How does a trust work?

Every trust has 3 roles: [2]

  • The settlor puts assets into the trust and sets the terms, usually in a document called the trust deed.
  • The trustee becomes the legal owner of the assets, manages them day to day, pays any tax due and deals with the assets as the deed says. There must always be at least 1 trustee.
  • The beneficiaries benefit from the income, the capital, or both.

The assets form a separate fund. They are not part of the trustee's own estate, even though the title stands in the trustee's name. [1] Under English law as applied in ADGM, a trust exists when 3 things are certain: the settlor's intention to create a trust, the assets it holds, and who it is for. Trusts of land must be made in writing. [5]

Two other features are common in family trusts:

  • A protector supervises the trustee. The deed can let the protector appoint or remove trustees, add or exclude beneficiaries, or approve or veto the trustee's decisions. [5][7]
  • A letter of wishes sits alongside the deed and records what the settlor would like. ADGM lists it among a trust's usual documents. [5]

A trustee owes duties to the beneficiaries. Under English law, as ADGM summarises it, these include acting in good faith, avoiding conflicts of interest, making no unauthorised profit, taking reasonable care and keeping accurate accounts. [5] Under the UAE federal law, a trustee who breaches the deed, or causes loss through intentional error or gross negligence, must compensate the trust. [7]

Trust law in the UAE: 3 regimes

The UAE has 3 sets of trust law, each with its own courts and rules. [5][6][7]

DIFC ADGM UAE onshore (federal)
Law DIFC Trust Law, DIFC Law No. 4 of 2018 (consolidated March 2024) English common law and equity, applied by the Application of English Law Regulations 2015, plus the Trusts (Special Provisions) Regulations 2016 Federal Decree-Law No. 31 of 2023, in force from 30 September 2023
Is the trust a legal person? No: the law gives the trust no personality of its own, and the trustee holds the trust property [6] No: it "does not, and cannot" have separate legal personality [5] Yes, from the date of initial registration [7]
Registration Trustees keep records of the real owners and give them to the DIFC Registrar on notice [6] No formal registration required [5] Approved and registered by the competent authority in the emirate [7]
How long it can last Indefinitely; no rule against perpetuities [6] The deed should state the duration [5] As the deed sets; if no period is set, it lasts for life [7]

Who can be a trustee. In ADGM, a trustee can be an individual, a corporate trustee or a private trust company, and anyone acting as trustee by way of business in or from ADGM must be licensed by its financial regulator, the FSRA. [5] Under the federal law, an individual trustee must be of good character, and a company acting as trustee must be licensed as a professional trustee. [7]

The onshore trust, in more detail. The federal law applies everywhere in the UAE except the financial free zones that have their own trust laws, as the DIFC and ADGM do. [5][6][7] Its main rules:

  • The trust property belongs to the trust. It does not form part of the settlor's or the trustee's estate on death or bankruptcy. [7]
  • The deed must be in Arabic, or come with a certified Arabic translation. [7]
  • If the deed allows it, the settlor can keep the power to revoke the trust, change beneficiaries, appoint the trustee or direct investments. The settlor can also be a trustee and a beneficiary. [7]
  • Subject to other laws, a beneficiary's creditors can reach only that beneficiary's share of the trust's income, as the deed sets it. [7]
  • The register is not public: only the settlor, trustee and protector can see it, unless a court orders otherwise. [7] Trustees must still hold information on the real owners of the trust's assets, and give it to regulators, banks and other businesses when asked, under the UAE's anti-money laundering law, Federal Decree-Law No. 10 of 2025. [5]

How is a foundation different from a trust?

A foundation is a legal entity, like a company, but with no shareholders. It owns its own assets, and they are not held on trust for anyone. [8][10] A council of at least 2 members runs it under a charter and by-laws. [8] A trust has no council: the trustee holds and manages the assets. [2]

Trust (DIFC, ADGM, English law) Foundation (DIFC, ADGM, RAK ICC)
Legal form An arrangement; the trustee owns the assets [1][5] A legal person that owns its assets [8][9][10]
Run by The trustee, under the trust deed [2] A council, under the charter and by-laws [8]
Founder's or settlor's rights Any powers the settlor reserves in the deed [1] Whatever the by-laws give the founder [8][10]

A DIFC foundation may carry on commercial activities only where they are necessary for, and ancillary or incidental to, its objects. [8]

UAE onshore trusts sit between the two, because registration gives them legal personality. [7] For a full comparison of the DIFC, ADGM and RAK ICC foundation rules, fees and Dubai property, see DIFC, ADGM or RAK ICC foundation: which suits your family?. For how families choose between a trust and a foundation, see Trusts and foundations in the UAE.

