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All you need to know about DIFC Trust

DIFC Trust – Introduction 

The Dubai International Financial Centre(DIFC) is a particular territorial jurisdiction within Dubai having its own common law authority being a constituent component of Dubai. The DIFC Courts are not only an important part of the constituent of the Dubai Courts but also an integral component of the Federal judicial system of UAE.

On March 21, 2018, the Ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum approved the Trust Law DIFC Law No.4 of 2018 by superseding Law No. 11 of 2005. This law provides a precise foundation for the legal establishment and management of Trust. The trustee has lawful possession of the trust property, and beneficial ownership goes with the beneficiaries.1 The prime aim of trust law is to make DIFC Trust Law equal with international laws by following the US uniform Trust code and Common Law Trust UK model. It brought many changes regarding jurisdictions and updated provisions on quite a number of different issues.

Formulation of DIFC Trust

The DIFC trust is formulated if its purpose is practicable, legal, and goes with the public policy of DIFC. The terms and conditions of DIFC Trust are settled according to the benefits of its beneficiaries. The DIFC trust terminated at any stage where it does not support the trust purpose anymore. Trust assures the legal protection to the asset of trustees, reduce the paperwork, and all the extra state taxes and formalities that take much time.2

Creation of DIFC Trust

The DIFC trust is made up when the conveyance of the property in the lifespan of the settlor or the settlor’s death initiates any other establishment, variation, or transformation of possessions from one source to the other needed.

Requirements for the Creation of DIFC Trust

The establishment of a trust depends on the competency and adequacy of the settlor. The settlor shows his interest to create trust. For the creation of trust it may scrutinize that the trust has;-

  • Specific beneficiary 
  • The trustee has some legal rights and duties to execute
  •  the unique entity of the trustee 
  •  specific objectives 

Validity and invalidity of a trust

Valid Trust

Articles 37(2), (3) defines that a trust may be projected to be valid and applicable correspondingly with its particulars subject to fulfilment of its terms and conditions  as:

  • A settlor 
  • Intent to create a trust  for a legal and authentic purpose

Invalid Trust

A trust is called to be invalid if it is intended to do the immoral, unethical, and violative to the DIFC Law. The trust should not be involved in scams, fraud, false statements, any pressure, or misinformation from any party. It should not be against the public policy, ordinance, rules, and regulations and far away from reality.

Charitable trusts and Non-Charitable trust

Charitable trusts 

The Charitable trust is created to assist the public organizations and establishments for instance campaigns on education, religion, health, art, environment, and any other common or general specific purpose. 

Non-charitable trusts or purpose trusts

In a non-charitable trust, there is no beneficiary rather it has particular purposes. It is precisely giving neither benefit to an individual nor for some specific persons rather may be carried out by the enforcer to oversee. The enforcer might be a trustee having a different perspective to carry on the functions of the Trust with specific terms and conditions. If there is no enforcer appointed to a non-charitable trust, the trustee has the right to take steps that are necessary for that time. If the trustee identifies that the enforcer is unwilling and unfit, he may approach the Court for the replacement of the enforcer. The Court may grant thirty days to the enforcer to act and work properly. The court imposes a fine of 10 percent of the value of trust property.

Modification of DIFC termination of the trust

A trust may be terminated by Court if:

  • the trust is unendorsed or expires 
  • There is no more purpose of the trust to be achieved or if it is inappropriate for further continuation.

The Court may terminate a trust because of the events that are not approved by the settler. The court may terminate the trust if the value of the trust property is less than the cost of administration.

Variation of a trust

Trust is taken as adequate if it runs with the variations according to the need of the hour. 

Trust is like an instrument to protect assets. The trustee has legal possession of the trust property which may be governed by the Trust acts having peculiar conditions, duration, and beneficiaries

Hazim Darwish

Hazim Darwish, is a Senior Partner of HHS Lawyers in UAE. Practicing law for almost a decade, he has in-depth knowledge on UAE legislation with particular expertise on legal drafting, contract drafting, labor disputes, family law, and regulatory compliance for business organizations. Hazim Darwish also provides counsel on legal rights and obligations in the UAE to clients, including individuals and businesses subject to investigation or prosecution under Criminal Law by major regulators.