Succession and Governance planning through the use of Trusts such as STAR and Vista Trusts for asset protection, settlor or protector highest level of control, trading and charitable purposes.
A Trust is an estate planning vehicle that allows a Third party, the Trustee, to hold assets for the benefit of beneficiaries appointed as per the Trust Deed.
A Trust usually avoid probate applicable in case of a will, allowing the beneficiaries to still enjoy the benefit of the Trust despite the death of the settlor (who created and settled property into the Trust).
The Trust deed instrument specifying the terms governing the Trust, can be drafted in several ways to specify the conditions under which assets should pass to the beneficiaries.
This type of Trust will allow the corporate owner of a family business to settle his shares in a Trust to retain them in a trust indefinitely and to remove the trustee’s monitoring and intervention duties under the general trust law by allowing his disengaged from all management responsibility in the underlying company which to be exclusively instead carried out by the directors of the company without interference in the company management by the trustee.
A Will encompassing Dubai assets (bank accounts, jewelry, works of art, cars, investment policies, shares of companies, real estates…) only, located or registered in Dubai, could be registered in the Dubai International Financial Center, a Common Law Jurisdiction based on the UK Estates Act and Probate Rules excluding the Sharia law , Wills and Probate Registry (“WPR”) by Non-Muslim individuals over the age of 21 years UAE resident or not under full testamentary freedom (except some restrictions depending on the testator’s citizenship and/or residency) and covering guardianship matters related to minor children habitually resident in Dubai with the testator.
The execution of the will takes place at the time of registration in the presence of a registry officer and one testator’s witness. The Will shall be electronically stored of the Will as a preventative measure against any possible allegations of forgery and to avoid the risk of tampering, loss and theft.
DIFC Courts adjudicate any contentious probate matters and issue Grants of Probate (legal instrument allowing the executor- family member, lawyer, friend…- to handle the disposal of the deceased’s assets and debts), court and guardianship orders.
The Settlor will transfer his property into the Trust by vesting his legal ownership into the Trustee. The Trustee will hold and manage it for the benefit of the beneficiaries by holding the legal ownership over the property called the Trust Fund. The beneficiaries will be holding an economic or beneficial “ownership” depending on the nature of the Trust (revocable, irrevocable, discretionary, fixed interest….). The Beneficiaries will receive distributions from the Trust and enjoy all the profits and benefits of the Trust. A protector (settlor himself, a family member, a trusted advisor…) could be appointed to protect and watch over the Trustees.
A Private Trust Company (PTC), which is a standard company with the sole objects to act as Trustee of Family Trust (s), could be used as a family governance tool to allow the creator or his family to maintain a control over the Trust structure either as shareholder of the PTC, as members of a family committee or as enforcer of a Purpose Trust to act as shareholder of the PTC. A foundation could also be used instead of the PTC to act as Trustee of the Family Trust (s).
Trust could be used for estate planning, business governance planning, confidentiality planning, investment fund planning, asset protection planning by segregating the family’s private assets from the business ones to limit the reach of the business creditors, securitization purposes, off balance sheets purposes…
|Legal Background||Civil Law||Common Law|
||A trust is a legal obligation or relationship between the settlor (the person who creates the trust) and the trustee (the person in charge of the trust) and the beneficiary (the person who receives benefits from the trust).|
|Types :||There are three main forms of foundations:
||There are four main types of international trusts:
|The purposes of a foundation may be drawn up as broadly as the Founder wishes, but generally used for:
||The purposes of a trust may be drawn up as broadly as the settlor wishes, but generally used for:
|Establishment:||When a founder (the person who gives the assets) registers the particulars of the Foundation charter or the Declaration of the Memorandum of establishment at the Public Registry. Unlike the trust, there is no immediate requirement to transfer the assets to the foundation for it to be valid.
Founder, management body, beneficiary, foundation charter, assets/property, secretary, registered agent and office, By-laws, guardian, supervisory board
|The trust is established when the settlor (the person creating the trust) prepares a Trust Deed also known as Deed of Trust or Declaration of Trust and transfers assets (of any kind) to the trustee for the benefit of the beneficiary. In order for the trust to be valid, the assets must be transferred to the trust.
Settlor, trustee, protector, beneficiary, trust deed, assets/property, registered agent and office Letter of Wishes/Memoranda of Wishes
This is the official document forming and governing the foundation. This document may contain:
The Certificate of Establishment :
The document issued by the registrar showing proof of existence. Contains only the date of registration, name of foundation, agent name and address and registration number.
By-laws: This is an optional and private document that specifies how the foundation is to be managed. This is not filed for public scrutiny. The By-Laws of a foundation may include instructions for the management board that pertain to the management, distribution or application of assets. Guardian or Protector or Supervisory Board: Guardians are optional safeguards’ or positions in the foundation. They serve as watch dogs’ of foundations and may be granted more powers than the management board. It is a position that can be held by the founder (so that the founder retains ultimate control).
