Jersey: Sharia Compliant Foundations And Trusts In The Channel Islands

Last Updated: 14 February 2012
Article by David Dorgan

Islam is the second largest and fastest growing religion in the world. When protecting and preserving his wealth, the client must, with professional advice, take into account not only the various tax liabilities of his country of residence but also the likely impact of any forced heirship provisions. A foundation or a trust can be modified to form an important part of a client's lifetime tax planning strategy creating a flexible long term structure to address certain succession issues which are inherent under Islamic Law.

Succession under Sharia law

Under Sharia law, there are succession/forced heirship rules which will be different for each school, but generally:

  • At least two-thirds of the estate must be distributed to surviving family in fixed shares, in accordance with Islamic law.
  • The fixed share for the wife is one sixth. If the deceased has more than one wife then the one sixth share will be divided equally between them.
  • The share of the male heir is usually twice that of the female heir because he is subject to a duty to maintain his family whereas she inherits free of any conditions.
  • There is testamentary freedom to dispose of the remaining one-third share with the exception of applying it for the benefit of those who have already received an entitlement under a fixed share.

Lifetime gifts

The forced heirship rules apply only on death. There are no restrictions under Sharia law with regard to making lifetime gifts. Consequently, a client is free to form a trust during his lifetime with any assets he wishes provided that the following two conditions are satisfied:

  • there is a clearly defined proposal and acceptance with regard to the gift; and
  • the recipient takes possession of the asset.

'Death bed' gifts are not treated as lifetime gifts. The definition of a death bed gift is wide and includes a gift which is made whilst aware of a fatal illness but which will not generally extend to negate a gift made more than a year before death.

The benefits of a Sharia compliant Foundation or Trust

  • Assets may be protected from creditors, divorce or seizure by a politically unstable regime because foreign law does not apply.
  • Holding the family business in the foundation or trust (or a combination of the two) may allow for the whole family to benefit and help prevent fragmentation resulting from forced heirship.
  • Assist with the reduction or deferment of any tax liabilities.
  • Assets held in a foundation or a trust will be outside the reach of the forced heirship rules and probate formalities.
  • Trusts are not registered with any regulatory body and so confidentiality is assured.
  • A Jersey foundation is registered with the Registrar of Foundations in Jersey, but the confidentiality of the founder and beneficiaries can be assured.
  • Both foundations and trusts are very flexible vehicles which can be adapted to deal with any changes in family and/or financial circumstances. In particular the client may retain powers in the foundation or the trust.
  • It is possible to restrict the workings of the foundation or trust to ensure that it complies with Sharia law.

The benefits of a foundation or trust for the client are very much the same as for any individual considering wealth and succession planning. The significant difference is the ability to tailor the foundation or trust to ensure that it is Sharia compliant.

Ensuring that the Foundation or Trust is Sharia compliant

There are a number of safeguards, to ensure that the foundation or trust will be Sharia compliant:

1. The Foundation Regulations or Trust Instrument

The foundation regulations or the trust instrument can include an obligation or recommendation that the foundation council or trustees seek advice from a Sharia scholar during the administration of the foundation or trust and on the death of the founder or settlor to ensure that any distributions are made in accordance with Sharia law. Furthermore the regulations can make provision for the founder's or settlor's obligation to pay Zakat (the annual charitable donation).

2. Reserved Powers

Both the foundation regulations and trust instrument can make provision so that certain powers normally vested in the foundation council or trustees are retained by the founder or settlor. This may include the power to appoint beneficiaries or make capital distributions.

3. Investment policy of the Foundation or Trust

The foundation regulations or trust instrument can be restricted to ensure that any investment is appropriate under Sharia law such as investing in Sharia compliant stocks, Islamic investment funds or bonds (sukuk).

4. A Foundation Guardian

It is a requirement of Jersey law that a foundation has a Guardian (possibly the founder or a Sharia scholar) who supervises the foundation council's activities. This requirement will be optional under Guernsey law. The Guardian may also have a duty to provide his consent to the exercise of specified powers/actions so the founder can remain assured that the foundation will be administered in accordance with Sharia law.

5. A Trust Protector

A trust protector is optional and may be the settlor, a family member or a Sharia scholar), but his appointment may require the trustees to obtain his consent before exercising specific powers or actions so the client can remain assured that the trust will be administered in accordance with Sharia law.

6. Letter of Wishes

As an alternative to the foundation regulations or trust instrument specifying the obligation to consult a scholar or where beneficiaries are to benefit subject to the discretion of the foundation council or trustees, a letter of wishes can be used to provide non-binding guidance to the foundation council or trustees to assist in their administration and ensure that specific requirements of Sharia law are adhered to.

7. Foundations: Council

It is possible for the foundation council to include the founder, professionally regulated administrators, advisers and members of the founder's family. This can help to keep the family closely involved and up to date in respect of the foundation assets and to act as an additional safeguard to ensure the foundation is Sharia compliant.

8. Trusts: Private Trust Company

The sole purpose of a private trust company is to act as a trustee of the trust. Its directors may include the settlor, professional regulated trustees and advisers and members of the settlor's family. The power to select the directors can help to keep the family closely involved and up to date in respect of the trust assets and to act as an additional safeguard to ensure the trust is Sharia compliant.

The foundation or trust can be successfully tailored to form an important part of a client's strategy for safeguarding asset(s) whilst complying with Sharia law.

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 Mondaq.com.

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

Authors
Similar Articles
Relevancy Powered by MondaqAI
Walkers
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Walkers
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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