View from the Gulf: Law changes a giant step for UAE succession planning
The ancient religious trust known as the Jerusalem Islamic Waqf is coming back into vogue in Dubai. Not only are waqfs a way for families to set up charitable foundations and launch their charitable funds, they are also popular among family business principals who want to organise their inheritance in confidence.
This emerging trend, along with law changes in the United Arab Emirates (UAE), could be a big boost for smoother succession planning.
A waqf traditionally describes a legal endowment of assets for religious or charitable causes with no intention of reclaiming said assets. It is where the concept of a trust we are all familiar with today began in Islam. Waqfs have been used for charitable purposes, and other resolutions like the family waqf and the joint waqf, but use declined in the Arab world due in part to controlling regulatory laws in many Arab states. The trust really stopped functioning as it once did about the time the Ottoman Empire fell after the first world war. The Arab world eventually lost confidence in it entirely because trustees did not always act in good faith and frittered away wealth.
But now waqfs are evolving, for both charity and family reasons, spurred on by the fact families here in Dubai want to set up their own charitable foundations and organise their succession. In relation to the former charitable type of waqf, their ambitions have been supported by the new Law No 14 of 2017 which intends to regulate endowments in Dubai. It was issued by Sheikh Mohammed Bin Rashid Al Maktoum, vice president and prime minister of the UAE, and ruler of the Emirate of Dubai. Law No 14 enables families to have full control of their assets and manage their affairs as a trustee would. Taking that control is a significant change of scene in the emirate and multigenerational family businesses stand to benefit.
The new law created the Awqaf and Minors Affairs Foundation, a Dubai government department for the legal supervision of religious endowments and consequent investments. Charitable foundations are expected to enjoy a new degree of independence under this initiative.
As to the latter type, the family waqf, we see now that Dubai has taken an unprecedented step in allowing its families to organise their succession where the need for a robust legal response is acute. They did this by drafting a law granting family businesses the ability to deal with their succession planning for the first time. The draft law gives them the option of either settling as a family through an agreement or foundation, or as a trust with the independent Dubai International Financial Centre.
Family feuds take years to process in the courts and repercussions include the withering away of the wealth they are often fighting over and the detrimental impact on the UAE economy. Succession planning should be a lot less painful, emotionally and financially, for multigenerational families of wealth once this law is issued this year as expected.