What is the difference between a trust and a foundation in India?

The Indian Trusts Act 1882 defines a trust as an obligation attached to the ownership of property, arising from a confidence placed in and accepted by the owner, for the benefit of another person, or of another person and the owner. The person who creates it is called the "author of the trust". [11] Its main rules:

  • A trust may be created for any lawful purpose. A trust made to defraud, or one that would defeat the provisions of any law, is void. [11]
  • A trust of immoveable property is valid only if made by a registered written document or by will. [11]
  • The Act does not apply to public or private religious or charitable endowments. It does not affect Muslim law on waqf, or the relations within an undivided family set by personal law, such as a Hindu Undivided Family (HUF). [11]

Indian law sorts trusts into private trusts, for family or private purposes, and public trusts, for religious or charitable purposes. [12] Some states have their own laws for public trusts, such as the Maharashtra Public Trusts Act 1950. [13] A charitable body in India is usually set up as a trust, a society under the Societies Registration Act 1860, or a not-for-profit company under Section 8 of the Companies Act 2013. [13] The word "foundation" in an Indian organisation's name does not on its own tell you which of these it is.

For Indian residents with a trust abroad. An Indian resident who is a beneficiary of a foreign trust must report it in Schedule FA of their income tax return, and is taxed on their worldwide income, including what the trust pays them. [12] An Indian chartered accountant or lawyer advises on your position under India's foreign exchange rules (FEMA) and Indian tax. Our guide to moving money from India under FEMA and the LRS explains the limits.

What are the three types of trust?

No law sets a list of exactly 3. UK government guidance names 7 main types, and 3 of them set how the beneficiaries' rights work: bare trusts, interest in possession trusts and discretionary trusts. [3]

Type How it works
Bare trust The beneficiary can take all the capital and income at any time once 18 (16 in Scotland). Often used for young people.
Interest in possession trust The trustee must pass all the income, less expenses, to a beneficiary as it arises. The beneficiary does not own the assets that produce it.
Discretionary trust The trustees decide what to pay, to which beneficiary, how often and on what conditions.
Accumulation trust The trustees can add income to the capital, and may also pay income out.
Mixed trust A combination; each part is taxed under its own rules.
Settlor-interested trust The settlor or their spouse or civil partner can benefit.
Non-resident trust The trustees are not UK resident for tax.

The other 4 build on those 3: an accumulation trust works like a discretionary one, a mixed trust combines types, and the last 2 describe who benefits or where the trustees live for tax. [3]

Other ways trusts are grouped:

  • Revocable or irrevocable. Under ADGM law a transfer into trust can be either. [5] Under the UAE federal law, the settlor can keep the power to revoke only if the deed says so. [7]
  • Charitable or purpose trusts. DIFC law allows trusts with no beneficiaries, for a charitable purpose or a stated non-charitable one, such as holding shares in a company. [6] ADGM law also allows non-charitable purpose trusts. In both, a non-charitable purpose trust needs an enforcer. [5][6]

What can you put in a trust, and what should you keep out?

A trust can hold cash, property, shares, intellectual property, art and jewellery. [5] Under the UAE federal law, the property must belong to the settlor, be free for the settlor to dispose of, and be identifiable. If another person has rights over it, such as a mortgage lender, the property passes to the trust still subject to those rights. [7]

These assets cause problems:

  • Assets moved to escape creditors or tax. A UAE court can annul an onshore trust proven to have been made to evade the settlor's debts, taxes or other financial obligations, and the property goes back to the settlor or their heirs. [7] Under Indian law, a trust set up to defraud is void, and a trust for the settlor's own benefit made while insolvent fails against the creditors. [11] DIFC law makes a trust invalid if fraud, duress, undue influence or misrepresentation induced it. [6]
  • A home you still live in. Under UK inheritance tax, if you give an asset to a trust but keep benefiting, for example by living in a house you gave away, it still counts as part of your estate. You may also pay the 20% charge on the transfer. [4]
  • Assets whose transfer is itself taxed. In the UK, transfers into most trusts are taxed at 20% above the £325,000 threshold where the trustees pay the tax, counting the settlor's other chargeable gifts in the previous 7 years. If the settlor dies within 7 years, the rate becomes 40%. [4]
  • Assets that need special formalities. Land in India needs a registered written trust or a will. [11] For Dubai property, first check which kinds of owner the Dubai Land Department accepts; our guide to holding Dubai property through a company sets them out.

