Estate Planning in Dubai: A Comparison Between DIFC Wills and DIFC Foundations for Succession Planning

30 Aug, 2023
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Bhavika Hotwani

Paralegal, Elnaggar & Partners

 

Dubai is a thriving city known for its cultural diversity, economic prosperity, and world-class infrastructure. Dubai offers an appealing landscape for investment opportunities, attracting individuals from around the world to establish roots and build their financial portfolios. Amid the opportunities for growth and success, the often-neglected topic of estate planning may mean, after passing, that assets are entangled in legal complexities, or distributed contrary to an individual’s wishes.

As residents and investors emigrate to the UAE, it is increasingly important to understand the intricacies of estate planning to safeguard their assets and secure the futures of their loved ones. This article illustrates what happens after an individual's passing in Dubai and compares the treatment and distribution of assets for those with a registered will under the Dubai International Financial Centre (DIFC) and those with a DIFC foundation.

 

DIFC Wills and Probate Procedures

Probate at DIFC Courts is a legal process that deals with the validation of wills and the administration of estates for non-Muslims in Dubai, UAE. It allows individuals to ensure that their assets are distributed according to their wishes after passing away without invoking Sharia law, which is applicable to Muslim individuals.

Non-Muslim individuals who are residents or have assets in Dubai or Ras al Khaimah can opt to register their wills and have their estate administered under the DIFC Wills & Probate Registry. This requires individuals to draft a will, which should be prepared in writing and signed by the testator in the presence of two witnesses. DIFC wills name an executor who would initiate the probate process upon the death of the testator. This individual can carry out the testator’s instructions specified in the will, by applying for probate with the DIFC Courts.

This application should include the following information:
1. The original will or a copy certified by the Registry.
2. Death certificate of the testator.
3. An affidavit confirming the death and the executor's authority.
4. Inventory of the assets and liabilities of the estate.
5. Any other documents required by the DIFC Courts.

The executor is an individual/company who is named in the will by the testator prior to registration. They will be responsible for carrying out the instructions and wishes outlined in the will, communicating with beneficiaries, distributing assets, and ensuring compliance with all applicable regulations. The first step an executor would take in this role would be the application to grant probate to the DIFC Courts.

An executor can be any individual above the age of 21 years. It is imperative that testators appoint individuals they trust, such as family and close friends. Another alternative is the appointment of a professional services provider, such as a law firm. Entrusting this role to an individual with knowledge, integrity, and an understanding of legal intricacies is important to ensure a smooth, lawful, and respectful transition of the deceased's estate. A trusted executor or a professional law firm can navigate the complexities of the process, safeguard against potential disputes, and provide the expertise needed to manage the multifaceted aspects of estate administration effectively. Executors are expected to act with good faith and transparency, and hiring a professional ensures they uphold standards expected of their profession, and preserve, protect, and administer the estate of the deceased.

Once the DIFC Courts receive the application for probate from the executor, they will review the documents to ensure their authenticity and compliance with the relevant laws. If everything is in order, the DIFC Courts will issue a Grant of Probate. This legal document confirms the validity of the will and authorizes the executor to carry out the administration of the estate as per the instructions in the will.

With the Grant of Probate, the executor can proceed to administer the estate. This involves identifying and collecting the assets, paying off any debts and liabilities, and distributing the remaining assets to the beneficiaries according to the terms of the will. The executor is legally responsible for managing the estate with diligence and integrity.

In some cases, disputes may arise during the probate process. Beneficiaries or other interested parties might contest the validity of the will or raise concerns about the executor's actions. In such situations, the DIFC Courts will adjudicate the disputes and make rulings based on the evidence and applicable laws.

In this regard, the DIFC Dispute Resolution Authority (DRA) and the Department of Economic Development (DED) in Dubai have a memorandum of understanding in place since 2015 to enable rapid facilitation of court orders covering the assets of the testators, present in the DED. This ensures that investments of testators in entities governed by the DED are dealt with in a transparent process, giving executors secure information about businesses and shares, and minimal administrative and legal procedures to follow to administer estates in Dubai.

Another key memorandum of understanding exists with DIFC Courts and the Dubai Land Department (DLD) to ensure a smooth transfer of property assets during estate administration. This process also avoids the application of Sharia Law to testators’ assets, and keeps costs of property transfers to a minimum, as the testators’ wishes are clarified in the will.

Further, assets in Ras al Khaimah will be dealt with similarly, as there is a similar Memorandum between the DIFC Courts and Ras al Khaimah Courts. Previously, executors would have to obtain a judgment from the Dubai Courts regarding the administration of the estate and obtain a referral to the Ras al Khaimah courts. However, this process has been streamlined, and executors/trustees of an estate have to simply obtain a grant of probate from the DIFC Courts, which is now automatically applicable in Ras al Khaimah.

