What are Trusts?
Put simply, trusts are legal arrangements in which one party, known as the trustee, holds assets on behalf of another party, known as the beneficiary. It is a relationship between three entities; the settlor, the trustee and the beneficiary – it is not a person like an individual or a corporation. At the outset, the settlor will contribute assets to the Trust, which are in turn managed by the trustee. While the trustee holds legal title to the assets and controls how they are managed and distributed. The beneficiary is the ultimate owner of the trust assets. There may be multiple trustees and numerous beneficiaries – or even classes of beneficiaries yet to be born.
Trusts are often used for a variety of purposes, including estate planning, asset protection, and charitable giving. In the United Arab Emirates (UAE), trusts are governed by the UAE Civil Code, which sets out the legal framework for the creation, management, and dissolution of trusts.
Types of Trusts
In the UAE, there are two types of trusts: express trusts and constructive trusts. Express trusts are created by a written instrument, such as a trust deed, which sets out the terms and the rights of the trustee and beneficiary. Constructive trusts, on the other hand, are created by operation of law, without the need for a written instrument. These can be created when someone holds assets on behalf of another person, but without a formal trust agreement in place.
The UAE Civil Code also recognizes a specific type of trust called a “waqf” which is a charitable trust, commonly used for religious or educational purposes. A waqf is created by the settlor (the person who creates the trust) who donates assets to it and the trustee holds the assets and uses them for the benefit of the beneficiaries (the charity or the cause).
Laws around Trusts in the UAE
Trusts can be created for a wide range of purposes, including estate planning, asset protection, and charitable giving. In the UAE, trusts are governed by the UAE Civil Code, which sets out the legal framework for the creation, management, and dissolution of trusts. Trusts can be created for a wide range of purposes, including estate planning, asset protection, and charitable giving. However, it is important to note that it is not recognized in all countries and that the laws governing it can vary significantly from one jurisdiction to another. Therefore, it is important to consult with a qualified legal professional when setting it up, to ensure that it will be valid and enforceable in the jurisdiction where it is located.
The taxation of trusts is not straightforward
Most jurisdictions treat Trusts as persons for tax purposes and require the trustee to file a separate tax return for it, distinct from your own tax return. In the UAE, Trusts are not subject to income tax. However, in order for a Trust to be resident in the UAE, careful attention needs to be paid to the constituent members of the Trust.
Why Use a Trust for Wealth Management?
A trust can be a useful wealth management tool to help with succession planning and intergenerational wealth transfer. When structured correctly, they can also be extremely tax efficient, particularly with cross border estates and multiple asset classes whilst also ensuring your wishes are carried out after you have passed away.
A trust can also help to manage assets, investments, residences and businesses through a centralised structure. When correctly set up, trustees will ensure that the aims and objectives of the trust are carried out throughout it’s lifetime.
When identifying the most appropriate structures to protect and enhance your wealth and assets it is essential that you obtain the best legal and tax advice available; ensuring the most effective and efficient outcome for the generations to come.
If you would like to find out more about how a trust may be beneficial with your wealth management please contact Finsbury Wealth.
We are well placed to discuss your personal situation and provide guidance in formulating the best and most advantageous succession plan for you.