What is the difference between a charitable trust and a foundation?

The answer depends on the country, because "foundation" means different things:

  • DIFC. Both are possible. A charitable trust can be set up for purposes such as relieving poverty, education, religion, health, art or the environment. [6] A DIFC foundation can have exclusively charitable objects, and then must have a guardian to oversee them. [8]
  • ADGM. The Foundations Regulations 2017 first barred charitable objects. An amendment of 5 May 2020 removed that bar. A foundation still may not operate as a non-profit organisation, meaning one that mainly raises or gives out funds for charitable, religious, cultural, educational or social purposes, unless the ADGM Registrar allows it by a written direction. [9]
  • RAK ICC. A foundation can have exclusively charitable objects, with a guardian. [10]
  • United Kingdom. "Foundation" is not one of the 4 main charity structures the Charity Commission lists: a charitable incorporated organisation (CIO), a charitable company, an unincorporated association or a trust. The Commission's "foundation CIO" model is a CIO whose only members are its trustees. The Commission suggests a trust for a charity that needs no corporate structure or wider membership, such as one that only makes grants. [14]
  • United States. "Private foundation" is a tax category. Every organisation exempt under section 501(c)(3) is a private foundation unless it falls into an excluded category. [15] A private foundation that is not an operating foundation must pay out its "distributable amount" for each year by the end of the next year. That amount is based on a minimum investment return of 5% of the assets it does not use for its charitable work. Some charitable trusts that are not tax-exempt are treated as private foundations. [16]
  • India. A charitable trust, a society and a Section 8 company are the usual forms. [13]

For Muslim families, a charitable or family waqf is the Islamic endowment. See Shariah-compliant trusts and foundations.

How Marlborough Gulf helps

What we do:

  • We list the family's assets by country and set out whether a trust, a foundation or a holding company suits each one, with the tax rules of each country in view.
  • We form and administer the UAE companies a structure holds, including RAK ICC companies as a RAK ICC registered agent.
  • We coordinate the lawyers, the registered agent, the trustee you appoint and your tax advisers to one timetable.

What a licensed partner does:

  • A law firm drafts the trust deed or the foundation charter and by-laws.
  • A licensed trust company acts as trustee. You appoint it directly.
  • A licensed registered agent sets up a DIFC or ADGM foundation. You engage it directly.

Marlborough Gulf does not act as trustee and does not arrange trustees.

Trusts and foundations in the UAE →

Request a consultation

Questions people ask

How does a trust work in simple terms?

You give assets to a trustee, who owns them legally but must use them only for the people or purpose you name in the trust deed. The trustee can be held to account for any breach. [2][7]

Can a trustee take all the money out of a trust?

Only if the trust deed allows it. A trustee must act in good faith and for proper purposes, and one who breaches the deed must make good the loss. Under UAE federal law, a dealing made in bad faith with someone who knew of it is void. [5][7]

What is the 10-year rule for trusts?

In the UK, trustees pay an inheritance tax charge at each 10-year anniversary of the trust if its relevant property is worth more than the inheritance tax threshold. Assets leaving the trust can face an exit charge of up to 6%. [4] Our guide to UK inheritance tax after you leave explains the rules after a move abroad.

What is the 5% rule for foundations?

It is a US rule. A private foundation, other than an operating foundation, must pay out each year an amount based on a minimum investment return of 5% of the assets it does not use for its charitable work. [16]

What are the disadvantages of putting my house in a trust?

In the UK, if you keep living in a house you have given to a trust, it still counts in your estate for inheritance tax, and a 20% charge may also apply to the transfer. [4]

Is a trust a legal entity in the UAE?

A trust under the federal law becomes a legal person when registered. DIFC and ADGM trusts are not legal persons. [5][6][7]

This guide is general information, not legal or tax advice. Trust laws and tax rules differ by country and change. Take advice from qualified lawyers and tax advisers in each country involved before setting up a trust or foundation.

Marlborough Gulf does not give investment, pension or insurance advice. Regulated services are provided by licensed firms, who contract with you directly.

