certain educational levels, career achievements, or family status.
How We Can Help?
As a licensed fiduciary provider, we can set up Cyprus International Trusts for international high net worth individuals. Our affiliated law firm CONSULCO LAW – Elena Hajiroussou LLC is a team of highly qualified and experienced professionals committed to delivering top class legal services, the most suitable solutions and case-specific products to meet the goals of the clients entrusting their vision with us. We undertake the necessary legal and corporate work to form the trust and settle the assets into the trust. In our capacity as the trustee of the trust, we monitor the financial and business activities of the trust to make sure that they perform to the best interest of the beneficiaries.
Consulco is an independent trust services and investment management group operating since 1993 and managed by Marios Hajiroussos, Dmitry Khenkin and Elena Hajiroussou.
© Consulco Limited 2017. All rights reserved.No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Consulco Limited. The information provided in this publication does not constitute legal, tax or investment advice and no responsibility is accepted for any loss occasioned directly or indirectly as a result of persons acting, or refraining from acting, wholly or partially in reliance upon it.