On September 25, 2023, the President of the United Arab Emirates (“UAE”), issued Federal Decree-Law No. 31 of 2023, ushering in a new era for trusts by repealing the previous law, No. 19 of 2020. This momentous legal development, published in the official gazette, is now in effect, reshaping the regulatory landscape for trusts in the UAE.
All provisions from earlier regulations and decisions concerning trusts remain valid unless conflicting with the newly enacted law. This ensures a seamless transition while embracing the improvements brought forth by the new legislation.
Application of Law to Trusts
This Law by Decree is applicable to every trust established in accordance with its provisions, except for Financial Free Zones with their own Trust regulation legislation.
Trust Adherence to Legal Provisions
The Trust is obligated to adhere to the provisions outlined in the Trust Instrument, this Law by Decree, its preamble, and the resolutions issued in accordance, superseding any other legislation.
Trust Registration Process:
While the new law maintains the validity of existing regulations and decisions related to trusts, it introduces amendments aimed at enhancing clarity and addressing practical application issues. Notably, the legislation establishes a trust registration process at the Emirate level, requiring the issuance of a “validity certificate” and an “incorporation certificate” by the competent authority.
The law recognizes trusts in all Emirates, emphasizing their separate legal personality outline the roles of the settlor and trust protector, clarifying the court’s involvement in related matters. The registered trust instrument’s express terms are emphasized as binding rules.
Legal Entity and Ownership of Trust
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- Establishment and Independence: The Trust attains legal personality from its initial registration date, enjoying both financial and administrative independence. It possesses the right to engage in legal proceedings, represented by the Trustee.
- Ownership Exclusivity: The Settlor, Trustee, their heirs, or successors are explicitly not recognized as owners of the Trust Property and its Dividends. Furthermore, in the occurrence of death, bankruptcy, or liquidation procedures against any of them, the Trust, along with its Property and Dividends, remains separate and does not become part of their estate.
- Transfer of Ownership: The ownership of Trust Property is effectively transferred to the Trust when conducted in accordance with the prescribed rules.
Settlor Requirements and Powers
If the Settlor is an individual, they must meet the eligibility conditions outlined in the Federal Civil Transactions Law. For a corporate Settlor, the Competent Authority must issue a decision to dispose of its property as per the incorporation documents and applicable legislation in the State.
In cases of multiple Settlors, unanimous decisions are necessary unless the Trust Instrument states otherwise. Each Settlor can delegate powers as per the Trust Instrument.
The Settlor is obligated to transfer property and authorities to the Trustee within six months from Initial Registration, unless the Trust Instrument specifies otherwise. Additionally, all documents related to Trust Property must be delivered to the Trustee within the stipulated period.
Trustee Duties and Liabilities
Furthermore, the new law provides detailed information on trustee duties, obligations, and liabilities. This development signifies progress in trust law within the civil law framework and demonstrates the UAE government’s commitment to offering an onshore alternative to existing trust laws in financial free zones.
For a natural person Trustee, eligibility requires compliance with State legislation and a record of good character without convictions for crimes against honor or integrity.
A legal person Trustee must be a Professional Legal Trustee, and licensing for Professional Legal Persons and Professional Trustees is governed by a Cabinet Resolution.
Identification and Conditions of Trust Beneficiaries
The Trust’s Beneficiary must be clearly identified, either by name, capacity, kinship with the Settlor, or as specified in the Trust Instrument. For natural person beneficiaries, various identification methods are permissible. The Trust Instrument may allocate different shares and set conditions for Beneficiary entitlement to or exclusion from Trust Dividends.
The Beneficiary cannot claim rights to Trust Property not incorporated into the Trust. If the Trust Instrument fails to determine the Beneficiary, the Trust is rendered void. Both the Settlor and Trustee are eligible to be Beneficiaries.
Anticipated Implementing Regulations
It’s important to note that the law anticipates the issuance of additional implementing regulations and resolutions in the future, highlighting the government’s ongoing efforts to support businesses and the overall economy in the UAE.