whatsappicon

UAE's New Trust Law Ready Reckoner: Transforming Wealth Management

Owner's Profile

Staff Writer, TLR

Published on July 14, 2023, 17:40:59

205

wealth management, UAE

New Trust Law 

The New Trust Law enacted by the UAE is moving in the direction of a paradigm shift in wealth management, where the law leaves room for expanding wealth management services. The Ministry of Finance of the United Arab Emirates (MoF) has issued Federal Decree No. 19 of 2020 on trust assets. This development also marks the incorporation of the common law concept of trust into UAE civil law, and the ministry opined that this Trust Law is necessary to augment the advanced legislative structure of the UAE. This new law shall be a more efficient help to the sector of wealth management, as well as bring new tools for the management of funds and wealth. 

Key Provisions of the Law

The Federal Decree brings about a significant change in the UAE law as it recognises the concept of trust, which previously lacked clarity on how the courts of the UAE would interpret and apply trust agreements. For the first time, the creation of trust assets has been made possible, which allows the creation of trust assets in the same way as is generally understood in common law jurisdictions.

Trusts and Creation of Trusts: The law defines a trustee as the person in whom the discretionary powers, as per the trust instrument, resides in order to give effect to the beneficiary interest or the purpose of the trust, making it a wide definition for the powers that can be vested in a trustee. Furthermore, the law confers legal personality on the trust. The trust property, as per the decree law, is exhaustively defined to include "Any movable or immovable property and anything related to or deemed a part thereof, and any right which exists, or may exist, in or outside the State."

Trusts can be created, as per Chapter 2 of the Law, by means of a trust instrument, a will, the transfer of property from trust to trust, or by court order, subject to the requirements. These requirements, as per Article 6, includes, legal capacity and property ownership of the settlor, identification of the trustee, beneficiary and trust purpose, the property being identified or identifiable in due diligence, and the properties should not have any right on it by a third party. Here, as per Article 7 of the Law, the trust has to be registered by means of the trust instrument being entered into the register as per requirements of the law. The trust instrument must contain the declaration by the settlor, identifications of the requirements mentioned above, specifications on the trust name and duration, and the powers and functions of a trustee. A trust instrument sans the required information shall be invalid. The purpose of the trust has to be for the promotion of the interests of the beneficiary. The settlor or the trustee, as the case maybe, shall apply for the entry of the trust into the register, as per the provisions of Chapter 10 of the Law, and can access the register. However, the chapter puts a confidentiality obligation on the trustee, concerning data, information or documents related to the trust or its accounts. Chapters 3,4 and 5 of the law respectively elucidates the parties to the trust.

Settlor: The settlor, or the one disposing of the property to the trustee, as explained above must have the legal capacity as per the Civil Transactions Law. However, if this is a legal person, the competent authority has to sanction the disposing of properties. In cases of multiple settlors, the decision has to be unanimous. However, it has to be noted that the settlor is permitted to retain certain rights concerning the trust to himself, which may include the right to terminate or revoke the trust even.

Trustee: The law elucidates on the trustee, their duties and liabilities and powers. Here, it has to be noted that a trustee has complete power over the properties disposed of to him. However, if the instrument restricts his power, he can apply to the court and the court may allow additional powers to the extent to which it is necessary for the purpose of the trust. However, in addition to the capacity, the trustee has to have good repute as well. In case this is a legal person, the trustee has to be either a licensed trustee or a commercial company. Co-trustees, as provided by the instrument may exist. The trustee can be removed, may resign or apply for discharge, or his position might lapse owing to circumstances such as death.

Beneficiary: The beneficiary is an essential component of any trust, without which the trust shall be deemed void. The beneficiary has to be designated clearly, and shall be designated with name and allied details in case the person is a natural person. However, the beneficiary shall have no claim against the trustee, except for the rights under the trust properties. The beneficiary is entitled to trust benefits and has the right to require the trustee to perform his obligations. Furthermore, the beneficiary has the right to dispose, decline or assign the rights under the trust.

Changes Ushered in By the New Trust Law

The new trust law brings a right to transfer assets, as a financial covenant, to a trustee to manage and grow. The Trust Act allows companies and persons who hold capital and other assets to transfer them in the form of trust assets to a trustee responsible for managing them. Trust documents will be electronically recorded and a new system for the transfer of assets and movable property between trusts and their owners will be established to monitor them.  However, this applies only to the onshore areas and is not applicable to free zones, which have been expressly excluded and are governed by their own trust law regimes.

This will result in offering an environment of competition that will speed up both business and technology-based economies. The law will be beneficial to society, especially to the companies owned and run by families. They can proceed with long term planning based on the continuity of the asset of the companies. The new law brought up an integrated system, through which they are able to manage the wealth as trusts by a Trustee, appointed based on his qualification and experience.

The Ministry of Finance had signed a Memorandum of Understanding with the OECD to establish a partnership on tax issues and that the UAE was currently implementing a legal framework and mechanisms for the exchange of information. The new UAE Trust Law, adopted late last year, will help the UAE to be classified as a member of the OECD's Joint Reporting Standard (CRS) for Tax Conformity and Transparency. The UAE has also committed to sharing information with other countries under the Joint Reporting Framework.

The larger picture here makes the UAE's regulatory regime seem more appealing. The new trust law is part of the UAE's efforts to become a global leader in the development of its financial sector, and the country is increasingly demonstrating its ability to integrate sophisticated international business and financial practices. The decree and the law emphasise the forward-looking initiative to expand the legal framework to include a wide range of structuring options in the UAE.

Comments

    whatsappicon