Associate Director, Leevyn Isabel answers our clients' most frequently asked questions when comparing a foundation to a trust.
Foundations are established in the UAE to provide families with a local solution to managing their wealth, protecting their assets and for succession planning. However, foundations are often lesser known than trusts. As a result, we are often asked what the differences are between the two solutions. The table below answers some of these key questions and can be used as a comparative guide to help you evaluate which vehicle is most suitable for your intentions.
|UAE foundation||UAE trust|
|What is it?||A foundation originates from civil law and is an independent legal entity sharing features with both a corporation and a trust. It is similar to a corporation as it is a legal entity that can enter into contracts, can have bank accounts and can be used for a wide range of investment. The foundation is similar to a trust in that it offers excellent asset protection, as legal ownership of assets is passed onto the foundation and can be used for efficient estate planning. The foundation has no shareholders, instead, there is a management body (the Council).||A trust is a legal obligation or relationship between the settlor (the person who creates the trust) and the trustee (the person in charge of the trust) and the beneficiary (the person who receives benefits from the trust).|
|How is it established?||A foundation is established when a founder (the person who gives the assets) registers the particulars of the foundation charter at the public registry. Unlike the trust, there is no immediate requirement to transfer the assets to the foundation for it to be valid.||The trust is established when the settlor (the person creating the trust) prepares a trust deed also known as a Deed of Trust or Declaration of Trust, and transfers assets (of any kind) to the trustee for the benefit of the beneficiary. In order for the trust to be valid, the assets must be transferred to the trust.|
|Are there different types?||
There are three main forms of foundations:
The most common types of trusts are the following:
|What legal status and powers are afforded||A foundation is a legal entity formed by registering a document called the Foundation Charter. As a legal body, it can be sued or can sue, enter into contracts and agreements with companies or persons, open bank accounts and conduct commercial activities. It holds the legal and beneficial titles to all assets held in the foundation.||Under common law, a trust is not a legal entity in its own right. Therefore, the trust cannot be sued or take legal action as a corporation or a foundation can. Legal ownership of the trust sits with the trustees and beneficial ownership with the beneficiaries.|
|How are they managed?||The foundation is managed by a Council made up of one or more persons; corporate bodies are permitted.||The trust may have a protector, but the trustee has overall charge of the assets as defined by the trust deed.|
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 compliance with all legal and regulatory requirements.
Get in touch with our team below to discuss how we can support your private wealth plans or click here to view our full range of services for private clients.
Originally published July 13, 2020.
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.