Valid Requirements for the Establishment of Trust Under DIFC

For a trust to be effective and legally valid, specific requirements need to be followed to create Trust. DIFC Trust Law states specific essential requirements to be fulfilled. There can be no trust if any of these requirements are absent. This article will discuss in detail the conditions for the establishment of Trust under DIFC Law you can consult experts like HHS trust lawyers in Dubai.

Essential Requirements for creation of valid Trust under DIFC Law

Article 34 of the DIFC Trust Law provides the basic requirements to be fulfilled to create an effective trust. Following are the conditions that make a Trust valid as per DIFC Law on Trust:

1. The Settlor must have the capacity to create a trust: Article 34(1)(a)

The first and foremost requirement for creating a valid trust is that the Settlor must establish the Trust. In other words, the Settlor must possess the necessary mental capacity and competence to transfer the trust property to the trustee. Suppose the age of the Settlor is below 21 years. The Settlor is declared to be incompetent and is unlikely to have the ability to establish a legal trust.

2. Intention to create a Trust- Article 34(1)(b)

To establish a legal trust, the Settlor must express a desire to do so. However, only those intentions that are acceptable as evidence in a court process may be considered. The principle is that the words used to establish Trust must be straightforward, clear, and unambiguous in terms of word certainty. They should be plain and precise. It is because the terms of the Trust reflect the Settlor’s purpose to impose a duty on the trustee for the benefit of the beneficiaries. It must convey a clear purpose. 

In one of the most landmark cases of Re Adams and the Kensington Vestry (1884) 27 Ch D 394, A testator gave all of his real and personal property to and for the exclusive use of his wife. Further, assigned, “with full faith that she would do what was right in dividing it amongst his children, either during her lifetime or by will after her death.” The issue before the court was whether a trust was established between the wife and the children as beneficiaries?

Held: The Court held that there was no creation of Trust. The court interpreted the statement to impose merely a moral responsibility on the wife to spend the money for the benefit of the children. It was not intended to bind her to act as a trustee for the children.

3. Trust must have a definite beneficiary- Article 34(1)(c)(i)

Unless it is a charitable trust or a trust for any valid non-charitable purpose, Article 34(1) (c) of the Trust Law requires that Trust has a specified beneficiary. One or more beneficiaries are required for Trust. Beneficiary (ies) must be specific and recognizable, i.e., the beneficiaries’ identities cannot be a matter of guesswork. 

For instance: A trust that directs the trustee to pay trust income to “all my close friends” for the remainder of the trustee’s life would fail. Trust has made no specific, identifiable people its beneficiaries.

4. Charitable Trust as Beneficiary- Article 34(1)(c)(ii)

A Trust is created if it is for charitable purposes. Beneficiaries of a property are often thought of as family members. On the other hand, a beneficiary may be anybody or anything you want to leave money or property. Nonprofits and charities fall under this category. A Trust is said to be a charitable trust if established to alleviate poverty, advance education or religion, promote health or the arts, protect the environment, or any other public good.

5. Non-charitable purpose trust as Beneficiary- Article 34(1)(c)(iii)

Suppose a trust is established for a non-charitable purpose rather than for the benefit of a human beneficiary; it is said to be a non-charitable purpose. Thus, a Trust created for a non-charitable purpose as a beneficiary is considered a valid Trust. Non-charitable purpose trusts are private trusts established to achieve a specified non-charitable objective rather than benefiting specific people. 

For example, Trusts for the building and maintenance of graves and monuments, trusts for animals’ care, etc.

6. The trustee holds property for the benefit of a beneficiary or a purpose (Assurance of Subjects matter): Article 34 (1)(d)

A trust is established when a settlor transfers the property to a trustee, who subsequently holds ownership in Trust for the beneficiaries. The matter specified in a Trust what belongings is belong to trusts, what portion or share of the belongings each inheritor is allowed to since the trustees is required to understand what belongings he is to manage in the beneficiary’s best interests. Generally, a trust is not created until the property is tranreferred to it (sometimes called the trust “res”). This property is referred to as the Trust’s subject matter. The trustee’s responsibilities must be tied to a distinct, recognized, and separate property interest. There is no trust if there is no trust property.

The purpose of this article is to provide a general overview of the subject. A trust transfer is a significant choice. Someone concerned about the administration of trust investments should talk to HHS Legal Consultants and Lawyers regarding the options open and the possible consequence of completing a trust transferring. Experts can help clients establish a trust that meets their goals while complying with all legal requirements. If you have any questions concerning the Trust’s formation under DIFC, please don’t hesitate to contact trust lawyers.