Sources

  1. Hague Conference on Private International Law, Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition, preamble and Article 2. Read 29 Oct 2026. https://www.hcch.net/en/instruments/conventions/full-text/?cid=59
  2. GOV.UK, Trusts and taxes: overview (settlor, trustee, beneficiary; what trustees do). Read 29 Oct 2026. https://www.gov.uk/trusts-taxes
  3. GOV.UK, Trusts and taxes: types of trust. Read 29 Oct 2026. https://www.gov.uk/trusts-taxes/types-of-trust
  4. HM Revenue and Customs, Trusts and Inheritance Tax, last updated 6 Apr 2025. Read 29 Oct 2026. https://www.gov.uk/guidance/trusts-and-inheritance-tax
  5. ADGM Registration Authority, Trusts in ADGM (ADGM law trusts: legal basis, three certainties, protectors, trustees, foreign-law protection, anti-money laundering duties). Read 29 Oct 2026. https://www.adgm.com/operating-in-adgm/trusts
  6. Trust Law, DIFC Law No. 4 of 2018, Consolidated Version No. 3 (March 2024), Articles 10, 33 to 39 and 60 (common law and equity, creation, duration, validity, charitable and purpose trusts, trustees' duties and records). Read 29 Oct 2026. https://edge.sitecorecloud.io/dubaiintern0078-difcexperie96c5-production-3253/media/project/difcexperiences/difc/difcwebsite/documents/familydocs/trust_law_difc_law_no_4_of_2018_updated_2024_.pdf
  7. Federal Decree-Law No. 31 of 2023 Concerning Trust, issued 25 Sep 2023, in force 30 Sep 2023, Articles 1 to 5, 12, 13, 28, 33, 34, 39, 42, 44, 46 and 54 (Article 54 repeals Federal Decree-Law No. 19 of 2020). UAE Legislation portal, English translation. Read 29 Oct 2026. https://uaelegislation.gov.ae/en/legislations/2120
  8. Foundations Law, DIFC Law No. 3 of 2018, Consolidated Version No. 3 (March 2024), Articles 10, 12, 22 and 23. Read 29 Oct 2026. https://edge.sitecorecloud.io/dubaiintern0078-difcexperie96c5-production-3253/media/project/difcexperiences/difc/difcwebsite/documents/laws--regulations/foundations-law-difc-updated-law-no-3-of-2018_2024.pdf
  9. ADGM Foundations Regulations 2017, consolidated version April 2026, sections 1(5) to 1(7) (non-profit activity and the Registrar's direction), 2 (objects; charitable bar removed 5 May 2020) and 3(5) (legal personality). ADGM Legal Framework rulebook. Read 29 Oct 2026. https://en.adgm.thomsonreuters.com/sites/default/files/net_file_store/ADGM1547_19329_VER20260424.pdf
  10. RAK ICC Foundations Regulations 2019, as amended 2025, Regulations 4, 5 and 20 (third-party copy of the text; the rakicc.com page did not load). Read 29 Oct 2026. https://uae.shushin.io/corporatelaw/rak-icc/RAK-ICC-Foundations-Regulations
  11. The Indian Trusts Act, 1882 (Act No. 2 of 1882), sections 1, 3, 4, 5 and
    1. Copy of the text published by the Devasthan Department, Government of Rajasthan; India Code did not open on 29 Oct 2026. Read 29 Oct 2026. https://devasthan.rajasthan.gov.in/orders_circluars/The_Indian_Trusts_Act_1882.pdf
  12. Cyril Amarchand Mangaldas, "India: Law and Practice", Chambers Private Wealth 2026, sections 3.1 and 3.3. Read 29 Oct 2026. https://gpg-pdf.chambers.com/Private-Wealth-2026/292/ https://gpg-pdf.chambers.com/Private-Wealth-2026/293/
  13. Cyril Amarchand Mangaldas, "India: Law and Practice", Chambers Private Wealth 2025, sections 10.1 and 10.2 (charitable structures). Read 29 Oct 2026. https://gpg-pdf.chambers.com/Private-Wealth-2025/262/
  14. Charity Commission for England and Wales, Charity types: how to choose a structure (CC22a), last updated 4 Nov 2014. Read 29 Oct 2026. https://www.gov.uk/guidance/charity-types-how-to-choose-a-structure
  15. US Internal Revenue Service, Private foundations, last reviewed 28 Jun 2026. Read 29 Oct 2026. https://www.irs.gov/charities-non-profits/charitable-organizations/private-foundations
  16. US Internal Revenue Service, Instructions for Form 990-PF (2025) (distributable amount; minimum investment return of 5%; section 4947(a)(1) charitable trusts treated as private foundations). Read 29 Oct 2026. https://www.irs.gov/instructions/i990pf