20/03/2015 SHARIA COMPLIANT TRUSTS: SOME RECENT CASE STUDIES - - PDF document

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SHARI’A COMPLIANT TRUSTS: SOME RECENT CASE STUDIES

Thursday 19 March 2015

STEP Jersey is sponsored by:

Piers Master (Charles Russell Speechlys) Lorraine Wheeler (First Names Group) - Chair

charlesrussellspeechlys.com

Piers Master, Partner

Shari’a compliant trusts Presentation to STEP Jersey 19 March 2015

• “Shari’a compliant trusts” – what do you mean?
• Shari’a succession law
• Shari’a compliant investments
• Is it possible to draft a Shari’a compliant trust?
• Sensitivities

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Introduction

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• Fixed devolution of estates in given shares on death
• Exact distribution depends on relevant school of Islam
• Lifetime gifts – key for the trust practitioner
• “Death illness” / clawback?
• The one third rule

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Shari’a succession law – a very brief summary

• Wife, mother, 2 sons, 3 daughters
• 1000 shares
• Wife receives 1/8th– ie 125 shares
• Mother receives 1/6th – ie 166.6 shares
• Remaining 708.33 shares divided so that each son takes

twice the share of each daughter

• So each son receives 2/7ths of the 708.33 ie 202.38
• Each daughter receives 1/7th of the 708.33 ie 101.19

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Example of typical succession rules

• Must take local advice – law and practice varies
• UAE: Civil Code takes priority over Shari’a jurisprudence
• Saudi Arabia: purely applies Shari’a jurisprudence
• Do the local courts have jurisdiction to entertain a claim

from disappointed heirs?

• Typically yes in the case of nationals of that state, and in respect
• f real property there
• But practice varies

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Succession – some further points

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• Trust which automatically distributes in fixed Shari’a shares on death
• Yes
• Can be prepared – how useful in succession terms
• Value for locally held assets
• Investment provisions (discussed later)
• Revocable trust
• No
• May protect the trust assets themselves from a claim on death
• Anti-firewall legislation can help
• But risk of “abatement” of local assets on death
• The one-third rule
• Irrevocable discretionary trust
• If correctly drafted, possibly yes
• But residual uncertainty may remain

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What might a Shari’a compliant trust look like?

• Local courts claim that assets still owned by deceased

(settlor)

• Resulting in claim
• Either assets in trust themselves (unlikely – firewall etc)
• Or that because “trust” assets still owned by the

deceased, they should be taken into account in calculating the entitlement of the Shari’a heirs to local assets

• So – always ask about value and location of your client’s

assets, including those staying OUTSIDE the trust structure

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Why is it important? Abatement

• Three key conditions
• offer
• acceptance
• receipt
• Death illness period
• If a gift is properly made and completed before the death illness

period, it will not form part of the donor’s estate required to be distributed in accordance with the Shari’a inheritance rules.

• If the gift was made during the death illness period of the donor, it is

considered part of the donor’s will and not as a lifetime gift.

• Factors vitiating gifts
• Gift being reversible (revocable or “temporary”)
• Donee being unable to accept gift (eg bar on foreign ownership)

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Lifetime gifts – the key to understanding trusts

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• Vital to take local (Middle East advice)
• But two key principles
• The gift into trust must be valid
• The terms of the trust should not confer too much control
• n the donor/settlor

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Applying lifetime gift rules to trusts

• The “Heba” rules
• Donor must have capacity
• What is meant by “capacity”?
• Make sure the gift is properly documented
• Property should vest in trustees (avoid nomineeship) – an

actual transfer

• Gifts made in “death illness” period can be clawed back

especially if they exceed one third of the estate

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Validity of gift into trust

• Terms of trust important
• Donor cannot have automatic right to benefit
• So discretionary trust good
• Donor should not have power to revoke trust
• Be very careful about Protector / Appointor powers
• Consider Protector Committee / Trust Committee
• The control vs influence debate

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Too much control by the donor?

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• Saudi resident / national settlor holds shares in Jersey

company holding UK real property

• He transfers these shares to the trustees of a Jersey trust
• Is there a risk of a challenge in the Saudi courts if:
• The trust is revocable?
• Settlor holds Jersey co shares as nominee for the Trustees?
• The Settlor has power to appoint and remove trustees?
• The Settlor sits on a Protector Committee consisting of three

members, the Settlor plus two unrelated professionals, and that Committee has power to appoint and remove Trustees?

• The trust deed is silent as to what happens at the end of the trust

period?

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Example (1)

• Saudi resident / national settlor holds shares in Jersey

company holding UK real property

• He transfers these shares to a private trust company

(PTC) which acts as trustee of several family trusts

• The shares in the PTC are held by the trustees of a Jersey

purpose trust

• Is there a risk of a challenge in the Saudi courts if:
• The Settlor is a director of the PTC?
• The Settlor is the Enforcer of the Purpose Trust?

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Example (2)

• For full compliance, the permitted investment strategy of a

trust must be Sharia’ compliant in terms of which types of investments are allowed.

• Examples of investments which must be avoided:
• gambling
• alcohol manufacturing
• trading and any investment that involves usury (e.g. conventional

banking/financing)

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Shari’a compliant investments?

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• The Chancellor delivered his Budget yesterday, 18 March
• Key points of interest to trust / private client practitioners

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Budget update

• Piers Master
• +44 (0)20 7203 5352
• piers.master@crsblaw.com

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Any questions?

charlesrussellspeechlys.com

Charles Russell Speechlys LLP is a limited liability partnership registered in England and Wales, registered number OC311850, and is authorised and regulated by the Solicitors Regulation Authority. Charles Russell Speechlys LLP is also licensed by the Qatar Financial Centre Authority in respect of its branch office in Doha. Any reference to a partner in relation to Charles Russell Speechlys LLP is to a member of Charles Russell Speechlys LLP or an employee with equivalent standing and qualifications. A list of members and o f non-members who are described as partners, is available for inspection at the registered office, 5 Fleet Place, London. EC4M 7RD.

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THANK YOU FOR YOUR ATTENDANCE

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