Wealth management, asset protection, and succession planning are becoming vital priorities for families and businesses in the UAE. To address these needs, the Dubai International Financial Centre (DIFC) offers a trusted framework for establishing trusts that meet international standards while staying compliant with UAE laws.
In this blog, we will look at the trust formation in UAE, the legal framework in Dubai, the role of the trustees, and the benefits of creating a structure.
Establishing A Trust In The UAE
The UAE offers several facilities for establishing trusts, typically in common law jurisdictions such as the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM). These free zones have implemented modern trust laws that enable expatriate and resident individuals to establish structures with global recognition and legitimacy.
A trust allows a settlor to place assets into the trust, and a trustee manages the assets on behalf of beneficiaries to ensure:
- Asset Protection: Trusts protect assets from a lawsuit, the claims of creditors, or a sudden liability, meaning that if spent, the wealth is available for the next generation.
- Confidentiality: Sensitive family information, ownership structure, and transfers of assets remain confidential, giving high-net-worth individuals and families peace of mind.
- Succession Planning: Trusts provide a streamlined mechanism for the transfer of estates, meaning heirs and beneficiaries can inherit wealth without concerns over time-consuming court processes or disputes.
- Legal Protection and Recognition: Trusts established in DIFC or ADGM are legally recognised around the world. This means they have legal protections and safeguards that may not be available for a trust established elsewhere.
Trust Law & Legal Framework
Trusts in the DIFC function within the framework of a legal structure, “DIFC Trust Law”, based upon the principles of English common law. The advantage is that they are internationally accepted, and for expats in Dubai, it is a system with which they will be mostly familiar.
Highlights of the legal framework are as follows:
- Trust Deed: The trust deed must accurately describe the settlor, trustee and beneficiaries, and adequately set out how trust property will be dealt with.
- Register: The trust must be registered with the DIFC Registrar of Companies to be valid and enforceable.
- Compliance: The settlor and trustee must provide necessary biographical and corporate information to the DIFC’s Financial Services Authority for their duties as trustee, settlor, etc., to be compliant with applicable ETF regulations.
- New Trust Law:The revised law provides for additional flexibility in the charter of the trust, allowing for new charitable trusts and protective trusts.
The foundation of the DIFC’s ability to provide asset protection and estate planning is trust law, which was first introduced in 2005 and updated in 2020. For detailed reading, refer to the DIFC Official Trust Law Overview. or connect for an expert guidance.
DIFC & ADGM: Free Zone Jurisdictions
In the UAE, you can only establish trusts in two jurisdictions, which are the Dubai International Financial Centre (‘DIFC’) and the Abu Dhabi Global Market (‘ADGM’).
- DIFC Free Zone: It operates under an exceptional legal system internationally recognised and based on English common law. The DFS provides sound governance and financial services, including regulations for establishing trust services.
- ADGM: It also operates under the standards of trust structure and legal recognition with emphasis on providing confidence to investors’ protection and trust status internationally, which is advantageous for parties engaging in wealth structuring.
Both free zones provide international recognition and ensure that a trust can be established with legal recognition and asset protection. As a comparison, go to the Ministry of Finance – UAE Regulations.
Requirements For Setting Up A Trust
When you establish a trust in Dubai or within the DIFC, the following conditions must be satisfied:
- Identification Of The Beneficiary: The trust deed will need to identify the beneficiaries, as well as their benefits and entitlements, whether as to income, property, or succession rights.
- Details Of The Trust: You will require proper documentation detailing the trust type, governing law, and assets within the trust’s vesting and management.
- Trustee Appointment: A trustee must be appointed and, in most cases, a professional trustee, to manage the assets properly and to comply with the trust regulations.
- Declaration of Trust: The settlor must declare the trust to confirm the establishment of the trust and transfer of the assets to the trustee for management or administration.
- Validity & Regulatory Framework: Trusts are generally considered to last for life unless terminated. For DIFC and ADGM trusts, compliance with their respective regulatory frameworks establishes validity.
The deed of trust is the central document, and your compliance with the deed of trust is what establishes the trust itself, and compliance with the deed of trust maps out the enforceability of the trust.