Therefore, non-Muslim individuals with assets in Dubai and Ras al Khaimah can ensure the distribution of their assets according to their wishes, due to the recognition of DIFC court decisions in the local courts. DIFC Wills allow for testators to include assets based outside the UAE, but it is strongly advised for testators to contact a legal professional in the jurisdiction in which the assets are based. This is to ensure that foreign authorities will accept DIFC grants of probate and transfer assets in accordance with the testator’s instructions. This would also apply to other Emirates in the UAE (excluding Dubai and Ras al Khaimah).

Similarly, guardianship provisions can be put in place for minors based in Dubai and Ras al Khaimah, as DIFC Court decisions/probate is directly enforceable in the local courts in both Emirates. Regarding the distribution of assets or guardianship of children based outside Dubai/Ras al Khaimah, it is best to consult a professional who Is aware of the applicability and enforceability of DIFC Wills in the administration of estates.

One significant advantage of having a registered will with DIFC is that it bypasses the lengthy and complex probate process that often comes with traditional wills. Probate, the legal validation of a will in court, can be a cumbersome process, involving significant time and expenses. By having a DIFC-registered will, the distribution of assets can occur in Dubai and Ras al Khaimah without requiring court intervention, as DIFC Court decisions and grants of probate are recognised in the respective local courts. Therefore, executors will not have to undertake further litigation in Dubai or Ras al Khaimah courts to prove the validity of the DIFC court documents. However, the administration of assets in other Emirates in the UAE and internationally should be clarified with a lawyer.

Therefore, probate at DIFC Courts provides a streamlined and efficient mechanism for non-Muslims in Dubai and Ras al Khaimah to have their wills validated and their estates administered according to their wishes. By opting for probate at DIFC Courts, individuals can ensure that their assets in Dubai and Ras al Khaimah are distributed as they desire, offering peace of mind and protection for their loved ones after their passing for various types of assets in different jurisdictions in the UAE.

 

DIFC Foundations

DIFC Foundations are a legal structure provided by the Dubai International Financial Centre to facilitate asset protection, estate planning, and charitable purposes for individuals and businesses. Foundations in DIFC are governed by the DIFC Foundations Law (Law No. 2 of 2018) and offer a robust framework for wealth management, family succession planning, and philanthropic activities. This structure can be used by non-Muslims and Muslims alike as an estate planning tool, as individuals can customise the corporate documents of their Charter to give effect to their wishes in regard to inheritance matters.

A foundation is a legal entity established for the purpose of holding and managing assets on behalf of beneficiaries. In the DIFC, a Foundation allows individuals to have greater control over their assets even after their death. Similar to wills registered with DIFC, foundations for estate planning also offer the advantage of bypassing the probate process. Since the foundation holds the assets on behalf of beneficiaries, there is no need for court intervention. This streamlines the asset transfer process, saving time and minimizing legal complexities.

The requirements to set up a foundation in the DIFC are a founder, who is the individual/company who endows it with assets and establishes it; at least two council members, who are responsible for managing the foundation’s affairs and meeting objectives; a guardian, which is optional and is appointed if there are beneficiaries who are minors or are incapacitated.

Foundations are an estate planning tool as they can be customized – the Charter is the document that states the primary objectives of the Foundation and specifies its duration, beneficiaries, governance structure, and the plan for asset management. By setting up a foundation, individuals can ensure that their assets are preserved and managed as per their wishes for generations to come. They can specify a clear structure for asset distribution and appoint beneficiaries, ensuring the assets are protected and utilized as intended. Specifying the founder’s wishes for succession can be done through the establishment documents of the foundation, primarily the foundation charter and the declaration.

Foundations provide more flexibility in structuring and managing assets over time than Wills, as they can continue to operate long after the individual's death, providing sustained support to beneficiaries, whereas wills only come into effect upon death. Additionally, during the testator’s lifetime, it is comparatively easier to acquire new assets to be passed down to individuals under the foundation. Wills require amendments to be made if specific gifts are to be made regarding assets that the testator does not wish to include in the residuary estate; which would be a longer procedure. Moreover, a foundation structure offers an added advantage as it holds assets outside of the individual's estate. This means the assets are not subject to inheritance laws or potential claims from creditors.

Another advantage is that foundations may offer greater privacy compared to wills, as the terms and beneficiaries of the foundation are not typically made public. On the other hand, the probate process for wills may involve public court proceedings if there are proceedings that take place in DIFC Courts.

In Dubai, UAE, both wills registered with DIFC and DIFC Foundations for estate planning are viable options for asset distribution after an individual's passing. The choice between the two depends on the individual's specific situation, personal preferences, long-term objectives, and the complexity of their estate. Wills provide a straightforward solution for asset distribution, while foundations offer added flexibility, control, and asset protection.

Regardless of the option chosen, obtaining professional legal advice is crucial to ensure that the estate planning process is comprehensive, compliant with local laws, and tailored to the individual's unique circumstances.

 

Bhavika Hotwani

Legal Consultant
Elnaggar & Partners

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