Are you planning to establish a foundation or trust in the UAE? Knowing the distinctions between a foundation and a trust is crucial when thinking about asset protection, estate planning, or wealth structuring in the United Arab Emirates.
Though they differ greatly in terms of structure, governance, and legal frameworks, both are effective legal entities for managing family money, protecting assets, and assisting with succession planning.
To assist you in selecting the option that best suits your interests, here’s a comparison between a foundation vs trust in UAE –
What Is a Foundation in the UAE?
In the United Arab Emirates, a foundation is a legal entity established to keep assets for certain uses, frequently associated with philanthropic endeavors or estate and succession planning. Residents and non-residents can now establish foundations, each of which is controlled by a charter and by-laws, according to the regulatory frameworks in the UAE adopted by the DIFC Foundations (Dubai International Financial Centre) and ADGM (Abu Dhabi Global Market).
Key Features of a UAE Foundation:
- Legal personality: A foundation has a separate legal identity from its founder and beneficiaries.
- Founder: The person or entity establishing the foundation and providing assets to the foundation.
- Council: The governing body that administers the foundation according to its charter.
- Beneficiaries: The persons or entities entitled to benefit from the foundation.
- Purpose: Can be for private wealth management, charitable work, or holding family assets.
- No shareholders or members: Unlike companies, foundations do not have shareholders; assets are permanently vested in the foundation.
- Perpetual succession: The foundation can continue indefinitely unless dissolved according to its rules.
A foundation is a legal setting in the UAE governed by the laws, which is popular among family foundations, high-net-worth individuals, and expatriates looking to secure succession while maintaining control over asset distribution and understanding tax laws. It can effectively hold and manage private wealth and assets.
What Is a Trust in the UAE?
A trust is a legal arrangement used when a settlor gives assets to trustees to manage and administer on behalf of beneficiaries. Although they lack independent legal identity and are subject to fiduciary duties, trusts are recognized and regulated by laws in some UAE free zones, like ADGM. This usually comes under the civil law trust.
Key Features of a UAE Trust:
- Legal arrangement: A trust is not a separate legal entity but a fiduciary relationship.
- Settlor: The person who creates the trust and transfers assets into it.
- Trustees: Individuals or entities responsible for managing the trust assets according to the trust deed.
- Beneficiaries: Individuals or groups designated to receive benefits of the beneficiaries from the trust.
- Trust deed: The governing document specifying rules, powers, and purposes.
- Flexibility: Trusts can be discretionary or fixed, offering varied control levels.
Confidentiality: The trust generally operates with a high degree of privacy.
Trusts are widely used for estate planning, protecting wealth from creditors or disputes, and managing complex family or business affairs.
Legal Framework in the UAE: Trusts vs Foundations
Understanding the differences between both and what trusts and foundations offer is critical to making the right choice when choosing one. Both foundations and trusts benefit from modern legislation primarily introduced in UAE financial free zones. So, between foundation vs trust in UAE, here are the legal frameworks –
Foundations: Governed by DIFC Law No. 3 of 2018 and ADGM Founders’ Regulations 2018. These laws provide detailed governance rules, rights of beneficiaries, roles of councils, and asset protection mechanisms. A foundation is managed mainly by individuals, residents, or non-residents.
Trusts: Subject to the ADGM Trust Regulations 2018, which define trust formation, trustees’ fiduciary duties, and beneficiary rights. Trusts are also recognized under DIFC trusts laws, but are more commonly associated with ADGM.
Outside these free zones, the UAE lacks a comprehensive trust law. Therefore, foundations might have better legal clarity on the mainland.
