Planning a DIFC Trust or Foundation for Family Assets: What the Court of Appeal Did and Did Not Decide

As a matter of DIFC law, a family's company shares and property can go into a DIFC trust even where they sit in a country that does not recognise trusts, and a DIFC foundation can hold property on trust for someone else. The DIFC Court of Appeal said so in 2021, interpreting the Trust Law and the Foundations Law on a reference sought by the DIFC Authority. It declined seven of the thirteen questions, including whether a Muslim settlor's transfer into a trust or foundation necessarily engages the federal inheritance rules, so the decision says nothing about whether a structure would survive a Shari'a inheritance claim.

The decision is The Dubai International Financial Centre Authority [2020] DIFC CA 002, given on 13 January 2021 and re-issued on 18 January 2021 under Article 5(B)(1)(b) of the Judicial Authority Law, which Dubai Law No. 2 of 2025 has since superseded. It resolved no dispute. The Court answered in what it called a factual vacuum, which is one reason it refused several questions. Tax is outside this guide.

Can a DIFC trust hold family assets in a country that does not recognise trusts?

Yes, for the purposes of creating the trust. Article 34(1)(d) of the Trust Law requires that the trustee holds property for a beneficiary or a purpose, and the Court held that neither the Article nor the definitions of property and trust property limit where that property is or whether the place recognises trusts. A trustee amenable to DIFC law can be compelled to deal with foreign property according to the trust, and the beneficiaries' rights against it can be enforced in the DIFC even where they cannot be enforced abroad.

The Court then limited its answer: foreign law, and foreign courts' decisions about trust property within their jurisdiction, may affect how the Trust Law applies to that property and whether DIFC orders can be enforced against it. Article 13(2)(b) withholds DIFC validation from a trust of immovable property outside the DIFC that is invalid where it is situated, although that is subject to Articles 14 to 16, and Article 14(1)(a) says a valid DIFC trust is not void because a foreign law does not recognise trusts. No published DIFC decision found applies the two to land abroad, and whether a registry or court there will accept a transfer to a trustee is a question of its own law.

The cards restate the scorecard and the answer on location.

Can a DIFC foundation hold assets on trust for someone else?

Yes. A DIFC foundation is a body corporate with legal personality separate from its founder, and Article 10(3) of the Foundations Law says its property is not held by it upon trust for any other person. The Court held that Article 10(3) is declaratory, not a prohibition: property a foundation holds on trust is not property of the foundation within Article 28, because the foundation has no beneficial ownership of it.

The reasons also mark the difference between the two vehicles. Trust beneficiaries have rights against the trustee in respect of the trust property. A foundation's Qualified Recipients are not beneficiaries: under Article 29(3) they have no right to or interest in its property, only a right to payment under the By-laws or a contract. In argument the DIFC Authority said a foundation's Charter should state that assets it holds on trust are not property of the foundation and are dealt with on the trust's terms. The answer did not depend on that, but it is cheap to adopt.

Can the trust be made Shari'a compliant, and what if the drafting gets it wrong?

Yes, and the Court identified the tools for correcting a mistake. The Trust Law does not itself require Shari'a compliance, but a settlor can choose it. On Question 5 the Court held that where a Shari'a expert is appointed as an advisory trustee under Article 57, the responsible trustee may rely and act on the advice but is not bound to, and must act within the Trust Law, the common law and equity.

On Question 12 the Court held that where a settlor who wanted a compliant trust included a non-compliant term by mistake, it has power in appropriate circumstances to make orders giving effect to the settlor's true intentions, accepting that DIFC law gives effect to the settlor's intention rather than correcting a conflict with Shari'a law. The routes are Article 24, which lets the Court set aside a transfer into trust where the settlor made a mistake without which the transfer would not have been made, serious enough to make a declaration just, Article 25, for a transfer through a fiduciary who failed to weigh relevant considerations or weighed irrelevant ones and would otherwise have acted differently, and Article 40(8)(a), which allows variation to conform to the settlor's intention on clear and convincing evidence that both the intention and the terms were affected by a mistake of fact or law.

Does DIFC public policy stop a settlor who has never been Muslim from using terms that are not Shari'a compliant?