Secretary: There are no requirements for a secretary
Registered Agent / Registered Office
Letter of Wishes/Memorandum of Wishes : In addition to the trust deed, the settlor can write a private letter of wishes which spells out exactly what the trustees can do. This is a private letter between the trustee and settlor.
The Protector: Protector is optional. The protector is an officer with the power to direct the trustee in matters relating to the trust. Protectors can be given powers to appoint or dismiss trustees, or overrule their decisions. The protector can be a settlor, trustee or a beneficiary of the trust. Though this set up is not recommended for asset protection because ownership of assets reverts to the settlor.
|Legal entity?||A foundation is a legal entity formed by registering a document called the Foundation Charter or Declaration of Establishment. As a legal body, it can be sued or can sue, enter into contracts and agreements with companies or persons, open bank accounts and conduct commercial activities.||Under common law, a trust is NOT a legal person in its own right. Therefore, the trust cannot be sued or take legal action as a corporation or a foundation can. The Trustee must be acting on its behalf.|
|Revocable or irrevocable?||Foundation may be revocable or irrevocable.||The revocability of the trust is up to the Settlor, but a trust will be deemed irrevocable if it is not expressed as revocable.|
|Legal owner of assets||The assets owned by the foundation are independent of the founder. Once they are transferred to the foundation, these assets no longer belong to the founder, but belong to the foundation only. This means that the endowment cannot be seized, or subject to any claims or legal actions on the founder, or the beneficiaries.||The trustee is the manager of assets, held for and on behalf of beneficiaries. Once they are transferred to the trust, these assets no longer belong to the settlor. This means that the endowment cannot be seized, or subject to any claims or legal actions of the settlor or the beneficiaries.|
|Accountability||The foundation council members answer to the foundation.||The trustees ultimately answer to the beneficiaries or trust protector.|
|Management||The foundation is managed by a board or council made up of one or more persons; corporate bodies are permitted.||The trust may have a protector, but the trustee and settlor have overall charge of the assets as defined by the trust deed/letter of wishes or the memorandum of wishes.|
|Commercial and investment activity||Foundations are not really intended to carry out day-to-day- commercial activities, but it can undertake investment and commercial activity as set out in laws of the foundations.
To conduct daily business activity, an offshore company that is owned by the foundation could carry out all of your commercial activities. Of particular good use is the a Multiform Foundation which is a foundation that can change its form (type) at any time to suit objectives. For instance, if initially you need a foundation to protect current assets, but also need to continue to engage in commercial business activity, then a company foundation is suitable. If after a few years you have achieved the commercial objectives, you may then convert that company foundation to a trust foundation to meet your estate planning and asset protection needs.
|Investment activity is permitted, but scope can be limited by jurisdictional laws or the letter of wishes.|
|Limitations/Restrictions||Other than the limitations placed on the council members in the laws and declaration there are no specific restrictions placed on the foundation.||Other than the limitations placed on the trustees pertaining to investment activity, there are no specific restrictions placed on the trusts.|
|Maximum duration of entity||A foundation can be established for an indefinite period. But there are cases when the duration of the foundation can be more specific and set to a specific number of years.||Trusts are established for a definite period, generally 100 years. Charitable Trusts may have indefinite periods.|
|Type of assets (that can be put into entity)||Any kind||Any kind|
|Liabilities||Foundations have limited liability hence the personal assets of the beneficiaries and members of council are protected. The Founder no longer has legal claim to assets.||The trustee is wholly responsible for the liabilities of the trust, unless there is a protector who accepts that liability.|
|Information entered on the register/ on public record:||Only a limited amount of information is placed on public record- the name of foundation, date of establishment, registration number, name of members and the endowment value.||The trust’s name, name of Trustee and the registered office address (identity of settlor is not recorded)
The deed is not filed.
|Maintenance requirements||Entities must be renewed each year. A certificate of good standing is available as evidence that the entity is still in existence, has all files up to date, has paid all fees and penalties required under the act.|
|Advantages of Entities||Foundations could choose to have disputes settled through arbitration rather than go through courts. Clients can have matters resolved in a confidential and efficient way, and have the option to select the method and place of dispute resolution.||Arbitration settlement -Proceedings (legal but non-criminal) relating to trusts could be heard in private and no details are published without court permission.|
|A creditor who wants to bring a court action against a foundation or its founder or the member or the beneficiary must first purchase a bond (between $25,000 and $50,000) and deposit it with the Minister of Finance/Registry to cover all costs should the action prove unsuccessful.||Before any creditor can bring actions against a trust, that creditor must pay a bond of US25, 000 as a security deposit.|
|Nevis Multiform foundations can take on one of several forms (trust, company, partnership and ordinary private foundation) and can convert from one form to another at any time, without cause or penalty.||