Setting up a Trust in UAE

Introduction

The concept of trusts has become increasingly relevant in the UAE as the nation adapts to the growing demand for sophisticated estate planning, asset protection, and wealth management. With its expanding expatriate population and burgeoning business activities, the UAE has introduced a trust law framework that aligns with international standards. This article explores the latest developments in UAE trust law, the legal framework surrounding trusts, and the key benefits for individuals and businesses.

The Legal Framework for Trusts in the UAE

Historically, the UAE lacked a dedicated legal structure governing trusts. However, the legal landscape has evolved significantly with the enactment of the UAE Trust Law (Federal Law No. 3 of 2020), which formally recognizes and regulates trusts for the first time. This, alongside the UAE Civil Code and the specialized trust laws in free zones like the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), provides a comprehensive framework for the creation and management of trusts.

Key Laws Governing Trusts in the UAE

Several laws now provide the foundation for trust regulations in the UAE:

• UAE Civil Code (Federal Law No. 5 of 1985): Lays down the general legal principles governing civil transactions, including trusts.
• UAE Trust Law (Federal Law No. 3 of 2020): The primary law that governs the creation, management, and enforcement of trusts within the UAE.
• DIFC Trust Law: Offers a legal framework for trusts within the Dubai International Financial Centre, aligning with global standards.
• ADGM Trust Law: Provides similar regulations for trusts within the Abu Dhabi Global Market.
• UAE Federal Law No. 20 of 2020: Governs estate administration and asset distribution following an individual’s death.

Key Provisions of the UAE Trust Law

The UAE Trust Law introduces several key provisions that clarify the structure and operation of trusts, including:

• Types of Trusts: Recognizes various types of trusts, including family, charitable, and commercial trusts, to cater to diverse needs.
• Trustee Obligations: Defines the fiduciary duties of trustees, requiring them to manage trust assets in the best interests of beneficiaries.
• Beneficiary Rights: Provides beneficiaries with legal standing to enforce the terms of the trust and hold trustees accountable.
• Recognition of Foreign Trusts: Allows the recognition and enforcement of foreign trusts, providing flexibility for expatriates and international investors.
• Trust Registration: Although registration is not mandatory, the law encourages written documentation to enhance enforceability and clarity in the management of trust assets.

Key Parties Involved in a Trust

A trust typically involves the following parties:

• Settlor: The individual or entity that creates the trust by transferring assets and establishing its terms.
• Trustee: The person or entity responsible for managing the trust assets according to the trust’s terms and for the benefit of the beneficiaries.
• Beneficiaries: The individuals or entities entitled to benefit from the trust.
• Protector: An optional role that oversees the actions of the trustee to ensure they align with the trust’s objectives.
• Enforcer: Appointed in charitable trusts to ensure that the trust’s purpose is fulfilled.

Recent Developments in UAE Trust Law

1. Trusts in DIFC and ADGM: Both DIFC and ADGM have established robust legal frameworks for trusts, providing international-standard structures that cater to expatriates and businesses.
2. Increased Demand for Estate Planning: The UAE’s diverse expatriate population has driven the need for effective estate planning solutions, particularly for those with multi-jurisdictional assets.
3. Tax Efficiency and Asset Protection: Trusts offer a means of safeguarding assets against creditors while ensuring efficient tax planning and streamlined asset distribution.

Implications for Individuals and Businesses

The introduction of trust law in the UAE provides significant advantages:

• For Individuals: Trusts allow for effective estate planning, especially for expatriates with assets spread across multiple jurisdictions. Trusts can ensure that assets are distributed according to the settlor’s wishes while offering asset protection.
• For Businesses: Companies can establish trusts to manage employee benefit schemes, secure intellectual property rights, and ensure compliance with local legal requirements.

Also read introduction of Escrow Accounts

In addition to trusts, the UAE has seen increased use of escrow accounts as a secure financial tool. An escrow account is a third-party account where funds or assets are held until specific conditions are met. This is particularly useful in real estate transactions, inheritance planning, or business deals, where escrow accounts provide an additional layer of security, ensuring that funds are only released when the agreed-upon terms are fulfilled. Escrow services complement trusts by offering a practical solution for secure financial transactions, further enhancing asset protection in the UAE.

Conclusion

The establishment of a clear legal framework for trusts and the use of escrow accounts in the UAE marks a pivotal step in the country’s legal evolution. Trusts offer individuals and businesses alike a robust tool for estate planning, asset protection, and efficient wealth management. At Saif Al Shamsi Advocates & Legal Consultants, we are committed to helping clients navigate the complexities of UAE trust law. For more information or to discuss how a trust or escrow account can benefit you, contact us for a consultation.

At Saif Al Shamsi Advocates & Legal Consultants, we are here to assist you with all aspects of partnership disputes, from drafting agreements to representing you in negotiations, arbitration, or litigation. Contact us today to learn more about how we can support your business.