28 Feb The importance of legacy planning for UAE expats
Every year, over 200,000 thousand new people arrive in the UAE. The country’s stable economy, modern infrastructure and investment friendly policies attract people from around the world, all looking to settle and make a home in the Emirates.
When building a new life in a new country, most people understand the importance of strategising their finances and planning for their futures. However, few take the time to consider the importance of legacy planning, which remains an afterthought or is even ignored completely.
This is a mistake, particularly for expatriates whose assets and liabilities span multiple countries and jurisdictions. Unfortunately, most expats are in the dark when it comes to understanding the implications of UAE inheritance laws on their assets, children and businesses. This can make the process of passing on assets more complicated, unpredictable and subject to different laws and regulations.
Well-thought-out legacy planning ensures that the assets and wealth you’ve spent your whole life building are protected in the event of your death and will be transferred to your loved ones in the most tax-efficient way. This provides peace of mind that your wishes will be carried out and that your loved ones will be spared any undue stress or uncertainty.
What is legacy planning?
Fundamentally, legacy planning involves preparing how you will bequeath your property and assets to your loved ones after your death. However, its application goes beyond the simple act of writing a will. To ensure you leave a lasting legacy, many options should be considered, and all should work together cohesively. When preparing the plan for your estate, you should consider the various options and have a clear picture of how your wealth will be transferred, avoiding any unforeseen inheritor pitfalls or unnecessary taxes that may arise.
What are the key elements of good legacy planning?
Legacy planning is arguably the most confusing and complex element of sound financial planning, from the complexity of the legal documents required to the challenge of maximising the legacy left to your heirs.
A thoughtfully considered legacy plan involves five critical components:
This is the first document that springs to mind when preparing an estate plan. A will is the document that establishes how your assets will be distributed when you die and who will serve as guardian to your children.
Registration of a will in the UAE is vital since, in its absence, inheritance matters are dealt with by the UAE Courts as per the prevailing Sharia Law. This can cause significant issues for non-Muslim expats with respect to dependent visas, guardianship of minors and the distribution of your estate.
Trusts are legal arrangements that hold assets on behalf of a beneficiary or beneficiaries. Although not commonly used for legacy planning in the UAE, they are valuable tools for tax planning and managing assets held in the UAE and abroad. They allow the trustee to dictate how and when assets are passed on to the beneficiaries. They operate outside of probate, which means they can help save time, costly court fees and potentially estate-reducing taxes.
Trusts are particularly beneficial for UAE expats as in jurisdictions such as the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC), they are governed by common law, which provides assurance to expats that their assets will be legally protected and distributed as per their wishes.
Foundations share many similarities with trusts. Both are used to manage assets and provide financial support to designated individuals or organisations. However, they differ in a few key areas.
A trust is established by a trustee who holds and manages assets on behalf of one or more beneficiaries, whereas a foundation is similar to a company in that it owns assets in its own name and can enter into contracts.
Both have unique applications with respect to succession planning. A foundation typically allows for more control over assets and where to invest them, whereas a trust is purely used to manage assets on behalf of beneficiaries.
Understanding your tax position is critical when creating a solid legacy plan, particularly for business owners and high-net-worth individuals. Without the right business structure to support your succession plan, your company, reputation and wealth could all fall outside your control.
Creating a solid succession plan that factors in your residence, domicile and any double taxation agreements the UAE has in place with your home country can help you reduce or eliminate any unnecessary taxation on your business and estate.
Power of Attorney (POA)
Powers of Attorney are another important consideration and a vital element of legacy planning. They establish who has the power to make decisions on your behalf if you become incapacitated or lose the capacity to make decisions for yourself.
Powers of Attorney can cover two areas: your finances and your healthcare. A POA empowers a person of your choosing to look after your finances in case of physical incapacity. Under a POA, you can also allow someone to decide on your medical treatment in terms of what treatment you get, where you receive care, and even whether you receive life-sustaining treatment.
What are the challenges of legacy planning in the UAE?
Legacy planning is an essential part of sound financial planning wherever you live, but it carries much more importance for UAE expats due to the country’s governing laws. If a deceased expat has no will in place, succession is determined in accordance with forced heirship rules based on Sharia Law. This can have several negative implications such as frozen bank accounts and assets, which could potentially lead to dilution, cancelled dependent visas and issues over the rightful guardianship of minors.
Fortunately, recent amendments to the Personal Status Law and the UAE Civil Code mean that non-Muslim expats can now register a will which avoids these issues and respects the laws and practices of their home country.
In an increasingly globalised world where individuals and families have businesses, properties and other assets spread across multiple countries, legacy planning is more crucial than ever.
Events such as global pandemics, political instability and international conflict are unfortunate realities that affect us all. However, sound legacy planning is one important tool that can guard against the unforeseen and protect those we love for generations to come.
In the face of this uncertainty, the UAE’s forward-thinking policies and investment friendly policies make it a sound choice for wealth management and legacy planning.
With so many available options for legacy planning in the UAE, it is advisable to seek the help of a qualified professional to advise you on the best course of action and ensure that your estate is managed in the most appropriate and tax-efficient way.
How can Huriya Private help?
Huriya Private has over 20 years of experience in the domain of corporate structuring. We have unparalleled knowledge of business practices and legal requirements in the UAE, an international network of contacts, and a deep understanding of the needs of modern-day high-net-worth clients and international businesses.
We can help you set up a will in the UAE and ensure your business is fully compliant with all local laws and regulations. If you need help with this or any other immigration, financial or corporate structuring issue, please don’t hesitate to contact us at firstname.lastname@example.org, and we will be happy to help.