A trust is a legal arrangement that allows a person (the trust founder) to transfer some of his assets to another person (the trustee) who will manage them for the benefit of a third person (the beneficiary) or for a specific purpose. Trusts can be used for various reasons, such as wealth preservation, succession planning, asset protection, tax planning, and confidentiality.
Trusts are governed by the Federal Decree-Law No. 31/2023 Concerning Trust (the Decree-Law) in the UAE. This article will explain the main requirements and procedures for creating a trust in the UAE, as well as the contents of the trust deed, which is the document that establishes the trust.
What is a Trust?
A trust can be defined as the legal person established pursuant to the Trust Deed in accordance with the provisions of the Decree-Law to achieve the Purpose of the Trust.
How to Create a Trust in the UAE?
The trust deed is the document that creates the trust and sets out its terms and conditions.
The trust deed must meet the following requirements:
- It must be approved by the competent authority.
- It must be in written form and signed by the trust founder or by each of the trust founders, if more than one, according to the procedures of the competent authority. If the person appointed as the trustee or one of the trustees, if more than one, accepts his appointment the trust deed may also be signed by that person.
- It must be entered in the register maintained by the competent authority.
Once the competent authority approves the trust deed and issues a certificate of validity and enforcement for the trust, the trust deed will be registered and valid for everyone. Only a court can declare the trust invalid based on Article (39) of the Decree-Law.
The trust deed and any related document can be in Arabic or any other language, but they must have a certified legal translation in Arabic. If there is any conflict, the language of the original trust deed will be followed.
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Key Elements of a Trust Deed in the UAE
The trust deed must include the following information:
- A declaration by the trust founder of his intention to create the trust.
- The identification of the beneficiary of the trust or the mechanism for identifying him.
- The determination of the nature of the trust assets or their description in a way that allows their determination.
- The specification of the term of the trust. If the term is not specified, the trust will be considered lifelong unless the circumstances indicate otherwise at the discretion of the competent court.
- The specification of the name of the trust.
- The designation of the trustee or the mechanism for designating him to act as a trustee.
- The determination of the powers and authorities of the trustee.
If any of the above information is missing, except for the term of the trust, the trust deed will be invalid.
The trust deed may also include the following information:
- Detailed information on the identification of the beneficiary and the share allocated for each beneficiary in case of multiple beneficiaries.
- Whether the beneficiary’s share is a share of the benefits of the trust assets or a share of the trust assets themselves.
- The authority of the trustee in protecting the interests of the beneficiaries when distributing the trust assets to them in a way that does not violate the trust deed.
- The conditions related to the management of the trust assets.
- The method of appointing, dismissing and replacing the trustee and any effects thereof.
- The effects of terminating the trust.
- Any other matters related to the performance of the duties of the trustee or the regulation of the relationship between him and the trust founder, the beneficiary or the protector.
- The method of appointing the protector and his powers.
- A description of the purpose of the trust.
- Any other matters that may be included in accordance with the Decree-Law.
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Essential Requirements for the Trust Assets
Trust Assets are any movable or immovable assets owned by the Trust, including any interests associated therewith or considered part thereof, and any existing or future right, inside or outside the UAE. Trust Assets shall include the Benefits of the Trust as determined by the Trust Deed.
The trust founder can transfer any type of assets to the trust, such as money, property, shares, or intellectual property rights. However, the assets must meet the following conditions:
- The trust founder must own the assets and have the right to dispose of them, either personally or through his legal representative, in accordance with the Decree-Law and any other applicable laws in the UAE.
- The assets must be disposable and free of any rights or claims of a third party. If the assets are subject to any rights or claims of a third party, the trust founder must transfer those rights or claims along with the assets to the trust.
- The assets must be identified or identifiable, and they must include any assets that will be acquired in the future.
- The trust founder does not need to transfer all of his assets to the trust. He can choose which assets he wants to transfer and when. The transfer of the assets to the trust is not a condition for the creation of the trust.
- The trust assets are not subject to any financial disclosure by the trustee, unless the trustee discloses them in his capacity as a trustee or in compliance with an order issued by a competent court or in accordance with the laws in force in the UAE.
How to Determine the Term of the Trust
The term of the trust is the period during which the trust exists and operates. The term of the trust can be decided by the following methods:
- The trust deed can specify a fixed term for the trust, such as a number of years or a date.
- The trust deed can link the term of the trust to a certain event or condition that is clear, lawful and possible, such as the death of the trust founder or the achievement of the trust purpose. The trust deed must clearly state this event or condition.
- If the trust deed does not specify or link the term of the trust, the trust will be considered lifelong unless the circumstances indicate otherwise.
- If the trust has a fixed term and the trust deed does not provide a way to distribute the trust assets at the end of the term, the competent court can decide how to distribute them. The court can do this upon the request of any person who has an interest in the trust, such as the trust founder, the trustee, the beneficiary or the protector. The court will follow the rules of Article (41) of the Decree-Law, which deal with the termination of the trust.
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How HHS Lawyer Can Help You With Trust Services in the UAE
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