What Is a Trust Company, and How Do You Create One?

Pauline Familara
Pauline Familara
17 November 2023
What Is a Trust Company, and How Do You Create One?

A trust company is an organization that specializes in managing property and finances on behalf of third parties known as beneficiaries. Such companies provide services for managing trust property and ensuring its protection to preserve beneficiaries’ financial well-being and security.

One of its key features (most people plan to open a trust company because of this) is confidentiality and protection of the interests of beneficiaries. Trusts are used to create structures that provide anonymity and security of assets from tax or legal claims.

General Working Scheme of a Trust Company

There are three main parties involved in the process of creating and further using a trust:

  • Founder (also known as founder).
  • Trust company (or trust manager).
  • Beneficiaries.

The founder initiates the creation of the trust and transfers particular property or assets to the trust company. The company administers it to benefit the beneficiaries designated by the founder in the trust document.

Before you open a trust company, consider that these three parties interact according to the trust agreement, which defines the terms of administration of the property, the rights and obligations of each party, and the purposes for creating the trust.

Advantages of a Trust Company

Trust companies offer a wide range of benefits for individuals and legal entities. They are the following:

  • Protection of assets from creditors. Trust assets are not the settlor’s property but belong to the trust as an organization.
  • Ensuring the transfer of assets to heirs (including minor children or persons with disabilities).
  • Optimization of the tax burden. For example, by transferring assets to a jurisdiction with a more favorable tax regime.
  • Effective financial planning. Registering a trust company can help with pension planning, inheritance, etc.
  • Confidentiality.

But flexibility is the main advantage. A trust can and should be tailored to the specific needs and goals of the settlor.

Weaknesses of a Trust Company

As we see, the possibilities of trusts are broad, but many are interested not only in the positive side of such planning but also in what risks the trust has.

The first point to consider is choosing the country to open such a structure. For example, trusts registered in common law countries face restrictions such as the seizure of assets to pay off debts to creditors or in the event of bankruptcy of the settlor.

Before transferring assets into trust management, carefully weigh the pros and cons and calculate a realistic cost estimate. Thus, opening a trust company in Dubai will not be cheap, but the country’s benefits often outweigh the risks.

Trusts may face tax limitations. This means that a trust can only distribute income subject to taxation, and a tax deduction is impossible.

It is important to note that a trust may be personally liable for the obligations specified in the agreement if an individual administers it. However, if the controlling party is a company, its liability is limited.

What Are the Types of Trust Companies?

Trust companies can be of various types, depending on the purposes and conditions of their creation. Some of the most common types are the following:

  • Family trusts are created to manage and protect family property and financial assets, ensuring their transfer to future generations with minimal tax liability.
  • Charitable trusts are organizations created to raise funds and manage assets to support charitable causes and community programs.
  • Corporate trusts manage corporate assets, pension plans, and employee funds.
  • Investment trusts are created ​​to manage assets and portfolios of stocks, bonds, and other financial instruments on behalf of investors or beneficiaries.
  • Resident and offshore — created to obtain tax advantages and confidentiality.

Trust companies, therefore, provide a wide range of structures and options for managing wealth and finances to suit clients’ varying needs and objectives.

Trust Company Income

The exact amount of income depends on several factors, including the type of trust, scope of services, size, and jurisdiction. In general, revenues on the balance sheet can come from several sources. Income may include fees for creating and administering the trust. Trust companies may receive commissions or fees for managing the assets of beneficiaries or investment funds.

If the trust company operates a business or enterprise, its income may come from operating profits and other activities associated with running the business. Revenue may also be received as interest, dividends, or capital gains from investment activities.

