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We all have heard about trust and foundation many times associated with educational institutions, charities, social icons, etc. But what are they? What’s the difference between them? And how you can utilize them for your needs in Dubai. Both foundations and trusts are legal entities that are popular for asset protection, wealth management, and so on. But they differ in many aspects like purpose, taxation, ease of setup, etc.
In a trust, a party gives another party the rights to manage his properties for the benefit of beneficiaries of the trust. Establishing a trust can save time and sometimes reduce inheritance or estate tax. Establishing a trust can be done in your lifetime and doesn’t have to be necessarily after your death to act upon your will. Although they are stereotyped, trusts are highly versatile and can be used for various purposes to achieve specific goals. A trust is created based on the trust deed.
A foundation is an independent entity that provides financial assistance and support to organizations, institutions, or individuals for charitable purposes. Money for foundations can come from one source (an individual or family) or from different sources (the public). Foundations are globally present and are leading growth in many sectors.
As you’ve seen both foundation and trust are legal entities.
Trust: An arrangement where a settlor transfers assets to a trustee, who is responsible for managing it on behalf of the beneficiaries. The trust is considered to not to be an independent entity as foundation; the trustee acts on behalf of the trust. As long as the regulations are met, the trustee can be anyone and doesn’t necessarily have to be a UAE citizen. Trusts are generally used for estate planning and protection of assets.
For example, trusts can protect assets from legal claims and other risks (creditors, etc) because when the assets are transferred to trust they are no longer part of the settlor’s personal wealth.
Foundation – An independent legal entity that holds assets for a specific goal or for the benefit of beneficiaries. Foundation have a legal personality, whereby it can own assets and engage in contractual relationships.
For example, a foundation can safeguard assets from potential claims, lawsuits, and other risks because it is a separate legal entity.
Trusts: In Dubai, DIFC and ADGM allows trusts to be formed under their own specific laws based on common law principles. This is crucial because the settlor doesn’t have much involvement after the creation of trust. To ensure the trust is following his vision, the settlor can include specific rules for the beneficiaries’ best interests. The trustee should manage assets and follow the trust deed in the best interest of trust as he has the fiduciary duty to do so.
Foundations: In Dubai, they are governed by a council of people. The founder (similar to settlor in trust) has great control over the foundation if they are in the council. DIFC offers foundation structures governed by their respective laws. It has a foundation charter containing the terms and conditions. These require registration with DIFC.
Trust – The management and ownership rights of the assets are with the trustee. As we’ve seen earlier, once the assets are transferred into the trust, they are not part of the settlor’s estate. The assets are not limited to money. Trusts can handle a variety of assets. These assets can be, but are not limited to
The trust deed dictates what type of assets is in the trust and how they should be managed.
Foundation: A foundation is known for the management of the asset. This duty lies with the council. And assets transferred to the foundation are not part of the founder’s estate, like in the case of a trust. Like Trust, a foundation is also a flexible structure that can handle a variety of asset types.
Trusts and foundations can enjoy the favourable tax environment of Dubai, that is
Both trusts and foundations should follow local and international regulations, such as
We’ve seen that although trusts and foundations can sometimes serve the same purpose, they are actually quite distinct. Both of these structures offer privacy on asset ownership and beneficiaries because of strict DIFC regulations. Dubai is a great place for any sort of economic endeavour. Whether a trust or foundation can only be decided mainly based on the intended purpose and control you want over the assets. While a foundation provides more control to the founder, trust ensures the best interests of the beneficiaries. If you want to know more about this you can consult with CDA.
CDA is well known for the personalized services it provides to its clients in UAE. Our expert team will provide you with the guidance for setting up a company or a trust or a foundation in UAE. Our experts are well equipped with the regulation and company formation framework in Dubai whereby we would ensure the compliance for your businesses. The entities in Dubai willing to start the businesses or set up companies can approach the professionals here at CDA as we are always at your door step to serve your needs.
To know more about the services provided connect to our team now.