No. Article 9(2)(c) of the Trust Law requires a trust to have a purpose that is lawful, not contrary to public policy in the DIFC and possible to achieve. The Court held that this limit is directed only at the trust's purpose and does not go to whether a person who is not and has never been a Muslim may establish a trust, even with terms that would not be Shari'a compliant had a Muslim established it. The answer is confined to Article 9(2)(c) and says nothing about any law outside the DIFC that may govern the settlor's estate.

What did the Court refuse to say about Shari'a inheritance rules?

It refused to answer Question 9: whether a Muslim's transfer of property to a trust or foundation will necessarily attract Article 361 of the federal Law of Personal Status, as cited in 2021. This guide does not state what federal personal status law now provides. The Court declined to give the DIFC Authority's narrow proposed answer or its longer one, because its jurisdiction is to interpret articles of DIFC laws and each would have been a general statement about how the two Laws interact with the Law of Personal Status.

The refusal was jurisdictional, not a view on the merits. The Trust Law does contain provisions on foreign heirship rights: Article 14(1)(b) says a valid DIFC trust is not void because it defeats rights a foreign law confers by way of heirship, Article 15 says an heirship right conferred by foreign law over a living person's property is not recognised as affecting the ownership of immovable property in the DIFC or movable property anywhere, or as an obligation, and Article 16 bars recognition of a foreign judgment inconsistent with Articles 13 to 15. The Foundations Law matches them, and both define foreign law as any law other than DIFC law. Whether those Articles reach the federal personal status rules is the interaction the Court declined to address. Article 13(2)(c) of each Law, itself subject to Articles 14 to 16, withholds validation from a testamentary disposition invalid under the law of the testator's last domicile. No published DIFC decision found applies these provisions to an inheritance claim. They state what DIFC law will recognise, not what another court will do with assets or people within its reach.

Key takeaway. The 2021 decision gives no answer, in either direction, on whether heirs can undo a transfer into a DIFC trust or foundation. Plan on the basis that the question is open.

Which other questions did the Court decline, and why does that matter?

Because several are questions a family structure meets in practice. On the Court's approach, a question had to concern an Article's meaning and serve a practical purpose, the Court could still decline where an answer would reach many situations better decided case by case, and interpretation does not fill gaps.

Question 11, whether a settlor may be a shareholder or director of the trustee company, was refused because no Article was identified, so the decision neither approves nor forbids a family-controlled trustee company. Questions 6 and 7 left waqf structures to case by case decision, though the Court observed that many waqfs may be capable of recognition. Question 4 concerned clauses for assets a law allows only nationals to hold, and both subject Articles were rewritten by DIFC Laws Amendment Law No. 1 of 2024, enacted on 1 March 2024. Trust Law Article 40(11) now lets a trust provide that terms enabling compliance with a law restricting who may hold such property, by nationality or on related conditions, shall have effect, and Article 40(12) makes such a provision unalterable whether or not the deed calls it irrevocable. Foundations Law Article 19(10) and (11) do the same for a Charter.

Common mistake. Treating a declined question as answered. The DIFC Authority's proposed answers to Questions 4, 6, 7, 8, 9, 10 and 11 appear in the judgment, but the Court adopted none of them.

What is the 2021 Court of Appeal interpretation worth after the 2025 Courts Law?

Its answers stand, but their statutory footing has changed and one point is untested. The reference was made under Article 5(B)(1)(b) of the Judicial Authority Law, which gave an interpretation the same authority as the interpreted legislation. Dubai Law No. 2 of 2025, in the Official Gazette of 14 March 2025, supersedes that Law under Article 43(A) and provides for interpretation requests in Article 17(C)(3), keeping the same authority rule, and Article 18 makes Court of Appeal judgments final and conclusive.

Nothing in the 2025 Law withdraws or revisits the 2021 answers, but nothing addresses interpretations given under the law it replaced, and no published decision found considers whether they keep that authority. The Court in 2021 also left open whether it could depart from an advisory interpretation in a later case. The Trust Law and Foundations Law provisions behind the six answers are unchanged in substance in the current consolidations, both Consolidated Version No. 3 of March 2024, and searches of the Court of Appeal's judgments to 1 September 2026 and the Conflicts of Jurisdiction Tribunal's decisions found no later interpretation request, reconsideration or departure.

The cards restate what the decision is and is not.

What should a settlor decide before any asset moves?

These are planning steps drawn from the decision and the current Laws, not rules the Court laid down.

