By Mariem Al Ssayrafi
For decades, tools available in the UAE to successful Individuals, entrepreneurs and their families to protect their assets and implement a robust legacy planning strategy were limited, cost intensive – for almost systematically introducing a foreign element – and inefficient.
The introduction by the Dubai International Financial Centre (DIFC) of the Wills and Probate Service (WPS) Centre was the first attempt to fil this void, by enabling Non-Muslims to register a will. Used by many, the WPS is inarguably a success. It however only tackles basis succession needs and does not address dilution risk, business continuity or asset protection. It is further not open to Muslims. Enters the Foundation.
In 2017, both the Abu Dhabi Global Market (ADGM) and DIFC extended their respective structuring and legacy planning offering with the adaption of the civil law-based foundation tool. This vehicle addresses concerns that the DIFC WPS and foreign based structuring tool simply can’t touch – optimal local structure optimisation.
And the market has clearly responded to this game changer: the DIFC passed the 100th Foundations milestone a couple of weeks ago; the ADGM is scheduled to hit the same mark in April.
But what exactly is a Foundation and how can it be used as an effective tool to prevent probate procedures, inheritance disputes or protect assets from third party attacks?
Foundation One on One
A Foundation is an independent legal entity, not limited by shares, governed by its By-Laws and Charter, and controlled by its Council. It legally owns and holds in its own name assets settled onto it by the Founder or a third-party. It very much looks like a company but differs in the essential point that a Foundation does not have shareholders. Like a balloon floating in perpetuity, a Foundation is made to last for generations and endure events like the demise of its Founder without an impact on the assets protected by the Foundation.
ADGM and DIFC Foundations are different from the original Western concepts, as they allow the Founder and his family to have substantial influence over the assets devoted to the entity. This is in line with the trend among emerging market entrepreneurs who typically wish to keep control over their wealth.
Compatible with all asset classes
UAE Foundations are compatible with all assets classes, be it shares in operating companies, Real estate, financial portfolios, collectible assets (cars, art e.g.), insurance policies.
The Dubai Land Department entered in a series of Memorandum of Understanding (“MoU”) with DIFC and ADGM allowing DIFC and ADGM companies and foundations to own real estate within the Emirate of Dubai. Registration of Real estate under Foundation has now become common practice by the Land Department.
Foundations can hold company shares too. A specific legislation is underway to vet the direct holding of shares of Mainland LLC by Foundations.
Foundation = No probate
The Foundation’s unique legal form offers a level of asset protection that cannot be achieved with any other vehicle available in the UAE. Assets are protected by being transferred onto the Foundation during the lifetime of the owner (in most cases the Founder), thereby fully avoiding local probate (succession) procedure as far as these assets are concerned. The best probate is the probate that does not occur.
Mariem is Legal Manager at M/HQ and focuses on private wealth practice. She regularly advises successful individuals and entrepreneurial families with Middle Eastern exposure on implementing inter-generational wealth transfer strategies and structuring their operational assets and global wealth.