Ensuring a smooth transition of ownership and governance for family businesses across generations can get tricky when Shariah compliance is added to the mix, Cavenwell Group Founder and Managing Director Andrew Horbury shared with IFN Investor.
Citing past examples of wills for expatriates registered with courts associated with the Dubai International Financial Centre (DIFC), Andrew said a number of clauses in estate planning documents were not available to Muslim clients due to Gharar (ambiguity) aspects.
To bypass such issues related to wealth transfers, Andrew said a viable alternative would be for the Muslim clients to make lifetime transfers of assets – classified as ‘gifts’ – to a DIFC foundation, which can then be managed in accordance with the founder’s wishes.
“The DIFC foundation is highly customiable, providing maximum flexibility through the drafting of its charter and by-laws to align the structure with the founder’s wishes, which may vary depending on the school of Islam they follow.”
Similarly, with respect to inheritance, a DIFC foundation can eliminate the need for the probate process for assets that it already holds, explained Andrew. Unlike a trust, which involves a trustee holding assets on behalf of beneficiaries, a foundation owns the assets outright.
“A founder could decide that the qualified recipients or beneficiaries of the foundation each receive equal entitlement during the founder’s lifetime. But upon death, distributions are aligned with Shariah inheritance principles.”
Seen as an attractive proposition in terms of clearly delineating how the wealth of highnet-worth individuals can be distributed, Andrew said the DIFC foundation structure is seeing considerable demand from Muslim clients – both within the UAE and from neighbouring GCC member states.
With the foundation council ensuring the management of the assets is aligned with the founder’s wishes, there is strict monitoring for the performance of bank deposits and fund managers to ensure they meet the objectives of the foundation and adhere to a Shariah compliant investment strategy.
“The real advantage of the DIFC foundation is that this governance arrangement can be established during the founder’s lifetime and continues after their death, providing certainty and continuity in the management of the assets.”
An added advantage is the low-tax environment and strong legal protections, which Andrew said makes DIFC an ideal jurisdiction for individuals and families looking to secure their assets.
Andrew said the DIFC foundation structure is also familiar – given similarities to the Liechtenstein entities used for family succession and wealth preservation in Europe and Panama foundations common in Latin America for offshore asset holding and estate planning.
