A Cyprus Discretionary Trust is quite common and allows the trustee leeway in using his or her own judgment in assuring what will be best for the beneficiary. Oftentimes, the settler will provide some type of instruction or guidelines through a Letter of Wishes. If even more guidance is preferred, the settler can introduce a protector (sometimes referred to as a nominator) into the Trust Deed. The protector can prevent a trustee from making certain decisions in some cases. He or she cannot positively influence the trustee.
A Discretionary Trust has its benefits over other types of trusts. Its flexibility makes it a popular choice. Since trustees can use their own discretion, they are able to make changes under different circumstances – within the boundaries of the Trust Deed or Letter of Wishes – without receiving approval from the beneficiaries or the court.
Beneficiaries are not taxed on the assets within a trust fund, since it is under the trustee’s care. The beneficiary has no legal right to the assets; and therefore, cannot be taxed on it. Should a beneficiary file for bankruptcy, the trust fund will not be included, as he or she only has contingent interest in the trust assets. Additionally, no estate taxes are due on Discretionary Trusts.
Individuals choose a Discretionary Trust for a number of reasons. Mitigating tax expenses is a common reason for a trust fund. This is a traditional tax-planning strategy because of the benefits involved. Trusts are often used to provide assets, property, or support to individuals who are otherwise unable – or unwilling – to properly manage them. For instance, mentally handicapped individuals or family members in an unsuitable marriage might be beneficiaries of a trust fund. Individuals may choose a trust in order to remain the trustee, ultimately determining exactly for what the assets will be used.
Those interested in donating to a charity or religious group may use a trust, particularly if interested in doing so anonymously. This will also help for individuals who wish to have control over exactly what the donation is spent on.
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