Succession Planning for Family-Owned Properties
In the UAE, many family-owned businesses adopt a straightforward corporate structure, where the founding family members retain ownership of both the business and any real estate assets individually. This simplicity can be beneficial due to its transparency, making it easier to integrate into business operations. However, such structures can become vulnerable if the owner passes away, leading to inheritance disputes and lengthy legal processes. This is especially true for real estate properties, which may be difficult to transfer to heirs without the proper legal framework in place.
For larger family businesses, adopting more sophisticated structures is crucial to safeguard assets and ensure seamless management after the founder’s death. These structures minimize exposure to inheritance disputes and provide a defense against disruptions. At Precision Legal, we advise families on using advanced corporate structures to protect their business and real estate assets.
Foundations: A Robust Succession Planning Tool
A foundation is a corporate vehicle that allows family businesses to allocate specific assets for designated purposes or beneficiaries. The Dubai International Financial Centre (DIFC) introduced Law Number 3 of 2018, which enables family businesses to establish DIFC foundations as a highly effective tool for succession planning. These foundations allow business owners to separate their personal and business assets by transferring ownership to the foundation. This approach ensures the founder retains control over the assets while structuring them for future generations.
Real Estate Ownership via DIFC Foundations
Through an agreement between the DIFC and the Dubai Land Department (DLD), DIFC foundations are eligible to own real estate properties in designated areas of Dubai. This provides family businesses with a solution to manage both business assets and real estate in a tax-efficient manner, while remaining compliant with UAE regulations.
Trust Structures for Family Business and Real Estate
A trust is a legally binding arrangement where the ownership of assets is transferred to trustees for the benefit of designated beneficiaries. In family businesses, trusts can be an effective way to manage real estate properties and reduce tax liabilities, inheritance disputes, and mismanagement risks. By appointing experienced trustees, a family can ensure the continuity of operations and the preservation of family wealth, even after the death of the founder.
Why Foundations and Trusts are Essential
Using foundations and trusts for family-owned properties provides stability and protection. In the UAE, the inheritance process is subject to Sharia law, which may not align with the intentions of the deceased regarding property distribution. These legal structures offer a shield against potential inheritance risks, ensuring the smooth continuation of the business and asset management.
Understanding Dubai's Property Laws
Dubai’s property ownership laws, under Law Number 7 of 2006 (Property Law), regulate who can own real estate. While UAE nationals and certain foreign entities can own property in specific areas, the law limits property ownership by trusts and foundations. However, DIFC-based foundations are an exception, enabling foreign ownership in designated areas.
It’s important to understand that the Dubai Land Department (DLD) requires property ownership to be recorded in the property register for it to be legally recognized. Trusts and foundations not registered with the DLD are not considered legal owners of properties, and any arrangements outside of the official register will not be enforceable.
Conclusion
Family-owned businesses in Dubai and the UAE benefit from using foundations and trusts as part of their succession planning. These structures ensure the continued management of assets, protect against inheritance disputes, and facilitate the smooth transfer of ownership. For tailored advice on the most suitable structure for your family business, it’s essential to consult a professional legal team with expertise in both real estate and corporate law.
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