Succession Planning and Inheritance in the UAE


Succession Planning and Inheritance in the United Arab Emirates is governed under the Federal Law No. 5 of 1985 (the UAE Civil Code), the Federal Law No. 28 of 2005 (the UAE Personal Status Law) and Sharia which governs UAE’s Federal Laws and is used as a direct reference in the case of Inheritance. The UAE Inheritance Law clearly prescribes for assets of a Muslim deceased to be divided and distributed amongst its heirs pursuant to Shariah in the absence of succession planning.

In the absence of succession planning, upon the occurrence of an unfortunate event your joint and personal bank account gets frozen, dependent visa’s get cancelled and in order to access your assets, your family members will need an execution order from the Courts. Further, Sharia principles will apply to the distribution of all your assets and assets might not get distributed to your family as per the inheritance laws of your home country.

In lieu of the above, it is crucial to explore the options available to protect your family’s assets and wealth through the process of succession planning in the UAE. Regardless of the mode of your choice. A succession plan may allow you to retain control over the distribution of your assets and the safekeeping of the same within your family. By planning ahead and employing different forms/structures/vehicles to structure your assets, you can be able to minimize the total value of assets that are subject to Sharia. Further, you can also protect your family by facilitating their obtainment of an execution order from the Court in order for them to gain access to your assets by setting up a proper succession plan. For that purpose, it is advised to set up an effective succession plan that is regularly updated based on the state of your assets as well as your preferences for distribution.

Accordingly, the UAE Civil Code and the UAE Personal Status Law prescribe two primary modes of succession planning, i.e. Gifts and Wills.

  1. Gifts

The first mode of succession planning is Gifts or “Hiba” which is used by individuals who wish to ensure that their assets are passed on to the respective individuals of their choice along with a guarantee that their property shall not fall under Sharia inheritance upon their passing. If you decide to Gift some of/all of your assets for the purpose of succession planning, you would be transferring the ownership of your property or right to property to a first degree relative, this transfer of ownership by gifting would guarantee the transfer of said assets- during and after your lifetime- to the individuals that have been gifted the property.

However, the only condition for a Gift which makes it not suitable to individuals is the requirement for a gift to not be conditional, i.e. a Gift has to be executed, transferred and granted with immediate effect and during the owner’s lifetime. If a gift is made conditional and does not take effect immediately, it is rendered invalid. Additionally, a gift is made by an Individual at the time of his death or during his illness or period that such individual is on his death bed- the Gift cannot be for more than 1/3 of his/her assets.

Advantages of Gifts

  • Transfer of ownership to the family member of your choice immediately;
  • Cost-efficient transfer fees (Gift transfer fee in Dubai is 0.125% as opposed to 4% for any sale and purchase transaction)

Disadvantages of Gifts

  • Bank accounts cannot be gifted;
  • Gift (transfer of ownership) has to take effect immediately during the Owner’s life time and cannot take effect upon passing.
  1. Wills

The second mode of succession planning in the UAE remains to be Wills. Drafting of wills are strongly advised in the UAE in lieu of the fact that they assist in avoiding the lengthy process of execution in the case of the absence of a Will that is registered and notarized with Dubai Courts.

The Law of Sharia does in fact recognize Wills drafted by Muslims only up to a certain extent and a valid Will’s pre-requisites are the following:

  1. The testator must be over the age of 21 years;
  2. He/she should be of sound mind;
  3. He/she must appoint a trustee and a guardian for minor children;
  4. The will must be duly notarized.

However, the only restriction which applies to Wills drafted by Muslims is that it can only be upon 1/3rd share of the deceased's assets and the Will can only be made to an heir if approval is obtained from all major heirs pursuant to Article 250 of The Personal Status Law. The rest of the deceased assets are distributed pursuant to Sharia Inheritance Law (which includes very detailed and strict guidelines upheld by the Court upon execution).

Furthermore, wills are used to facilitate the process of execution upon the passing of an individual. Therefore, the registration and notarization of the Will with either Dubai Courts or Abu Dhabi Courts is essential.

Advantages of drafting Wills

  • Smoother process of execution in case of passing;
  • Can include bank account;
  • Can include sukuk;

Disadvantages of drafting Wills

  • Limitation of distribution of shares in the Will only to 1/3rd of the total assets;
  1. DIFC Foundation

As a corporate solution to succession planning in the UAE and as an attempt to avoid Sharia compliant inheritance, the setting up of a DIFC Foundation can be used for the purpose of asset restructuring and wealth protection. Foundations are solutions to those who wish to structure their assets under one entity and have the freedom to distribute their assets among assigned Beneficiaries while retaining some power and control over their assets throughout their lifetime.

Advantages of setting up a Foundation

  • As Founder, you can retain control and power over the Foundation during your lifetime;
  • A Foundation can have more than one Founder;
  • Upon setting up a foundation, the UAE assets may fall outside of inheritance at the time of an unforeseen circumstance;
  • Can hold both Bank Accounts and Sukuk;

Disadvantages of setting up a Foundation

  • The total cost of setting up a Foundation along with the use of a Registered Agent is high;
  • The execution of a Foundation upon the occurrence of an unfortunate event entails a risk with regards to the Court’s position and judgement;
  • Upon setting up a foundation, the UAE assets may continue to fall within inheritance at the time of an unforeseen circumstance – if Foundations by such time have not been recognized by Dubai Courts.
  1. Offshore- JAFZA

An alternative form of asset restructuring for the purpose of succession planning is the setting up of an Offshore Company in Jabal Ali Free Zone Authority (“JAFZA”). JAFZA Offshore companies are currently the only offshore companies that are allowed to own property and assets in the United Arab Emirates. Reliance is places on Article 14 of the JAFZA Offshore Companies Regulations 2018 which reads as under:

“14.2 An Offshore Company shall be permitted to:

  1. carry out any of the above-mentioned restrictions under Regulation 14.1 outside the United Arab Emirates; 
  2. engage with legal consultants, accountants, management companies or other similar persons carrying on business within the United Arab Emirates; 
  3. prepare and maintain books and Records within the United Arab Emirates; 
  4. hold meetings of its Directors or members within the United Arab Emirates; 
  5. hold a lease of property for use as a registered office in any designated freehold area in the United Arab Emirates approved by the Authority;  
  6. own a property in one of the designated freehold areas in the United Arab Emirates;  
  7. own a stake in another operating Company within the United Arab Emirates; or  
  8. hold an account in a bank in the United Arab Emirates without prejudice to the restrictions under Regulation 14.1.”

Advantages of setting up a JAFZA Offshore

  • You continue to retain some form of control over your property throughout your lifetime;
  • Benefit from low costs of setting up the Offshore Company along with the low transfer fee.

Disadvantages of setting up a JAFZA Offshore

  • Only Sukuk may not be owned by JAFZA Offshore.