One of the oldest techniques for affluent families to protect their assets is trust. It began in the United Kingdom but swiftly expanded over the world. The Sharia Law of the United Arab Emirates makes no provision for the creation of trusts. Each emirate, however, has its own set of norms. The Trust Law was enacted in 2005 as Dubai acknowledged the value of trust. This law was updated twice, once in 2007 and again in 2010. A trust can be founded both onshore and in a free zone, such as Dubai International Financial Centre (DIFC), one of the emirate’s most recognized free zones, as per Federal Law No. (19) of 2020 on Trust. The DIFC Trust Law establishes specific requirements that must be completed. There can be no trust if any of these conditions are not met. Further information on the Trust Law is available from our Dubai business formation agents.
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AN EXAMPLE OF A TRUST DEFINITION
Trust is defined as:
- The transfer of a property under a Trust Instrument,
- For the benefit of the Beneficiary or to accomplish a charitable or special purpose, and
- Following the UAE Trust Law, according to Article 1 of the UAE Trust Law.
IN THE UNITED ARAB EMIRATES, PARTIES TO A TRUST
In a trust, there are three main partners:
The Settlor:
There will be a settlor in every Trust. The Settlor is the person who hands over the assets to the trustees. The Settlor is the individual who establishes the Trust and transfers assets to it. A grantor, creator, donor, or trustor is another name for a settlor. In a living trust, the Settlor retains the ability to amend, change, or abolish the Trust.
Trustee:
Anyone who is mentally competent may be nominated as a Trustee. When appointing a Trustee, the Settlor must include the name of the Trustee in the trust deed. When a Settler establishes a trust, he gives trustees control of the assets. When the Trust is established, legal ownership passes from the Settlor to the Trustees. Trustees, like businesses and individuals, are legal entities with separate legal personalities. A trustee is given the powers and discretions indicated in the Trust Instrument and under this Decree-Law.
To carry out the Beneficiary’s interest or the Trust Purpose, it is usually desirable to appoint a Professional Trustee and a Professional Legal Person, such as DDr associates Lawyers and Legal Consultants. Professional trustees are fairly compensated for their duties as trustees, either by law or by a trust deed provision. They are not, however, permitted to benefit from the Trust.
Beneficiary number three:
The only people who can use or profit from the Trust’s income or assets are the beneficiaries. Unless it is listed in the class of beneficiaries, the Settlor cannot benefit from the trust property. A beneficiary is a person to whom the Trustee has the authority to distribute the Trust Benefits, including the formation of any security or claim in his favor in connection with the Trust Property. A beneficiary has a personal right under the Trust Instrument.
THE BENEFITS OF FORMING A TRUST IN THE UNITED ARAB EMIRATES
The following are some of the most important advantages of trusts:
- The capacity to control how and when your assets are distributed after you die;
- It helps to bypass the Probate process by reducing or eliminating estate and gift taxes. Probate is the legal procedure by which a judge distributes your assets to the individuals named in your Will.
- Establishing trusts might help you avoid probate and its associated costs.
TRUST IN ITS MANY FORMATS
There are four different types of trusts:
- Private trusts are created for the benefit of private individuals and their estates.
- Corporate trusts include pensions and employee benefit trusts, for example.
- Donor-advised funds (donor-advised funds): Only for the benefit of charitable organizations.
- Trusts having a specific goal: Trust with a specific goal.
HOW DO YOU BUILD TRUST IN DUBAI?
A trust can be established using the following methods, according to Article 5 of the UAE Trust Law:
- Trust Document: A written or electronic instrument signed by the Settlor that establishes trust and administers its terms and circumstances.
- Testamentary Trust Any trust created by a will is referred to as a Testamentary Trust. Following the Settlor’s death, a trust established by Will takes effect. When a Will is entered into the UAE Trust Law’s Register, it is considered a Trust Instrument.
- By Property Transfer: An owner can create a Trust by transferring property to another individual who will act as the Settlor’s and/or a third Trustee. the party’s “inter vivos” or “live” Trust occurs when the Transfer occurs during the Settlor’s lifetime. A transfer of property from one enforceable Trust to another. After the transfer of the Property, the Trust must be subject to the provisions stated in the Trust Instrument to whom the property was transferred.
For instance, suppose a father wants to put his possessions into a trust for his children’s benefit. He can transfer the property during his lifetime by establishing a trust deed or by directing that assets be held in trust for his children through his Will.
- Through a competent court: If the individual who owns the property does not have the essential competence to create a Trust, the Competent Court may mandate the formation of a Trust. As long as the Trust is established in response to a request from the guardian or custodian to further that person’s (owner) interests. In this case, the Competent Court will appoint a Trustee and determine the Trust’s obligations. The decision of the Competent Courts must be regarded as a Trust Instrument in this regard. In addition, such a Trust must be recorded in the registry established by law in this Decree.
REQUIREMENTS FOR ESTABLISHING A TRUST AND PROVIDING A VALID TRUST DEED
Specific aspects must be accomplished for a trust to be valid and enforceable, according to Articles 6 and 7 of the UAE Trust Law:
- Trust Instrument Registration in a Register: To record and document Trust Instruments, all Trust Instruments must be registered in a register that is kept up to date. Settlor or Trustee, as the case may be, may request that the Trust Instrument, along with other necessary information, be published in the Register. An official certificate must be issued by the body in charge of the Register. The Certificate verifies that the Trust Instrument and a list of the trust properties have been lodged in the Register.
- Legal Capacity of the Settlor: The Settlor must be of legal age to create a Trust. According to Article 85 of Federal Law No. 5 on the Law of Civil Transactions in the UAE, anyone who:
- reaches the legal age of majority,
- has full mental capacity,
- is not barred from exercising his rights,
- Is presumed to have full ability to do so, is presumed to have full ability to do so.
- When a person reaches the age of twenty-one lunar years, he is called full age.
Let’s pretend a Settlor is a legal entity, like a corporation. In that situation, according to Federal Law No. 2 of 2015 on Commercial Companies, the competent authorities must decide how to dispose of the company’s assets.
- The Settlor must be the owner of the property: Another reason for forming a Trust is that the Settlor owns the property and has the authority to sell it. The Settlor must hold the Property legitimately when the Trust is established, and the Property must be defined. The Settlor must also be able to give the Trust property.
- Identification of Trusted Property: The property held under the conditions of the Trust, as well as the beneficiaries’ rights to it, must be detailed in detail. It must be decided what Property will be subject to the trusts, as well as what quantity or share of the Property each Beneficiary would be entitled to.
- Establishing the Trust’s Purpose: The Trust Deed’s goal must be specified by the Settlor. It can be established for philanthropic or specific purposes as defined by UAE Trust Law.
- Establishing the Trust’s Purpose: The Settlor must designate the individuals or groups of individuals who will be considered beneficiaries of the Trust by the trustees. The trust property is assumed to be held for the Settlor or his estate if no clear beneficiaries can be identified, and the trust deed is ruled invalid. To be legal, a trust must have one or more beneficiaries. The intended receiver (or recipients) must be identifiable and indicated.
- Creating Trust with Clear Words and a Clear Goal: The wording of the trust deed must clearly say that the Settlor wishes for the property to be held in trust and that trust are intended. A clear purpose must be established to generate trust through precise words or acts. The Settlor’s intention must be present when the Property put into the Trust is properly held by him. In some cases, no amount of paper is adequate to establish trust. In such cases, the Court must determine whether the parties intended to form a trust by their words or actions.
WHY SHOULD YOU CREATE A DUBAI TRUST?
A trust in Dubai allows foreigners living in the Emirates to understand their money, which will be paid out later according to the specified limits. Investors that intend to grow enterprises in the UAE may seek to form trusts in Dubai as part of their investment strategy. If you are a foreign investor wishing to set up a trust in Dubai, we recommend that you contact our law firm in Dubai for more information and legal assistance.
LAWYERS AND LEGAL CONSULTANTS PROVIDE TRUST SERVICES
Lawyers and Legal Consultants are prepared to provide a full range of legal services as well as auxiliary services. We may serve as trustees and guardians on your behalf and manage the Trust. We can also provide all necessary ancillary services like accounting, bank account setup and administration, human resource services, and expert advice on any issue that may emerge along the way.
We assist you in maintaining your peace of mind so that you can focus on your critical business concerns. The following are some of our multidisciplinary services:
- Advice on trust and estate administration
- The creation of trusts to effectively transfer property to spouses, children, and charities.
- The formation and management of charitable organizations
- The creation of estate planning vehicles to ensure that family businesses are appropriately transferred while reducing tax liabilities.
- Wills, living wills, and powers of attorney are all things that can be done.
