Guernsey: Understanding Sharia’a Compliant Trusts….In Guernsey And Beyond

Last Updated: 28 May 2009
Article by Gavin Ferguson

Most Read Contributor in Guernsey, November 2017

Originally supplied by Ozannes and published on

Sharia'a compliant trusts have seen a recent increase in popularity, evidenced by the creation of trusts laws in both Dubai and Bahrain in 2007, although offshore jurisdictions such as Guernsey continue to be a popular choice for creating and administering Sharia'a compliant trusts. This is due to a number of reasons including Guernsey's history and experience as a trust jurisdiction and Guernsey's state of the art Trusts law.

To understand and appreciate the use of Sharia'a compliant trusts, one must first understand what the Sharia'a is. The Sharia'a is the divine law of Islam as derived from the Quran and Sunnah1 and also Qiyaas and Ijma2. It is not a code of law like English law for example, but rather a set of rules which govern how Muslims (followers of Islam) conduct their daily lives.

The Sharia'a encourages investment and increasing wealth, provided this is carried out in a Sharia'a compliant manner i.e. accords to the following three principles:-

  1. Charitable principles - A certain amount of wealth is passed to charity;
  2. Substantive principles – One does not invest in Haram (prohibited) investments3; and
  3. Procedural principles – The investment does not involve Riba4 (interest/excess), Gharar (uncertainty), Maysir (speculation) and does not infringe forcedheirship rights5.

Whilst "the trust" is a concept developed by the English Courts of Equity that dates back to the time of the crusades, having perhaps been inspired by the Roman fideicommissum6, there is a concept under Islamic law known as the "waqf" which has many similarities to a trust which dates back to at least the 10th century. In essence the Waqf was either a family or charitable endowment of property, created by a donor for use by designated beneficiaries and administered by trustees who in turn were under the supervision of a local judge.

With the Islamic Finance Industry consisting of any where between $500billion - $1 trillion and a growth rate of approximately 15-20% per annum, it is clear that there are a large number of wealthy Muslims who wish their business activities to be conducted in a Sharia'a compliant manner. Many of these Middle Eastern persons are becoming increasingly interested in the use of trusts as a means of asset protection and ensuring family wealth remains available for the benefit of future generations. However, such trusts will need to adhere to the Sharia'a.

For a trust to be Sharia'a compliant, one must comply with the principles highlighted above and in particular, focus upon (1) the restrictions on investment and (2) the Islamic rules of inheritance:-

1. Trust investments – Ensuring the trust fund is not invested in Halal investments

Although a trust instrument usually contains very wide powers of investment, it could be drafted so as to restrict investments to those that are Halal (acceptable under Sharia'a law). With regard to choosing investments for a trust, in the absence of an investment trust committee with expertise in Sharia'a investments, trustees will often employ the services of investment managers who in turn will employ the services of Sharia'a Scholars to advise on compliant investments. In addition to checking the investment to be held directly, the underlying business/activity of the investment also needs to be screened, for example, a holding of shares in a hotel is Sharia'a compliant, but not if the hotel operates a casino, sells alcohol, hires it out for wine tasting etc. Likewise the holding of land or buildings should be Sharia'a compliant, but not where tenants are engaged in activities that are prohibited such as running a brothel or selling pork. Whilst an investment trust committee may be suitable for some trusts, the use of protectors is common in many Sharia'a compliant trusts. A protector can be a person or group of persons such as a family council, whose consent is required for certain specified actions by the trustees such as investment, distributions of trust assets and appointment of new trustees. The protector provides reassurance to the settlor and his family, particularly where the family have not had a prior relationship with the trustees7.

2. Inheritance – Ensuring the trust does not infringe the forced heirship rules

As referred to above, Islam has complex forced heirship rules for the division of inheritance set out in the Quran which must not be infringed notwithstanding there are no restrictions under the Sharia'a in relation to lifetime gifts. There are two ways of ensuring this in drafting the trust:-

1. A settlor who wants to create a trust, the beneficial provisions of which are strictly Sharia'a compliant, may require a trust which provides that on his death the trust fund is to be paid to his heirs under Sharia'a law in the proportions set out in the Qur'an. In order to determine the shares into which the trust fund should be split, the trust could be drafted to provide that the trustees are to consult with the protector or a Sharia'a Scholar and once the shares have been ascertained, those shares would then be paid to the beneficiaries. The problem with this is that the trust would end on the settlor's death and its usefulness in terms of asset protection and wealth preservation would potentially be lost.