Comparing A Trust and a Foundation: Key Differences
Take a look at these differences between a foundation vs trust in UAE if you want to make the right choice.
| Aspect | Foundation | Trust |
| Legal Status | A separate entity | It has a fiduciary arrangement with no legal entity |
| Creator | Founder | Settlor |
| Governing Body | Mainly the Council or the board of directors | Managed by the Trustee |
| Asset Ownership | Foundation | Owned by Trustees, setting up Trusts |
| Purpose | Usually, charitable, private wealth management, or estate planning | Mainly wealth management, estate, or hold and manage assets |
| Perpetuity | Perpetual unless wound up | Usually limited-term, but can be long-lasting |
| Control & Flexibility | Less flexible than a trust and defined by a charter or statute | Extremely flexible with a trust deed |
| Confidentiality | Moderate. Mainly governed by laws on disclosure. | Confidential. |
| Legal Recognition Outside the UAE | Limited, mainly recognized within the UAE free zones | Widely recognized internationally |
| Cost & Complexity | Typically, higher setup and administration costs | Lower costs but complex fiduciary duties |
These are the primary differences between trusts and foundations and how each provides specific functions and regulations. Understanding these differences can help you with better wealth and planning for private wealth, charitable purposes, or manage assets for specific purposes.
When to Choose a Foundation
Here’s an overview of choosing trusts vs foundations as one of the tools for asset protection for better flexibility and control.
Choosing a foundation in the UAE makes sense if you:
- Prefer a clear legal title to the assets or family wealth.
- Want to set up a long-lasting vehicle with specific purposes for perpetual succession for holding assets.
- Need control over asset distribution through a governing council rather than trusts.
- We are planning charitable activities alongside family wealth management.
- Want a more formalized structure recognized within the UAE jurisdictions.
- Value transparency consistent with the UAE free zone (DIFC and ADGM foundation) regulations without full public disclosure.
Unlike a trust, foundations suit family offices, entrepreneurs wishing to safeguard succession, and individuals or firms planning charitable trusts or foundations with formal governance.
When to Choose a Trust
A trust may be the better option if you:
- Set out in the trust establishment, if you need a flexible and confidential vehicle to manage and protect assets.
- Want to separate legal ownership from beneficial interest without creating a separate legal entity.
- Require complex control, such as discretionary trust powers, conditions on distributions, or staged inheritance.
- They are seeking international recognition and ease of cross-border enforcement.
- Wish to avoid the potentially higher governance and administrative requirements of a foundation.
- Want to appoint a professional or multiple trustees to handle tax planning and asset management flexibly. A trustee is responsible for managing your assets according to your needs.
Trusts work best for wealth management advisers, families with international assets, and those seeking a layered structure with detailed fiduciary duties.
Practical Considerations and Regulatory Environment
Here are a few practical considerations to think of when choosing between a trust and a foundation.
- If you are planning in the UAE to establish either of the two, a comprehensive founding document (charter or trust deed) detailing the goals, beneficiaries, assets, and governance guidelines is necessary for both foundations and trusts.
- A regulatory framework is offered by UAE free zones like the Dubai International Financial Center (DIFC) or ADGM, to guarantee asset protection, compliance, and transparency.
- In order to set up any vehicle, it is usually necessary to hire local legal professionals, obtain regulatory permits, and frequently keep a registered address and local service providers.
- Asset protection, secrecy requirements, and tax advantages differ and should be thoroughly examined with expert guidance.
- Clients with mainland interests frequently favor foundations or offshore trusts because the UAE mainland currently lacks appropriate trust rules.
Summary: Which One Should You Choose?
These are the key differences between trusts and foundations. In the UAE, the decision between a foundation and a trust is based on your personal objectives, asset structure, and preferred jurisdiction:
If you want long-term asset holding with public charity possibilities, a structured governance framework, and a distinct legal organization, choose a foundation.
If you value international enforceability, flexibility, confidentiality, and fiduciary management, go with a trust.
Consulting a UAE legal and business expert, like Xpert Advisory, which specializes in wealth and business structuring, is advisable. Our experts tailor solutions that fit your residency status, asset profile, and succession goals. Contact our experts to know more about our services.
FAQs
Do Trusts and Foundations in the UAE Undergo Audits?
Yes. Foundations in DIFC must comply with audit requirements unless they are exempt under certain regulations. Trusts, however, do not have any mandatory audit requirements.
Are Foreigners Allowed To Establish a Foundation or Trust Without Residency?
Yes, they can in free zones like DIFC or ADGM without a valid UAE residency.
What Is The Estimated Cost of a Trust or Foundation?
The cost of establishing both depends on the service or required jurisdiction. Generally, it costs between AED 6,000 to AED 9,000*.
