The Ministry of Finance has taken a significant step in creating Decree-Law No 19 of 2020 on Trust (the UAE Trust Law). It provides legal mechanisms that allow corporations or individuals who possess various capital and financial rights to transfer their wealth and rights to a trustee tasked with maintaining and developing those assets as a financial trust. Transfer of wealth and rights can be accomplished through a trust deed. It is a specific document that is electronically recorded to represent the assets – whether moveable or immovable. After that, the existence of trust rights is recorded in the assets’ official records. The new legislation will improve the country’s competitiveness and investment attractiveness by establishing an advanced, comprehensive legislative and regulatory framework to safeguard investors. You may consult with top experts like HHS trust lawyers in Dubai.
Requirements for Creation of a Trust and Valid Trust Deed
Article 6 and 7 of the UAE Trust Law contain certain conditions to be met for a trust to be legitimate and enforceable:
- Registration of Trust in Register:
All Trust Instruments must be recorded in a Register that is kept to register and document Trust Instruments. As the case may be, Settlor, or the Trustee, may apply for the Trust Instrument to be included in the Register, along with all relevant information. The authority in charge of the Register shall issue an official certificate. The Certificate declares that Trust Instrument has been put into the Register and a list of the trust properties.
- Legal Capacity of Settlor
The Settlor must have the legal capacity to create a Trust. According to Article 85 of the Federal Law No. 5 on the Civil Transactions Law of the United Arab Emirates state that every person who:
- reaches the legal age,
- has the full mental ability, and
- is not prohibited from exercising his rights and is deemed to have full capacity to exercise his rights.
- When a person reaches the age of twenty-one lunar years, he is regarded as full age.
However, if a Settlor is a legal person such as a corporation, the competent authority to dispose of its properties must decide as per the Federal Law No. 2 of 2015 on Commercial Companies.
- The Settlor must be the Owner of the Property.
Another criterion for establishing a Trust is that the Settlor is the property owner and have the authority to dispose of the Trust Property. The Settlor must legally possess the Property when the Trust is established, and the Property must be specified. In addition, the Settlor must be able to transfer Property into the Trust.
- Identification of Trust Property
The Property held under the provisions of the Trust must be explicitly specified, along with beneficiaries’ rights in that Property. It must be determined what Property will be subject to the trusts and what portion or share of the Property each beneficiary would be entitled to.
In Boyce v Boyce (1849) 16 Sim 476, The testator left four properties to his daughters on Trust, with the understanding that his daughter Maria would select one and the remaining three would belong to his other daughter Charlotte. Maria died before her father, so it’s impossible to say which house she would have preferred. The Court declared the Trust invalid because it was unclear which residence Maria would choose and which would be given to Charlotte.
- Identification of Trust Purpose
The Settlor must specify the purpose of making a Trust Deed. It can be made for Charitable purposes or Special Purposes as mentioned in the UAE Trust Law.
- Identification of Beneficiary
The Settlor must name the individuals or groups of individuals who will be considered beneficiaries of the Trust by the trustees. The Trust deed will be considered invalid if no obvious beneficiaries can be identified, and the trust property is assumed to be held for the Settlor or his estate. One or more beneficiaries are required for a trust to be valid. The beneficiary or beneficiaries must be specific and identifiable.
- Clear Words and intention to create Trust
The trust deed’s language must make it evident that the Settlor wants the Property kept on Trust and that Trust is intended. There must be a clear intention to create Trust via the use of certain words or acts. The Settlor’s intent must be present when the Property to be put into the Trust is genuinely owned by him. In some instances, no document establishes Trust. In such cases, the Court has to look to the parties’ words or actions to assess the parties intended to form such a trust.
In the case of Lambe vs Eames (1870) L. R. 10 EQ. 267, the words used were said that Property was “to be at her disposal in any way she may think best, for the benefit of herself and her family”. It was held that there was no intention to create a trust because the terms are precarious (there is no clear intention to create a trust).
8. Trustee must be mentioned
A trust document must name atrust trustee to be legally binding. The trust deed must also specify the Trustee’s rights and authorities.
The purpose of this article is to provide an overview of the subject. To know more about the essential requirements to create a valid Trust in detail, please don’t hesitate to contact Experts like HHS Trust lawyers in Dubai.