Advantages of Registering a Trust Company in the UAE

Given the favorable tax system, the country’s stable economy, and political neutrality, the United Arab Emirates has long been a center of attraction for capital. The following advantages of registering trusts in the UAE can be the following: Э:

  1. There are no minimum capital requirements, which simplifies the company creation process.
  2. 100% foreign ownership. Registering a trust company in Dubai gives foreigners the option of full ownership. This is realistic for both companies and trusts in free economic zones.
  3. UAE legislation guarantees a high level of anonymity for beneficiaries and management decision-makers.
  4. Zero tax rate on your income for foreigners.
  5. Legal protection of capital. It should be noted that using classical English law for trusts registered in the DIFC and ADGM zones guarantees transparency and predictability in the asset management process, ensuring stability and reliability of long-term planning.
  6. Access to international markets. The UAE is a significant financial center for the whole world. Trusts registered in Dubai have the opportunity to participate in international transactions.

Thus, the country offers several significant advantages that make it attractive to international investors and companies.

How to Create a Trust Company in the UAE

To create a trust company in the UAE, you need to complete the following steps:

1. Choice of jurisdiction. Several free zones in the UAE offer trust company registration. The choice of jurisdiction depends on the specific needs and goals of the company.

2. Preparation of documents, including the following:

  • Application for registration.
  • Memorandum of association.
  • Charter.
  • Documents confirming the authority of the applicants.

3. Payment of registration fees.

4. Submission of documents to the regulatory authority.

5. Obtaining permission to register.

In some cases, additional documents may be required. For example, obtaining permission from the Central Bank of the UAE is necessary if the trust engages in investment activities.

Registering a trust company in the UAE takes from 1 to 2 months.

You should seek legal advice from an experienced lawyer specializing in registering trusts in the UAE. Dynasty Business Adviser specialists will help you prepare and submit the necessary documents to the regulatory authority.

Cost of Starting a Trust Company

The total cost of opening a trust company in the UAE depends on the following factors:

  • Selected jurisdiction. Several free zones in the UAE offer trust company registration. Registration costs vary between free zones.
  • Type of trust. For example, registering a family foundation will cost less than opening an investment trust.
  • The scope of work, which, in turn, depends on the number and complexity of the conditions specified in the charter.

The cost of setting up a trust in the UAE ranges from $5,000 to $10,000. The cost can only be determined after consultation with an experienced lawyer and financier.

Practical Tips and Advice

If you are considering creating a trust company in the UAE, it is helpful to follow these practical tips and recommendations:

  • Seek advice from experienced attorneys, financial advisors, and tax professionals to protect your interests and meet all legal requirements.
  • Carefully review UAE law to fully understand the obligations and restrictions associated with administering a trust in the country.
  • Pay close attention to deadlines and obligations set by legal and financial authorities in the UAE.
  • Be prepared for expenses. The cost of registering a trust company in the UAE can be significant.

Given the complexity and legal specifics of creating a trust company in the UAE, turning to professionals can significantly facilitate the entire process, ensuring the efficient and secure management of your financial assets and business.

  • Mitchell, Charles; Hayton, DJ (2005). Hayton and Marshall's Commentary and Cases on the Law of Trusts and Equitable Remedies (12th ed.). Sweet & Maxwell.

  • "Trust". BusinessDictionary. WebFinance, Inc. Archived from the original on 30 September 2020

  • Дождев Д. В. Международная модель и унитарная концепция права собственности.

Frequently asked questions

What Is a Trust Company?

It is a way to transfer your money or property to another person to manage it according to your wishes and instructions.

How Is a Trust Company Helpful?

It helps to protect assets from creditors, preserve property, manage finances, ensure inheritance and preservation of assets, and further charitable purposes.

Where Can I Register a Trust Company?

The specific registration location depends on your goals and requirements. For example, you can create trust in the USA, UK, UAE, offshore zones, etc. Each jurisdiction may provide different features and benefits for trust companies, so the choice depends on your needs and goals.

Why Is the UAE an Excellent Jurisdiction to Register a Trust Company?

Firstly, the UAE provides favorable conditions for asset management. Secondly, the country guarantees a high level of confidentiality and low or zero tax rates for foreign citizens. In addition, the UAE provides solid legal protection for capital and ensures stable and predictable management of financial assets.

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