A family foundation is a legal entity created to manage family assets. One or several family members can make it to protect and enhance the family’s support for future generations.
The creation of such a legal entity may have various purposes, including the following:
- Protecting family assets from creditors, lawsuits, and other external risks.
- Ensuring family financial stability in the long term.
- Transfer of family assets to the next generation under the founder’s will.
- Supporting charitable causes.
In other words, a family foundation is a financial planning tool that allows families to effectively manage and protect their capital over several generations.
A family foundation can be created in any country, including Dubai. The UAE offers a favorable investment climate and a flexible tax system.
Who Is a Family Foundation Suitable for?
Of course, not all families need this method of saving assets. An organization is a complex legal instrument that requires careful planning and management. Before opening a family foundation, consult an attorney or financial advisor to determine whether the vehicle suits your needs and goals.
Family foundations can be beneficial for:
- Wealthy families who are committed to creating long-term wealth preservation strategies. It is important to note that a family fund can also help keep assets and transactions confidential.
- Those who want to reduce the risk of conflicts and disagreements between heirs. Registration of private foundations requires a charter, which clearly defines the terms of management and distribution of assets. This is especially important if the founder has several potential heirs from different marriages.
- Company managers and entrepreneurs can use family funds to structure the management of company affairs and family assets and plan the business transition.
- Charitable organizations and foundations can provide financial support for various charitable projects and community initiatives.
All of these categories can take advantage of the benefits provided by family foundations and tailor them to their specific needs and goals.
Creating family foundations provides opportunities to diversify the investment portfolio and protect against financial risks. For example, given that the fund is a separate legal entity, its assets cannot be confiscated by personal creditors or seized by such a court.
Benefits of a Family Foundation
Registration in the UAE can be the best solution for families wishing to ensure the protection and growth of their assets for future generations. Here are a few benefits that encourage more and more wealthy people to open a family foundation in Dubai:
- Firstly, the UAE guarantees the confidentiality of family assets and businesses, protecting them from external risks and possible legal disputes. Moreover, the favorable tax system in the country allows the use of foundations to optimize taxation and minimize tax liabilities.
- Secondly, thanks to its status as an international financial center, the UAE offers opportunities for diversifying its investment portfolio.
- Third, family foundations in the UAE provide flexible management and structuring of assets, including real estate, securities, and business interests, tailored to the needs and goals of the family business.
- The UAE’s stable political and economic environment ensures that assets are protected from various risks associated with geopolitics and crises, so opening a family foundation here can be an essential step to ensure long-term stability and the protection of accumulated wealth.
Thus, in the Emirates, there are several advantages for families who use this method to preserve their wealth.
Weaknesses of the Family Foundation
Despite several advantages, there are also some negative aspects. They are the following:
- Difficult to control. Founders and beneficiaries are required to have knowledge and skills. It is necessary to formulate clear rules and procedures for management and ensure effective control over the legal entity’s activities.
- High price. Registration of family foundations in the UAE is a relatively expensive process. You must pay legal support, registration, and asset management costs.
- Conflicts of interest. For example, fund founders may have different goals and interests regarding asset management.
- Restrictions on transfer of assets. In some UAE jurisdictions, there is a restriction on the transfer of fund assets to non-family members. This may reduce the ability of the family trust to achieve its core objectives.
Given these nuances, it is essential to carefully consider all aspects before making final decisions.
Practical Tips and Advice
To avoid or minimize risks, it is necessary to consider all the details carefully. It is recommended to consult with an experienced lawyer or financial advisor for professional assistance on how to register a family foundation.
The main thing you should take care of is studying UAE legislation’s specifics. It is also essential to know that you can use different opportunities for establishing and managing family foundations in the Emirates due to various economic zones. The choice of a specific zone depends on the goals and objectives the founder sets.
Features of Opening a Family Foundation in the UAE
Family foundations in the United Arab Emirates can be registered in the following jurisdictions:
- Dubai International Financial Center (DIFC).
- Dubai Multi Commodities Center (DMCC).
- Jebel Ali Free Zone (JAFZA).
Each jurisdiction has its own rules and restrictions. Choosing a jurisdiction that suits the family’s needs and goals is essential. Here is the difference:
- Requirements for founders. The founders of a family foundation in the UAE can be individuals and legal entities. Specific eligibility conditions may be imposed depending on the jurisdiction, nationality, age, or minimum capital.
- Requirements for beneficiaries — there may be restrictions on transferring fund assets to persons who are not family members.
- Asset requirements. The family foundation can include any assets, including real estate, stocks, bonds, works of art, etc. Some zones have restrictions on the type of investments.
- Tax consequences. A family foundation in the UAE is generally exempt from corporate income tax and profit tax. However, there may be limited tax requirements for founders and beneficiaries.
A thorough analysis and consultation with a lawyer or financial advisor will help determine the best way to preserve and increase your capital.
Stages of Creating a Foundation in the UAE
To create such a control system, you must complete the following steps:
1. Select jurisdiction.
2. Prepare constituent documents. They should include the following provisions:
- Fund location.
- Rights and obligations of founders, beneficiaries, and managers.
3. Obtain permission from the regulator.
4. Open your bank account for asset management.
5. Appoint a manager who will be responsible for managing his assets.
Thus, creating family foundations in the UAE is a consistent process. You should consult with a specialist to save your time and resources.
Cost of Creating a Family Foundation
The procedure for opening a family foundation in the UAE can take several weeks or months. The price depends on the jurisdiction of the fund and its size. Using legal assistance also increases the final cost.
According to Dynasty Business Adviser, to open a family foundation in the UAE, you need to have about $20,000. This amount includes the following expenses:
- Price of legal services.
- Cost of registration fees.
- Preparation of constituent documents.
- Fee for opening a bank account.
In addition to those mentioned above, there may be additional costs, such as management services, audit fees, and tax deductions.