Registration of a family trust in the UAE

Trusts have a long history of use as a versatile tool in wealth management and estate planning strategies. Their ability to provide structured asset protection, privacy, controlled distribution, and the potential reduction of estate taxes for individuals and families has made them a cornerstone of comprehensive financial planning.

In the UAE, the concept of trusts, as understood in common law jurisdictions, has not traditionally been a prominent part of the country’s legal landscape. However, as the UAE’s appeal as a global financial and wealth management centre has grown, there has been an increasing interest and effort to introduce more flexible and accommodating legal frameworks for trusts within the UAE’s legal system.

While civil law principles have historically dominated the legal landscape, this evolving stance has led to a significant development in the recognition of family trusts within the UAE. The nation’s ability to harmonise civil law principles with features from common law jurisdictions provides a unique advantage, offering a flexible yet well-regulated environment for families to safeguard their legacies and achieve their long-term financial goals. This article looks at the key features of family trusts, the jurisdictions that offer them and the process of registering a family trust in the UAE.

What is a family trust?

A family trust, also known as a family living trust or a revocable living trust, is a legal arrangement established to hold and manage assets for the benefit of family members. It is a type of trust commonly used for estate planning and asset management purposes. In a family trust, a person (referred to as the grantor or settlor) transfers ownership of their assets into the trust, which is managed by a trustee appointed by the grantor. The trustee then administers the trust according to the terms and instructions set forth in the trust document.

What are the key features of a family trust?

• Asset management and distribution: The family trust provides a structured framework for managing and distributing assets. The grantor can specify how the assets are to be managed during their lifetime and how they should be distributed to beneficiaries upon their passing.
• Flexibility and control: Family trusts are often revocable, allowing the grantor to retain control over the assets and make changes to the trust’s terms or even revoke the trust if necessary.
• Privacy and confidentiality: Family trusts provide a degree of privacy, as they generally don’t go through the public probate process, which can keep details of assets and distributions confidential.
• Estate planning: Family trusts are commonly used as an estate planning tool to ensure a smooth transfer of assets to beneficiaries after the grantor’s death. This can help avoid or minimise the delays, costs, and potential disputes associated with the probate process.
• Asset protection: Family trusts can offer a level of asset protection, shielding the trust assets from potential creditors and legal claims to some extent, depending on the jurisdiction’s laws.
• Continuity and intergenerational wealth transfer: Family trusts allow for the orderly transfer of wealth between generations. They can be structured to provide for beneficiaries over multiple generations, fostering a lasting legacy.
• Avoidance of probate: Since assets held in a family trust are technically owned by the trust, they do not typically go through the probate process, which can be time-consuming and costly. This can lead to quicker and smoother asset distribution to beneficiaries.

Where can a family trust be registered in the UAE?

In the UAE, family trusts can be registered in either DIFC or ADGM. Both jurisdictions operate under autonomous legal systems rooted in common law principles and have their own courts and regulations. These allow non-Muslim expatriates, to register wills and inheritance documents, including trusts according to their own specific wishes, circumventing default Sharia law rules applied to Muslim estates.

It’s worth highlighting that recent legal advancements have broadened the scope of possibilities for Muslims as well. In both DIFC and ADGM, individuals of any religious background can now establish trusts that are not bound by Sharia law. This notable development grants Muslim individuals more autonomy in determining how their assets are distributed and their inheritance preferences.

How do I register a family trust in the UAE?

1. Choose the jurisdiction: Decide whether you want to set up the family trust in DIFC or ADGM. Both jurisdictions have a strong focus on financial services, common law based legal systems and comprehensive trust frameworks that include discretionary, charitable and non-charitable trusts. The decision between the two will largely depend on your location preference and the degree of regulatory support you require.
2. Prepare trust deed: This legal document outlines the terms, conditions, and provisions of the trust arrangement. It specifies details such as the identities of the settlor, trustee, beneficiaries, the assets being placed in trust, and distribution criteria including the timing and circumstances under which the trust’s assets are to be distributed to the beneficiaries. The trust deed also defines the powers and responsibilities of the trustee, any conditions or restrictions placed on the trust, and mechanisms for addressing potential disputes or changes in circumstances over the life of the trust.
3. Select trustees: Choose individuals or a corporate entity to act as trustees. These individuals or entities will be responsible for managing and administering the trust according to the terms set out in the trust deed. They should be reputable and knowledgeable about UAE trust laws and regulations.
4. Submit application: Submit the necessary application and documentation to the relevant authority in either the DIFC or ADGM. In DIFC, it is the Registrar of Companies (RoC), while in ADGM, the registration and regulatory oversight of trusts are managed by the ADGM Registration Authority. The application will include the trust deed, details of the trustees, details of the beneficiaries, and any other relevant information.
5. Comply with regulations: Ensure that your trust structure complies with the legal and regulatory requirements of the chosen jurisdiction. The regulations might include provisions related to reporting, taxation, and disclosure.
6. Pay fees: These can vary based on several factors, including the type of trust, the complexity of the trust structure, and any additional services or features you may require.
7. Approval and registration: Once your application is reviewed and approved by the regulatory authority, you will receive the necessary approvals and your family trust will be registered.

How can The Knightsbridge Group help?

The Knightsbridge Group has over 20 years of experience in the domain of corporate structuring and wealth management. We have unparalleled knowledge of business practices and legal requirements in the UAE as well as an international network of contacts and a deep understanding of the needs of modern-day high net worth clients and international businesses.

We are well versed on the specific requirements of establishing family trusts in DIFC and ADGM. We can advise you on the most suitable type of structure, tailoring it to your specific needs and goals. We can help you prepare all legal documents including trust deeds, beneficiary agreements, and any other related paperwork. We can also help manage the day-to-day operations of the trust, including asset management, reporting, and compliance with regulatory requirements.

If you need help with registering a family trust in the UAE or any other immigration, financial or corporate structuring issue, please don’t hesitate to contact us on info@kbgroup.ae and we will be happy to help.