2. A fully discretionary trust could be used for settlors motivated to preserve assets for the benefit of future generations, whilst nevertheless having regard to the Sharia'a inheritance proportions (at least in relation to those assets located in an Islamic jurisdiction). With such a trust, the trustees may, in exercising their discretion as to distributions, have regard to a letter or memorandum of wishes from the settlor, such letter or memorandum being non-binding upon the trustees. In such a letter or memorandum, the settlor may set out how he wishes the trust fund to be used upon his death i.e. when making payments to family members, taking into account amounts that the various heirs under Sharia'a law may have already received, thus ensuring that no heir receives more than their entitlement under the Sharia'a. Alternatively the letter or memorandum may more strictly divide the trust fund into sub-funds in amounts determined by reference to the heirs' entitlement but retained by the trustees with discretion as to when and how much is paid to the beneficiaries. The settlor may also state he would like the trustees to be consulted for advice on Sharia'a law matters, and/or request the trustees to make certain annual payments to, for example, the settlor during his lifetime in order that he makes a distribution of Zakat8 to worthy causes.

To the extent that any trust is not fully-Sharia'a compliant, care should be taken to ensure that assets are not held within a jurisdiction subject to Sharia'a law as the local courts may well decide to apply Sharia'a rules to assets within their jurisdiction, irrespective of the intended legal effect of the structure in which they are held.

The Future of Sharia'a Trusts

Following the growth in the wealth of a number of Islamic states, driven by high oil prices, and the long established use of the Waqf, the trust is a concept being increasingly used by Muslims concerned with asset protection and ensuring that family wealth remains available for the benefit of future generations whilst at the same time respecting the Sharia'a.

Often Middle Eastern clients chose to set up trusts outside Islamic countries for a number of reasons including to take advantage of established trust laws and the wealth of trust experience of offshore jurisdictions such as Guernsey and the opportunity to settle assets in a mixture of a Sharia'a and non-Sharia'a compliant manner.


1. The Quran is the text of Allah delivered to the Prophet Mohammed, and the Sunnah is the acts and words of the Prophet.

2. Qiyaas is an analogy of Islamic Scholars and Ijma is the consensus of a majority of Islamic Scholars which becomes part of the Sharia'a

3. Haram investments include:- Pork, alcohol, adult entertainment, gambling, conventional financial products, defence, tobacco etc

4. The prohibition against interest is referred to in the Quran a number of time including in 2:275:-"Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness". Interestingly, reference can also be found a number of times in the Bible including in Deuteronomy 23:19 - "Do not charge your brother interest, whether on money or food or anything else that may earn interest."

5. Sharia'a has a complex and rigid system of legal rules which provide for a deceased person's estate to be apportioned among certain close relatives in definite fixed shares. This system of forced heirship applies generally to at least two-thirds of a person's estate. The particular importance of the Islamic laws of inheritance is obvious from the verses immediately following those verses giving specific details on inheritance shares, "These are limits (set by) Allah (or ordainments as regards laws of inheritance), and whosoever obeys Allah and His Messenger will be admitted to Gardens under which rivers flow (in Paradise), to abide therein, and that will be the great success. And whosoever disobeys Allah and His Messenger, and transgresses His limits, He will cast him into the Fire, to abide therein; and he shall have a disgraceful torment." [Quran 4:13-14]

6. The fideicommissum permitted a testator to demise his property to a legally incapable beneficiary by transmitting it to a capable legatee responsible for fulfilling his promise to deliver the property to the incapable (and otherwise ineligible) beneficiary.

7. Care should be taken with regard to (i) choice of a protector(s) - someone who understands the Sharia'a and is not likely to use their powers to the detriment of the beneficiaries, for example the settlor's spouse may in the event of divorce from the settlor, exercise their power not in the beneficiaries best interests, also whether or not the protectors' powers are to be classified in the trust instrument as fiduciary as opposed to personal; (2) ensuring that the protector provisions do not make the administration of the trust unduly complicated; (3) where there is more than one protector, whether the protectors are to act unanimously or by majority, the former potentially paralysing the administration of the trust in the event the protectors do not agree.

8. Zakat is an obligatory tax on Muslims charged at 2.5% per lunar year

For more information about Guernsey's finance industry please visit

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions