Introduction to Trusts in the UAE
Setting up a trust can be one of the best ways to protect your assets, plan for the future, and ensure your wealth is distributed according to your wishes. If you’re considering a trust in the UAE, you’re in the right place. The country has a strong legal framework that supports trusts, making it an attractive option for individuals and families looking for wealth management solutions.
What is a Trust?
A trust is a legal arrangement where a person (the settlor) transfers assets to a trustee, who manages them for the benefit of beneficiaries. Trusts are commonly used for asset protection, inheritance planning, and even charitable purposes.
Governing Laws for Trusts in the UAE
The UAE has clear regulations for trusts, primarily governed by:
- Federal Law No. 4 of 2020, which lays down the general legal framework for trusts in the UAE.
- DIFC Trust Law, which applies to trusts established within the Dubai International Financial Centre (DIFC), a free zone that follows international trust standards.
Types of Trusts in the UAE
Before setting up a trust, it’s important to understand the different types available. Each type serves a different purpose, so choosing the right one depends on your financial goals.
Discretionary Trusts
- The trustee has full control over how assets are distributed to beneficiaries.
- Provides flexibility in managing wealth.
- Useful for families who want to protect assets from creditors or legal claims.
Non-Discretionary Trusts
- The trust deed outlines fixed rules for asset distribution.
- Beneficiaries receive their share according to pre-determined conditions.
- Best for those who want a structured inheritance plan.
Charitable Trusts
- Set up for philanthropic purposes.
- Assets are managed to benefit charitable organizations or causes.
- Ideal for those looking to create a lasting social impact.
Family Trusts
- Designed to pass wealth down through generations.
- Ensures financial stability for children and grandchildren.
- Can be customized to suit family needs and circumstances.
Steps to Establish a Trust
Setting up a trust in the UAE involves several steps. Here’s a breakdown of what you need to do:
1. Choose the Right Type of Trust
Think about your long-term financial goals. Are you looking for asset protection, inheritance planning, or charitable giving? Your objective will determine the best type of trust for you.
2. Identify the Key Parties Involved
Every trust involves these main roles:
- Settlor – The person who creates the trust and transfers assets into it.
- Trustee – A licensed individual or entity that manages the assets.
- Beneficiaries – The people or entities who will benefit from the trust.
- Protector (Optional) – Someone who oversees the trustee’s actions to ensure everything is handled correctly.
3. Draft the Trust Deed
- This legal document defines how the trust will operate.
- It includes details about assets, beneficiary rights, and how funds should be distributed.
- The deed must comply with UAE laws and be approved by the relevant authority.
4. Register the Trust
- The trust must be officially registered with the relevant regulatory body.
- For Dubai-based trusts, registration is typically done with the DIFC Authority.
- Registration ensures that the trust is legally recognized and compliant with UAE laws.
5. Transfer Assets to the Trust
- You need to move your assets (cash, property, shares, etc.) into the trust.
- The assets must be free from any legal disputes or third-party claims.
6. Ensure Compliance with Reporting Requirements
- Trustees are required to maintain records and submit reports as per UAE law.
- Regular audits may be necessary to ensure compliance.
Special Considerations for DIFC Trusts
The DIFC is a popular jurisdiction for setting up trusts in the UAE due to its internationally recognized legal framework.
Features of DIFC Trust Framework
- DIFC trusts operate under common law principles, making them familiar to international investors.
- They offer greater flexibility in structuring different types of trusts.
Tax Exemptions and Asset Protection Benefits
- DIFC trusts enjoy tax exemptions, making them cost-effective.
- Assets held in a DIFC trust are protected from creditors and legal claims.
Dispute Resolution Through DIFC Courts
- Any legal disputes related to DIFC trusts are handled by DIFC Courts, which provide a transparent and efficient resolution process.
Key Requirements for Setting Up a Trust
To set up a trust in the UAE, you need to fulfill certain requirements:
- Legal Documentation: A properly drafted trust deed is mandatory.
- Licensed Trustee: You must appoint a trustee who is licensed to operate in the UAE.
- Trust Name and Duration: The trust must have a legally recognized name and a defined duration, unless it is set up to last indefinitely.
Costs Involved in Setting Up a Trust
Setting up a trust involves some costs, which may vary depending on the complexity of the trust.
- Initial Setup Costs: Typically range between AED 6,000 – AED 9,000.
- Annual Renewal Fees: Ongoing costs for maintaining and managing the trust.
Conclusion
Setting up a trust in the UAE is an excellent way to protect your wealth, plan for the future, and ensure smooth succession. However, it’s essential to follow the legal requirements and work with professionals to avoid complications.
Ittihad Legal Consultants is a legal firm in UAE, Sharjah, and Dubai. If you need any help with trust formation or legal matters, feel free to contact us for expert guidance.
