Legal Insights Under The Cyprus Trust Law

While rarely discussed publicly, this question is relevant to high-net-worth individuals, family offices, and corporate entities that manage international trusts through Cyprus. At Michael Chambers & Co. LLC, we advise on trust formation, administration, and restructuring, including trustee resignations and replacements.

What the law states about Trustee Resignation in Cyprus

Cyprus employs a combination of the Trustee Law, Cap. 193, and the more modern International Trusts Law (Law 69(I)/1992, as amended).

Under Cap. 193, a trustee may resign in one of the following ways:

• In accordance with the explicit provisions of the trust deed (if such resignation rights are granted), or
• By obtaining approval from the Cyprus courts, if no successor is appointed or available.

If a sole trustee resigns without proper arrangements for a replacement, the trust could be left without an acting trustee. This situation creates a legal and administrative vacuum, risking the beneficiaries and their assets.

The risk of a "Trust in Limbo"

Without a trustee, the trust cannot operate. There is no legal person to:

• Hold and manage the trust assets
• Distribute to beneficiaries
• Fulfil fiduciary duties under Cyprus law

In such cases, interested parties (such as a beneficiary or settlor) may apply to the Cyprus District Court to appoint a new trustee under Section 26 of the Trustee Law.

Delays in the process may postpone asset distributions, hinder transactions, and potentially trigger unintended tax or legal consequences depending on the jurisdiction of the trust's assets.

Sole trustee resignation rules under Cyprus trust law

Under Cyprus law, trustees have fiduciary duties and cannot unilaterally abandon a trust, especially when they are the sole appointed trustee.

Any resignation must:

• Follow the process outlined in the trust deed, or
• Obtain judicial approval where the deed is silent or ambiguous
• Failure to meet these conditions may leave the trustee liable for trust mismanagement, even after attempting to resign.

Best practices for clarifying resignation clauses

To prevent legal uncertainty, modern trust deeds governed by Cyprus law often include:

• A clearly defined resignation process for trustees
• A mechanism for appointing successor trustees
• Clauses allowing for temporary arrangements during transitions
• Instructions for involving professional trust advisors or law firms

At Michael Chambers & Co. LLC, we assist clients in establishing and amending trust instruments to reduce operational disruptions, such as those caused by the resignation or incapacity of a sole trustee.

The role and importance of a protector in Cyprus trust structures

In Cyprus, trust arrangements may include appointing a protector to provide an extra layer of supervision over the trustee's actions. Although not required by law, protectors are increasingly common in international and high-value trusts. Their powers are outlined in the trust deed and can include approving distributions, removing trustees, vetoing amendments, or even approving investments. Sometimes, the protector may also have detailed personal knowledge of the settlor's intentions or the beneficiaries' needs, making their oversight especially valuable.

The protector's role can be either fiduciary or personal, depending on how the trust instrument is drafted. If a power is fiduciary, the protector must act honestly and in the best interests of the beneficiaries. For personal powers, the protector is not required to conduct regular intervals or to consider the beneficiaries' interests unless explicitly specified. This distinction is crucial in international structures where regulatory, tax, and compliance requirements must be balanced with operational flexibility.

Appointing a protector can help ensure continuity, safeguard the settlor's wishes, and improve overall governance of the trust — especially when there is only one trustee or when the trustee is not closely involved in the day-to-day affairs of the family or business.

Understanding the role of the settlor in a Cyprus trust

In any Cyprus trust structure, the settlor plays a foundational role. The settlor is the person who creates the trust by transferring legal ownership of assets to the trustee, who holds and manages those assets for the benefit of the named beneficiaries. While the settlor may no longer control the trust directly once it is established, their intentions, as stated in the trust deed, form the legal basis for all trustee actions.

In some cases, the settlor may also retain limited powers, such as appointing or removing trustees, or giving investment direction — depending on the specific drafting of the trust instrument. Under the Cyprus Trust Law, particularly the International Trusts Law 69(I)/1992, the rights and powers of the settlor must be clearly outlined in the deed to avoid confusion or future disputes.

For trusts involving a sole trustee, the settlor's role becomes even more critical. Suppose the sole trustee resigns and no automatic replacement mechanism exists. In that case, the settlor (or their legal representative) may be the first to petition the court for a new appointment, ensuring the continuity of the trust's administration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.