Yes, in Cyprus International Trusts (CITs), the removal or replacement of trustees is not only possible but also governed by a structured legal framework.

Whether due to a breach of duties, loss of capacity, or a need for new expertise, trustees may be removed or replaced under conditions outlined in the trust deed or relevant legislation.

Here below are the key reasons and processes behind trustee changes in a CIT.

Removal by the Settlor

In many cases, the settlor (the person who establishes the trust) may retain the power to remove or replace trustees as part of the trust deed. This allows the settlors to intervene if they believe that the trustee is not managing the trust in accordance with their wishes or if the settlor has lost confidence in the trustee’s abilities.

• Reason for Removal by the Settlor: The settlor may want to remove a trustee for reasons such as poor performance, lack of communication, conflicts of interest, or concerns about the trustee’s ability to manage the assets properly.
• Process: The process for removing a trustee in this case is typically outlined in the trust deed. The settlor might have the authority to appoint a new trustee or may need to follow specific steps to formalize the removal.

Removal by the Beneficiaries

In some cases, beneficiaries may have the power to remove or replace a trustee. This right is typically provided in discretionary trusts, and should expressly be included in the trust provisions, where the beneficiaries have significant influence over the administration of the trust.

• Reason for Removal by Beneficiaries: Beneficiaries may seek to remove a trustee if they feel that the trustee is not acting in their best interest, if the trustee is mismanaging the trust’s assets, or if there is a breakdown in the relationship between the trustee and the beneficiaries.
• Process: The process for beneficiary-initiated removal would depend on the terms of the trust deed. Some trust deeds give beneficiaries the right to vote on the removal of a trustee, while others may require court approval or the intervention of a protector (if one is appointed).

Removal by a Protector

A protector is an individual or entity appointed by the settlor to oversee the actions of the trustee and ensure that the trust is being administered in line with the settlor’s wishes. The protector’s powers are defined in the trust deed and often include the authority to remove or replace trustees.

• Reason for Removal by a Protector: The protector may remove a trustee if they believe the trustee is not fulfilling their fiduciary duties, is mismanaging the assets, or is otherwise not adhering to the terms of the trust.
• Process: The protector can often exercise this power without court intervention, but the exact procedure would be governed by the provisions of the trust deed.

Court-Ordered Removal

If the settlor, beneficiaries, or protector do not have the power to remove a trustee, or if there are disputes or concerns regarding the trustee’s behavior, a court may intervene and order the removal of a trustee. This is typically a last resort when the other parties involved are unable to resolve the issue amicably.

• Reason for Court-Ordered Removal: The court may remove a trustee for various reasons, such as: 1. Breach of fiduciary duty (e.g. if the trustee misappropriates funds or acts in their own interest instead of the beneficiaries’ interests). 2. Incapacity (e.g. if the trustee becomes mentally or physically unable to fulfil their duties). 3. Mismanagement or incompetence in handling trust assets. 4. Serious conflicts of interest or other forms of misconduct.
• Process: To remove a trustee through the courts, one of the parties involved (the settlor, beneficiaries, or another trustee) must file a legal action. The court will assess the evidence and decide whether removal is justified. The court may also appoint a replacement trustee if necessary.

Voluntary Resignation by the Trustee

In some cases, a trustee may choose to step down voluntarily. This could happen for several reasons, including personal issues, a desire to retire, conflicts with beneficiaries, or simply a decision that the role is no longer a good fit.

• Reason for Resignation: A trustee may resign if they no longer wish to fulfil the obligations of the trust or if they feel unable to manage the trust effectively. They may also resign if they feel there is an irreparable conflict with the settlor, beneficiaries, or co-trustees.
• Process: The procedure for a trustee’s resignation is usually outlined in the trust deed. Typically, the trustee must give notice of their intention to resign, and a new trustee may need to be appointed before the resignation becomes effective to ensure the continued management of the trust.

Replacement of Trustees

When a trustee is removed or resigns, the process of appointing a new trustee is generally outlined in the trust deed. If the deed does not specify a process, the court may become involved in appointing a replacement trustee.

• Appointing a New Trustee: The trust deed may grant the settlor, protector, or beneficiaries the power to appoint a new trustee. In some cases, there may be a pool of replacement trustees already listed in the trust deed, or the trust may allow for a corporate trustee to be appointed.
• Court Appointment: If no one has the authority to appoint a new trustee or there is a dispute over who should be appointed, the court can appoint a replacement trustee. Courts generally seek to ensure that the replacement trustee is independent, qualified, and capable of fulfilling the duties required by the trust.

Key Considerations for Removal or Replacement of Trustees

• Fiduciary Duty: Trustees have a fiduciary duty to act in the best interests of the beneficiaries, and any removal or replacement should be based on ensuring that these duties are upheld.
• Legal and Administrative Process: Depending on the circumstances, removing or replacing a trustee can be a straightforward administrative procedure (if outlined in the trust deed) or a more complex legal process requiring court intervention.
• Continuity of Trust Operations: When a trustee is removed or resigns, it’s important that a new trustee is appointed promptly to ensure the continuous and effective management of the trust. Delays in appointing a replacement trustee can lead to gaps in the management of trust assets or decision-making.

Conclusion

Trustees in a Cyprus International Trust can be removed or replaced through various mechanisms, such as by the settlor, beneficiaries, protector, or court intervention. These processes are usually defined in the trust deed, which serves as the primary guide for how the trust should be managed and administered. The ability to remove and replace trustees is crucial to ensuring that the trust operates in the best interests of the beneficiaries and according to the intentions of the settlor.

Ensuring that the trustee is competent, trustworthy, and able to fulfill their fiduciary duties is key to the success of the trust, and the power to remove or replace a trustee serves as an important safeguard for the trust’s continued integrity and proper management.

It is highly recommended that prior to engaging with a trustee, settlors need to ensure the trustee’s expertise, professionalism, ability to properly manage the trust and to act prudently, and most certainly the trustee to have the necessary team to support during trust management. AGP Trustees Ltd, a group company of AGPLAW, has been providing professional trustee services for nearly 20 years. Angelos Paphitis, trustee and managing partner, has been a STEP member since 2005 and has been actively serving as a trustee ever since.

For all enquiries, please contact our team of experts at agp@agplaw.com

Cyprus International Trust: An Absolute Guide to Wealth Protection and Asset Management

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