On 25/9/2023, H.H. President of the UAE Sheikh Mohammad Bin Zayed Al Nahyan issued Federal Decree-Law No. 31 of 2023 relating to Trust (the “New Trusts Law”). The New Trusts Law repeals the previous Federal Decree by Law No.19 of 2020 governing trusts (the “Old Trusts Law”) and became effective on 30th September 2023.
We have set out below the ‘headline’ points arising under the New Trusts Law and, following on from that, we have identified some more peripheral matters that will also be of interest to clients.
Headline Points under the New Trust Law:
- Trusts continue to be considered to have legal personality in their own right.
- Trusts are now largely limited to express private trusts where the beneficiary can be identified by name or capacity or by kinship or affiliation to a group or a corporate or natural person. So express private trusts for natural and corporate beneficiaries are within the scope of the New Trusts Law.
- The specific inclusion of trusts for charitable purposes and (non-charitable) private purposes under the Old Trusts Law has been abolished. It may still be possible to indirectly create trusts for charitable purposes and non-charitable purposes in certain limited circumstances under the new regime if specific identifiable persons behind the objectives can be identified but close attention will need to be paid to the New Trusts Law to ensure compliance with it.
- The former regime relating to speciality trusts - such as retirement funds and securities dealings (such as unit trusts) are repealed. There would appear to be scope for the continued existence of such trusts under the new general trusts regime but, again, close attention will need to be paid to the New Trusts Law to ensure compliance with it.
- Trusts must be established by written trust instrument – there is still no recognition of trusts being established verbally or through action alone (so concepts such as orally created express trusts, constructive trusts and resulting trusts are still not covered under the new regime).
- As the settlor needs to apply for registration of the relevant instrument establishing the trust in order for the trust to be valid, testamentary trusts (established by will for example) would not be recognised under the New Trusts Law. However, this does not preclude the creation of valid wills or other testamentary documents under other laws in the UAE which specifically provide for the existence of such documents.
- Trusts established in the UAE freezones which have their own laws relating to trusts (e.g. the DIFC and the ADGM) will continue to be valid in accordance with the laws of those freezones and are not impacted by the New Trusts Law.
- The New Trusts Law provides for a new comprehensive regime (run by local authorities in each Emirate) for the trust instruments to first be certified for compliance with the New Trusts Law and subsequently registered with the local authority.
- Trusts only come into existence once they are registered with the appropriate local authority. However, once registered in one Emirate, the trust will be valid in all the Emirates of the UAE. Until registration is complete any trust will not be valid.
- There are very stringent confidentiality obligations on the trustee relating trust data, information, documents and accounts. These must remain confidential (even from beneficiaries) unless stated otherwise in the trust instrument or the UAE federal court rules otherwise.
- Only the settlor, trustee and protector are permitted to review the public records of the trust but this is subject to the provisions of the trust instrument – so potentially these disclosure requirements could be restricted or expanded further.
Other points to note in relation to the New Trusts Law:
- The previous provisions under the Old Trusts Law which permitted the recognition of certain trusts created under non-UAE law is abolished.
- There is enhanced recognition of the potential role of a protector in relation to a trust.
- Any exculpation clause in the trust instrument which attempts to relieve a trustee from ‘fraud, bad faith, grave negligence or wilful error’ will be void.
- Any amendments to the trust instrument must be notified to the appropriate local authority body.
- There are enhanced provisions confirming that, once property has been transferred into the Trust, it is no longer the personal property of the settlor or the trustee.
- The trustee is also given exclusive control over trust property to transfer ownership and sign documents relating to trust property without the involvement of any other person (including the settlor or beneficiary) unless the trust instrument states otherwise.
- Legislative resolutions relating to the implementation of the Old Trusts Law shall continue to be valid unless they contradict the provisions of the New Trusts Law or are replaced by further resolutions issued under the New Trusts Law.
- There are new provisions for majority decision-making by trustees, unless stated otherwise in the trust instrument.
- There are enhanced provisions giving power to the settlor and the protector to remove the trustee in certain events but close attention will need to be paid to the relevant provisions of the New Trusts Law to ensure their effective operation.
- The trustee is obligated to obtain audited accounts of the trust by an independent auditor.
- The extensive list of powers given to the UAE federal courts in relation to trusts has been replaced by a more straightforward provision giving the UAE federal courts jurisdiction over matters which are specifically stated to be within its powers under the New Trusts Law and where there is no express stipulation on such matters.
The New Trusts Law is not a wholesale rewriting of the Old Trusts Law. However, to the credit of the legislators, it has produced a new law relating to trusts which is easier to read and interpret and has removed some of the more spurious provisions relating to trusts which previously existed. It has also sought to tighten up on some of the areas which matter in practical sense in the UAE.
For example, the New Trusts Law has clarified that property which is transferred into a trust is truly separate from the settlor. It ensures that the public records and trust documentation and accounts will remain confidential (particularly from trust beneficiaries and third parties unconnected with the trust) unless the settlor wishes otherwise. Also the provisions preventing the use of certain liability exculpation clauses for trustees is a noteworthy; as the intention is presumably to try and improve the professionalism of trustees in the UAE generally.
On the other hand, there are certain issues under the New Trusts Law which might be considered less welcome. For instance, under the New Trusts Law, trusts are still considered as legal entities in their own right. Trusts are now effectively restricted to express private trusts with identifiable beneficiaries, as the previous provisions expressly permitting charitable trusts and (non-charitable) private purpose trusts have been repealed. Trusts established under the New Trusts Law will now be subject to an even more onerous registration process with local authorities in the UAE. These are matters which may continue to discourage the widespread use of trusts at a federal level – particularly by non-UAE residents. Time will tell.
Crucially however, the New Trusts Law does not apply to trusts established in the UAE freezones which have their own trusts legislation (principally the DIFC and the ADGM). Therefore the more internationally recognised form of trusts found in many common law jurisdictions (where trust property legally vests in the trustees and the trust itself does not have legal personality) can still be established within the UAE in these freezones and are completely unaffected by the New Trusts Law. Therefore the UAE as a whole remains an attractive jurisdiction for the establishment of trusts for both UAE residents and non-UAE residents alike.
The UAE is committed to business expansion and the protection of private wealth in the UAE
. The New Trusts Law is therefore to be welcomed as an enhanced ‘tool in the toolbox’ of possible forms of financial structure that can be accessed at a UAE federal level, whilst leaving the UAE freezones free to follow their own legislative path.
At Al Tamimi & Company we have developed unrivalled expertise in the areas of family business/private wealth both in the UAE
(both at a federal level and in the UAE freezones) and we continue monitor developments in these areas closely.
Our lawyers have extensive experience of successfully advising clients (both UAE residents and non-UAE residents) on appropriate family business and private wealth structures
to meet their requirements both within the UAE and the wider MENA region.
This briefing has been prepared for the assistance of clients in order to help them understand the important legal issues arising under the New Trusts Law and how it has changed from the Old Trusts Law in the UAE. It is only a summary and is not intended to be comprehensive in its scope. Clients should not rely on this briefing note when establishing any structure or seeking to change an existing one in the UAE and they should seek appropriate legal advice.
