The use of Trusts has been adopted by Middle Eastern and Asian families for at least three generations as trusts are proven to assist in making succession planning and asset protection much simpler for wealthy families.
We have seen a strong shift towards trusts to follow specific family requirements of Islamic law. Indeed, the concept of Waqf is the nearest equivalent to a trust in Islamic law and its components can with careful drafting be reflected in the terms of an English common law trust.
The introduction of reforms to the law of Waqf and new legislation in jurisdictions such as Bahrain and Dubai, which do not have Anglo-Saxon roots to their laws, demonstrate that the trust concept which is recognised in the offshore domain is gaining in popularity.
With no single unified code of Islamic law we must look to the two primary sources of Islamic legal principle being the Quran and the Sunna. Islamic Compliant Trusts given that there is no unified code of Islamic law and its role will differ from one jurisdiction to another as there is no simple answer to the question “What is Shariah compliant?”
There is not one single Shariah trust “product” covering all circumstances and jurisdictions and for the architect of Shariah compliant trusts, as indeed with the developer of any other trust, the challenge will be to produce a trust document that meets the settlor’s expectations whilst according with the laws of the jurisdiction which will govern it.
A Muslim settlor living in one jurisdiction may be more concerned than another settlor in another jurisdiction to ensure that his trustees’ investment powers are restricted to exclude investments which he considers offensive to his religion, for example businesses with links to alcohol, or in interest- bearing securities. He may not be so concerned to specify at the outset the share of the trust fund that each beneficiary will receive, or the language in which the trust document will be written. On the other hand, a settlor resident in another jurisdiction may wish to establish a trust under a “local” trust law, in his own language,’ with a registered professional trust company and close involvement on a regular basis of an Islamic scholar or board of scholars to advise on applicable Islamic law principles.
An issue of key concern to many Muslim settlors is the separation of ownership of family wealth. Upon settling any assets into a trust the settlor is no longer classed as a legal owner of those assets.
Indeed, this concept underlies the legal theory of the Waqf, where the settlor gives the ownership of the property to God, but is administered by the wali or mutawalli.
In the offshore domain, the legal title to the assets is placed in trust is clearly separated from that of the settlor and transferred to a third party who is sometimes unknown to the settlor and his family.
The beneficiaries of the trust, as selected by the settlor, will become the beneficial, but not legal, owners of the trust assets. These actions remove the assets from the settlors personal estate which as a result can combine the benefits of asset protection and wealth preparation for future generations. These benefits can be of significant comfort to the settlor and his family, especially in the case of a family business.
The most popular use of trusts has always been for real estate holdings whether in London, Paris or New York. Working with families and their advisors in a shariah compliant manner is what we at Pacific Trustees Islamic in collaboration with Fides Trust do on a day to day basis.
In addition to these issues there is the question of inheritance on the settlor’s death. In certain jurisdictions a trust may be challenged in the local courts if it continues beyond the settlor s death and does not comply with the local Shariah law regarding the distribution of the deceased’s assets. It is therefore important to have the family of the settlor on side. Alternatively, if the trust complies with Shariah law on gifts during lifetime and is made in circumstances where the transfer of assets in the trust cannot be challenged on grounds of “deathbed sickness”, the trust can form an acceptable means of distribution, which is not restricted by rules on inheritance.
All this is not to say that a settlor would be giving up all control of the family’s wealth. Under the laws of Guernsey it is possible to have a family member, business partner or even a committee of the same to act as protector of a trust. The protector’s powers and duties depend upon the drafting of the trust, however, their consent may be required prior to certain actions of the trustees, such as making distributions or disposing of key assets. In addition to this the settlor may draft a letter of wishes. Such a letter is not binding upon the trustees, however, it is a strong guiding influence in the exercise of their discretions. Further the settlor may, in an appropriate case, reserve certain powers to himself.
Please do not hesitate to contact us to arrange an introductory meeting. We are happy to travel to Dubai, Kuala Lumpur or London, for example, for an initial meeting to discuss any of your family requirements.