Trusts vs Foundations: Protecting Your Assets in the UAE

Navigating Legal Landscapes in Middle Eastern-European Business

If you’re a business owner, a high-net-worth individual, or managing a family enterprise, securing your assets and planning for the future are essential. Trusts and foundations offer effective tools for doing just that, ensuring your wealth is protected and distributed according to your wishes. The UAE, especially through its free zones like the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), has become a leading destination for these types of structures.

What Are Trusts and Foundations?

Common Law Trusts
A common law trust is a legal arrangement where you (the settlor) transfer your assets to a trustee—someone you trust, be it a family member, friend, or professional. The trustee holds and manages these assets for the benefit of your designated beneficiaries, following your instructions as laid out in the trust deed.

Foundations
A foundation, unlike a trust, is a legal entity with its own personality. You transfer your assets to the foundation, which becomes their independent owner. The foundation is managed by a council, which acts in line with your goals and the foundation’s by-laws, for the benefit of the beneficiaries or for specific purposes you set out.

Civil Law Trusts
Civil law trusts combine features of both trusts and foundations. Like foundations, they have their own legal personality, and like trusts, they are managed by a trustee who administers the assets for beneficiaries or according to a specific purpose.

Many people think that trusts and foundations are only for charitable causes, but this isn’t true. They are powerful tools for managing your wealth, offering flexibility and control over how your assets are handled now and in the future.

Trusts vs. Foundations: Key Differences

Legal Personality

  • Trust: Assets are held directly by trustees.
  • Foundation: Has its own legal personality and directly holds assets in its own name.

Security and Risk

  • Foundation: Provides more stability since assets are held independently from any individual. It’s less flexible than a trust but offers better oversight through its council.
  • Trust: The trustee holds legal title, offering more flexibility but potentially more risk if the trustee makes poor decisions.

Confidentiality

  • Trusts: Typically, trust deeds are not disclosed to authorities, offering a higher degree of privacy.
  • Foundations: Must register their charter and by-laws, which are accessible to regulatory bodies, though not publicly available.

Registration and Certificates

  • Foundation: Comes with official documentation like certificates of good standing, which helps prove its legitimacy.
  • Trust: No ongoing registration is required, making them simpler but less transparent for verification purposes.

Tax Considerations

  • Trust: Transparent tax-wise, meaning the trust itself isn’t taxed, but trustees and beneficiaries must handle tax matters.
  • Foundation: Generally considered taxable, but family foundations can apply for an exemption, making them tax-transparent like a trust.

Cross-Jurisdictional Considerations

  • Trust: The settlor can decide the governing law for the trust.
  • Foundation: Governed by the laws of the jurisdiction where it was established, and often enjoys exemption from forced heirship rules.

Where Can You Set Up Trusts and Foundations in the UAE?

DIFC & ADGM
Both DIFC and ADGM, with their independent common law systems, allow for the creation of trusts and foundations.

RAKEZ ICC
RAKEZ ICC, operating under UAE’s civil law framework, allows the creation of foundations but not common law trusts. Founders can, however, designate DIFC or ADGM for dispute resolution.

UAE Mainland
Civil law trusts are available, but no common law trusts can be established in the mainland. The government is yet to finalize regulations and costs for these structures.

Costs Overview

Common Law Trusts

  • No setup fee in ADGM or DIFC.
  • Main cost: Legal fees for drafting the trust deed.

Foundations

  • ADGM: Setup fee is USD 500, plus additional costs for hiring a Corporate Service Provider (CSP).
  • DIFC: Setup fee starts at USD 350; hiring a CSP is optional but recommended.
  • RAKEZ ICC: Setup fee is AED 750; hiring a CSP is optional but beneficial.

UAE Mainland
Setup costs for civil law trusts are yet to be confirmed.

It’s recommended to work with a solicitor to help navigate legal obligations, compliance requirements, and draft tailored documents when setting up these structures.

Which Structure is Right for You?

Choosing between a trust or foundation depends on your goals:

  • If Privacy is a Priority: A common law trust provides more confidentiality.
  • For Stronger Asset Protection: A foundation or civil law trust, with its own legal personality, may offer better security.
  • Tax Considerations: A trust can be tax-transparent, while a foundation may require corporate tax registration unless it qualifies for family foundation status.

Each structure has unique advantages, and picking the right one involves understanding these differences and aligning them with your long-term goals.

How Yungo Law Can Help You

At Yungo Law, we offer tailored guidance to help you understand and establish the right structure for your needs. We assist with:

  • Setting Up Trusts or Foundations: Handling all legal paperwork, drafting charters or trust deeds, and ensuring compliance.
  • Ongoing Support: Assisting with renewals, compliance, bookkeeping, and regulatory filings to ensure your structure stays compliant and efficient.
  • Expert Advice: Our legal team provides clear, practical advice to help you decide which structure works best for you, and to ensure smooth operation in the future.

Trusts and foundations are valuable tools for asset protection, wealth management, and estate planning. Whether you’re looking into setting up a foundation in ADGM or a trust in DIFC, Yungo Law is here to guide you every step of the way.

Ready to explore your options? Reach out to us today for expert advice on protecting your wealth and planning for the future.

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