Understanding trust in estate planning

I am an expatriate who has been living and working in the UAE for almost 20 years and I have decided it's time to plan my estate in the event of my death. I have property both here and back in my home country, I also have a will back home but am not sure if I need to revise this or draw up another will to cover my assets in Dubai.

A will plays an important role for Muslims and Non-Muslims alike. Everyone should have at least one basic will covering the appointment of executors, guardians for minor children and the disposal of assets.

As an expatriate, your estate is already complicated by the fact that three sets of laws may apply to your estate: your home country's law, the law in which your assets are located and private international law.

If you and your legal advisor decide that you should have more than one will or if you have a large or complicated estate, then you may wish to consider a more evolved form of estate planning known as a "trust".

A trust is a legal arrangement where the ownership of a person's assets (which might include real estate, shares or cash) is transferred to someone else for the protection of those assets and for their use and benefit by a third person or group of people.

A trust, unlike a company, does not have a separate legal entity and cannot own assets; hence, the trustees are the legal owners of the assets.

Legal ownership

A trust brings about the separation of legal ownership and beneficial ownership of the assets in the trust fund.

Although the trustees are the legal owners of the assets, they have a legal obligation to put the interest of the beneficiaries above their own interests at all times. Thus, the settlor (the person creating the trust) can also be a trustee, but must still act in the interests of the beneficiaries, not himself.

Trusts can be created during the lifetime of the settlor or on the death of the settlor (in which case they are called a "will trust").

Types of trust

There are different types of trust depending, for example, on how, when and to whom the assets in the trust fund are to be distributed.

However, all forms of trust follow the basic principle that a trust contains assets owned by someone for the benefit of someone else.

In the context of estate or financial planning, trusts are attractive because they give the settlor the ability to plan ahead and control how assets will be used and applied to best use in the future.

A trust provides a way of holding and managing assets for people who may not be ready or able to manage it for themselves.

A trust can be formed to benefit people who are not yet born, such as future grandchildren

Typical family situations where trusts are used to good effect, often in conjunction with a will, are: to provide for a spouse after death while protecting the interests of any children, to protect the inheritance of minors until they are old enough to take personal responsibility, to provide financial security for vulnerable relatives who are unable to look after their own affairs, for succession planning in family businesses, for the avoidance of probate and fixed heirship requirements, for asset protection and for privacy and confidentiality

For every family problem or situation, there is a trust that can be tailored to meet the need, however creating the right trust to meet your particular family situation requires specialist legal help.

(This is the second of a two-part series on wills. First part was published last week.)

The writer is a solicitor and senior estate planning consultant with Nexus Insurance Brokers.