A DIFC Trust is a trust whose trust deed (the document that forms the trust arrangement) selects DIFC Law as the governing law of the trust.
A DIFC trust is still a legal relationship rather than a separate legal entity. There is no formal registration process for a trust in DIFC. Instead the Trustee becomes the legal owner of the trust property and administers it for the Beneficiaries or a permitted purpose that is explained within the trust deed.
What law applies to a DIFC trust?
The principal legislation is the DIFC Trust Law, DIFC Law No. 4 of 2018. It is a comprehensive statutory code dealing with creation, validity, governing law, administration, Trustee duties and powers, Beneficiaries, purpose trusts, reserved powers, variation, termination, foreign-law claims and Court jurisdiction.
Article 10 provides that the common law of trusts and principles of equity supplement the DIFC Trust Law except to the extent modified by DIFC law or the DIFC Courts. Importantly, Article 10 also provides that English statute law applicable to trusts does not apply in DIFC except to the extent replicated in DIFC legislation.
Does a DIFC trust need to be registered?
No. A DIFC trust is not registered as a separate legal entity and DIFC does not maintain a register of trusts. The trust exists as a legal relationship under its trust instrument and applicable law, with the Trustee holding legal title to the trust property.
This distinguishes a DIFC trust from a DIFC Foundation. A Foundation is registered with the DIFC Registrar of Companies and has separate legal personality.
Can the DIFC Registrar provide evidence or certification of a DIFC trust?
Although there is no trust registry, DIFC has a separate certification mechanism that may assist a Trustee where official evidence of specified trust information is required. This is an important practical feature of the DIFC regime even though the trust itself is not registered.
Where a Trustee of a DIFC trust is required to produce documentation, confirmation or certification evidencing the status of the DIFC trust or information concerning its beneficial ownership, control or Beneficiaries, the DIFC Registrar of Companies can issue a certificate under Article 8 of the DIFC Operating Regulations evidencing the relevant matters.
This can be useful when a Trustee needs to demonstrate the trust arrangement to licensing authorities, land authorities or other counterparties.
The certificate should not be confused with incorporation or registration of the trust. The DIFC continues to state that DIFC trusts are not registered and no register of trusts is maintained.
Who can act as a trustee of a DIFC trust?
The DIFC Trust Law contemplates Trustees holding legal title to and administering trust property. Individual Trustees or corporate Trustees can be used.
Where trustee or trust services are provided professionally in or from DIFC, the relevant licensing and regulatory framework must be considered, including any DFSA requirements applying to regulated financial services or trust service activities.
The trust deed should also address appointment, retirement and removal of Trustees, succession to the Trustee role and the transfer or vesting of trust property when Trustees change.
What powers can a settlor reserve under the DIFC trust law?
The DIFC Trust Law contains unusually detailed statutory provisions allowing powers to be reserved by a Settlor or granted to another person without, by that fact alone, invalidating the trust. Article 84 permits the trust instrument to reserve or grant specified powers. These include powers concerning investment or management of trust property, appointment or removal of Trustees and other office holders, addition or exclusion of Beneficiaries, distribution of trust property, change of governing law or forum for administration and restrictions requiring Trustee powers to be exercised only with another person’s consent or direction.
These provisions can make DIFC attractive where a Settlor wants a trust structure but also wants carefully defined ongoing involvement. The powers should nevertheless be designed with legal, tax and governance advice because excessive or inappropriate control can have consequences outside DIFC.