Leevyn Isabel details the key benefits of establishing a foundation in the UAE, explaining how they provide both expats and UAE nationals with a local solution to protect their assets and make succession planning arrangements.
Although only first introduced to the UAE in 2017, foundations have become an integral part of the UAE's wealth management offering and are now present in three of the UAE's free zones (DIFC, ADGM, RAKICC).
Composition of a foundation
An independent legal entity, foundations provide the founder with an opportunity to consolidate their wealth in one vehicle at the same time as segregating their personal wealth from their commercial interests (although these can also be owned by a foundation) by bestowing assets to the foundation which owns the assets in its name. With no shareholders, the foundation is an "orphan" entity and both it, and the assets it holds, are managed in accordance with the foundation's charter in support of a purpose or for the benefit of beneficiaries (often members of the same family). This makes foundations ideal succession vehicles.
At Ocorian, we are seeing a variety of foundation structures being implemented in the UAE to hold trading companies, real estate and liquid investments. We help clients establish and maintain their UAE foundations so they can make the most of the benefits that the foundation vehicle provides. These include:
- Asset protection - The foundation's assets do not belong to the founder and provided certain conditions are met, are not readily accessible to creditors, governments or other family members.
- Privacy - The
beneficiaries of a foundation are private and so the founder's
family wealth can be managed more discretely. This provides its own
- reduction of the risk of claims/judicial actions from third parties against the founder and their family to extort a monetary benefit/settlement;
- better bargaining power when negotiating business deals and/or acquiring assets;
- reduced risk of being targeted and befriended by unscrupulous individuals in order to access their wealth; and
- less urgency for potentially uncomfortable discussions around pre-nuptial agreements for the founder or heirs.
- Flexibility - With the separation of legal and beneficial ownership, a foundation enables families to facilitate their inter-generational legacy planning and wealth protection objectives, particularly where the family is internationally mobile with assets in multiple jurisdictions.
- Effective succession planning - Foundations provide assurance that the assets (or their benefits) will be distributed as per the wishes of the founder under the terms of the foundation, irrespective of succession laws. Even where enforceable wills are possible, they only work on death and do not protect assets against bankruptcy, incapacitation, imprisonment and divorce. Conversely, a foundation can help with all of these issues as well negating lengthy probate issues on death, giving much greater continuity.
- Improves family governance - Foundations provide an effective corporate governance framework (similar to a company or single-family office), which allows for wealth to be managed in a professional manner to benefit the founder and their family.
- Enables philanthropic giving - A foundation can evolve alongside the founder's vision and ethical wishes and can be used to support issues close to the founder's heart such as healthcare research through regular donations.
- Establishes a legacy - Through a foundation, the founder's goals continue in perpetuity.
Supporting your wealth plans
Regardless of the complexity of a foundation's structure, we enable our clients to pass on the benefits of their assets in full accordance with their wishes to ensure their legacy is preserved in accordance with all legal and regulatory requirements.
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.