Types Of Trusts In The UAE
With some planning, there can be different trusts set up right for various goals:
- Protective Trusts: Protective trusts can protect assets, including family wealth, from creditors, lawsuits, and business failure.
- Charitable Trusts: Charitable trusts allow families, businesses or other kinds of organisations to fund programs in social, educational and philanthropic areas and in a tax-efficient manner.
- Private Trusts: Private trusts pertain to estate planning or the management of succession or inheritance issues with family members, where it is desirable for heirs to eventually receive an inheritance while minimising estate and legal issues or disputes.
- Business Trusts: Business trusts are used to hold and manage organisational shareholdings, intellectual property or real estate investments in a business capacity for purposes of technical and orderly business succession planning.
Role Of Trustees & Beneficiaries
A trustee is essential to the administration of a legally valid and enforceable trust. Trustees are fiduciaries and have a duty to manage the trust property for the benefit of the beneficiary and in accordance with the deed.
The trustee’s responsibilities include:
- Duty to Comply: Trustees are required to comply with DIFC trust law and international standards. The less compliance with the law or international standards, the less likely they will be to protect themselves and the trust will fail to be enforceable.
- Duty of Confidentiality: Trustees are to maintain confidentiality, and keep private any information about trust assets, beneficiaries or rights of the beneficiaries.
- Duty to Manage: Trustees have a duty to manage or invest the trust property or business. Trustees would also have the duty to distribute the income or gain from the trust based on the deed.
- Duty to Balance the Interests: The trustee has a duty to the beneficiaries impartially, meaning that all beneficiaries will get what they are entitled to under the trust documentation.
The settlor must select and specify trustees very carefully for the stewardship of the family estate and family wealth to be managed effectively.
Trust Deed & Documentation
The trust deed describes how the trust will operate, the nature of the trustees and beneficiaries, and succession/asset transfer.
A trust deed must:
- Clearly state the trust structure and the nature of the assets, the powers of the trustee, and the rights of the beneficiaries.
- Contain the full identification particulars of the settlor and beneficiaries to remain legally binding.
- Be consistent with the UAE trust regulations and comply with the DIFC trust law.
- Be drafted with the help of a law firm in Dubai or reputable and experienced lawyers to ensure compliance with the law.
Benefits Of Trust Structures In The UAE
Trust formation in UAE provide many benefits. There are many advantages of trust restructuring, especially for high-net-worth clients and family businesses:
- Simplicity in Estate Planning: Trusts eliminate some of the complications that arise under Sharia law when transferring and distributing assets to family member.
- Wealth Management and Asset Protection: A Trustee can implement strategies to increase wealth and protect that wealth from third-party claims.
- Privacy and Confidentiality: Families have discretion with respect to their wealth, ownership, and succession; only the family knows what they do with their private affairs.
- Strong Legal Framework: DIFC trust law provides trusts with global recognition, durability and full international credibility.
- Wealth Preservation: Trusts hold assets for distributions over multiple generations, providing financial security for businesses and families.
Conclusion
The trust formation in UAE is an increasingly important tool for wealth protection, succession planning and asset protection. With the DIFC Trust Law and a highly flexible regulatory requirements, individuals and businesses can set up inclusive trusts in the UAE to meet international benchmarks. If you want to set up a trust or are considering exploring a trust structure in Dubai, it is vital to have expert consultancy oversight on compliance, documentation, and long-term planning.
Do you want to protect your wealth and create a safe future? Contact us today at Xpert Advisory to set up your trust in Dubai with the legal and financial advice to help you do this correctly.
FAQs
What Is A Trust Deed In The UAE?
A trust deed is the principal legal document for a trust. It identifies the settlor, trustee, and beneficiaries of the trust while setting out the terms for managing the trust assets.
Can I Create A Trust In Dubai As A Non-Resident?
Yes, you can create trusts in Dubai as a non-resident through DIFC or ADGM, both of which are governed by international common law principles.
What Are The Key Benefits Of Trust Structures?
Trusts can provide asset protection, facilitate succession planning, maintain confidentiality, and manage wealth, ultimately ensuring the longevity of family or corporate assets.
