The enactment of the UAE’s 2020 Trust Law marks a significant milestone in the development of trust jurisprudence within the country. This legislation introduces Anglo-American trust arrangements into the UAE’s civil legal framework, bringing about a fundamental reform in the concept of beneficial property interests that is distinct from civil law traditions. Trust arrangements have gained global significance in Anglo-American legal systems, playing a vital role in supporting and facilitating international business and wealth management practices. These arrangements have evolved over time and become foundational to various structures and concepts. Unlike the financial free zones in the UAE, which have adopted common law legal systems, the new UAE Trust Law establishes, for the first time, comprehensive recognition of trust arrangements within an onshore legal system derived from the Egyptian civil code. This unique approach sets the UAE Trust Law apart from other trust laws in the country and demonstrates a departure from the influence of Anglo-American jurisprudence.
The UAE’s economy has experienced increased exposure to and integration with sophisticated international business and financial practices and markets in the past three decades. As a result, numerous UAE residents have become familiar with advanced legal products supported by trust arrangements.
Consequently, there is a demand within the UAE market for these legal products, which encompass a wide range from private family trusts to publicly traded mutual funds and securitization structures. While these legal products are available within the UAE’s financial free zones, namely DIFC (Dubai International Financial Centre) and ADGM (Abu Dhabi Global Market), the majority of economic activity and assets in the UAE are located outside these free zones in the onshore areas.
Before introducing the UAE Trust Law, trust arrangements within the free zones lacked the effectiveness to govern transactions, enforce ownership rights, or establish ownership rights over onshore assets in the UAE. These assets could include cash, securities, land, movable assets, or legal rights. Instead, trust arrangements and their associated offshore business structures could only be implemented through modifications to onshore law. However, this was done without the establishment of a comprehensive common law legal framework similar to those created in DIFC and ADGM. It is important to note that the UAE Trust Law does not extend to trusts established within the financial free zones of the UAE, which continue to operate under their own legislative provisions.
The essential components required for the establishment of an onshore trust under the new UAE Trust Law are as follows:
These elements form the foundational requirements for the establishment of an onshore trust in accordance with the new UAE Trust Law.
Every trust must have a Settlor, who is defined as the individual or entity responsible for creating the trust and providing their property as trust assets. The Settlor can establish a trust by executing (signing) the trust instrument or through a will that takes effect after the Settlor’s death. It is a requirement under the law that the Settlor personally signs the trust instrument.
According to the UAE Trust Law, the Settlor must have legal capacity, and it is permissible for a corporate entity to act as a Settlor. However, in the case of a corporate Settlor, the settlement transaction must comply with the corporate action/authority requirements applicable to that entity. For instance, joint stock companies would require board approval, while limited liability companies would require a general assembly resolution.
It is also possible for multiple settlers to establish a trust with proper legal advice, and the trust instrument can authorize multiple Settlers to retain certain powers to control or recall specific components of the trust property, which can be traced back to individual Settlers.
Similar to the concept of a ‘reserved power trust’ in common law jurisdictions, the UAE Trust Law permits a Settlor to reserve a significant amount of control through the trust instrument. This includes the ability to:
According to the Law, a “Trust Instrument” refers to a written document executed by the Settlor that establishes a trust and regulates its terms and conditions. It is clarified that a Settlor may create a testamentary trust under their will.
The UAE onshore Courts are empowered by the Law to establish a trust upon the request of a guardian or custodian in situations where the owner of the property lacks legal capacity. The Court’s decision must identify and determine the trust terms, and this written decision is considered to be a Trust Instrument.
The Law mandates the registration of every trust in the new UAE Trusts Register. The following elements must be identified and recorded in the Register:
If no specific period is indicated for element (2), the Trust is considered “permanent” unless ordered otherwise by the Court.
The Law provides a non-exhaustive list of matters that may be included in the Trust Instrument, such as:
Every trust necessitates the presence of a trustee. To qualify as a trustee, an individual must be a natural person with legal capacity, characterized by “good reputation and conduct.” Alternatively, a commercial company can serve as a trustee if licensed as a Professional Trustee.
It is permissible for a Settlor to also act as a trustee. Future regulations are expected to introduce new requirements for a company to obtain a license as a Professional Trustee, allowing private companies to serve as trustees for family trusts.
The Law includes detailed provisions governing the appointment, removal, and replacement of co-trustees. One notable provision allows co-trustees to divide responsibilities through “power-sharing” if permitted by the Trust Instrument. While the Law does not explicitly recognize the distinct roles of custodial trustees and managing trustees as seen in the DIFC Trust Law, it appears that these provisions can accommodate and be applied for such purposes.
Additionally, the Law outlines the affirmative duties of any trustee. The most significant duties include:
Other fundamental duties include:
Furthermore, the Law expands on the positive duties by outlining certain negative duties, which include:
Trustee liability is addressed by holding the trustee liable for “wilful default or gross negligence.” Additionally, any transaction disposing of Trust Property in bad faith can be invalidated if the recipient was aware of such bad faith.