1. List every asset and where it sits, and take advice on that place's law for land and registered assets before anything moves.
2. Choose between trust and foundation on the difference in rights: trust beneficiaries have rights in respect of the property, Qualified Recipients only a right to payment.
3. If a foundation will also be a trustee, say in its Charter that property it holds on trust is not foundation property and follows the trust's terms.
4. If Shari'a compliance matters, state it in the instrument and appoint a qualified adviser as advisory trustee under Article 57.
5. Keep a dated record of the settlor's intentions at signing, because any later mistake or variation application turns on proving them.
6. Draft any clause for assets reserved to nationals against the current Article 40(11) or 19(10), not a precedent written before March 2024.
7. Treat heirship exposure as unresolved and take advice on the personal status law that may apply to the settlor and each asset.

The decision is easiest to misuse in three ways. One is reading Question 1 as saying foreign land is secure in a DIFC trust, when the Court expressly did not explore the effect of foreign law and foreign courts. Another is reading the refusal of Question 9 as tacit approval of lifetime transfers that cut across the inheritance rules, when it says nothing either way. The third is treating the six answers as frozen, when the Court reserved whether it could depart from them and their statute has been replaced.

Frequently Asked Questions

Is the 2021 Court of Appeal interpretation still binding after Dubai Law No. 2 of 2025? Nothing in the 2025 Law withdraws it, and Article 17(C)(3) now provides for interpretation requests and keeps the rule that an interpretation has the same authority as the interpreted legislation. The 2025 Law does not deal expressly with interpretations given under the Judicial Authority Law it superseded, no published decision found has addressed the point, and in 2021 the Court left open whether it could depart from an advisory interpretation in a later case.

Can a DIFC trust hold land in a country that does not recognise trusts? As a matter of DIFC law, yes: the Court held that trust property under Article 34(1)(d) of the Trust Law can include property located in such a country. Whether the transfer is effective there is a question of that country's law. Article 13(2)(b) withholds DIFC validation from a trust of foreign immovable property that is invalid where it is situated, subject to Articles 14 to 16, and the Court acknowledged that foreign law and foreign courts may affect trust property within their jurisdiction.

Will a DIFC trust or foundation protect family assets from Shari'a inheritance claims? Nothing in the 2021 decision or the two Laws tells you it will. The Court declined Question 9, on whether a Muslim's transfer into a trust or foundation necessarily attracts a provision of the federal Law of Personal Status, as outside its jurisdiction. The Laws' provisions on foreign heirship rights state what DIFC law will recognise, their interaction with federal personal status law is unaddressed, and no published DIFC decision found has applied them to an inheritance claim.

Can a DIFC foundation act as trustee of a family trust? Yes. The Court held that Article 10(3) of the Foundations Law, which says a foundation's property is not held on trust for anyone else, is declaratory and not a prohibition. Property a foundation holds on trust is not property of the foundation within Article 28, because the foundation has no beneficial ownership of it.

What is the difference between a trust beneficiary and a foundation's Qualified Recipient? A beneficiary has rights against the trustee in respect of the trust property. The Court described Qualified Recipients as not beneficiaries: under Article 29(3) of the Foundations Law they have no right to or interest in the foundation's property, only a right to payment under the By-laws or a contract, enforceable by court order within three years of becoming aware of the entitlement, with a later start for minors.

Can a trustee rely on a Shari'a scholar's advice? Yes, within limits, if the scholar is appointed as an advisory trustee under Article 57 of the Trust Law. The Court held the responsible trustee may rely and act on the advice but is not bound to and must act within the Trust Law, the common law and equity, and Article 57(3)(c) protects a trustee who follows it unless the trustee knew or ought to have known the advice was unlawful, contrary to the trust or its duties, or advice no reasonable advisory trustee would give.

What if the trust deed includes a term that is not Shari'a compliant by mistake? The Court held that it has power in appropriate circumstances to make orders giving effect to the settlor's true intentions. The routes are Articles 24 and 25 of the Trust Law, on an application under Article 28 by the settlor or the settlor's personal representatives or successors in title, and Article 40(8)(a), which needs clear and convincing evidence that both the settlor's intention and the terms were affected by a mistake of fact or law.

Which court hears a dispute about a DIFC trust? Under Article 14(A)(4) of Dubai Law No. 2 of 2025 the DIFC Courts have exclusive jurisdiction over claims and applications arising out of or related to trust instruments established or registered in the DIFC, subject to Article 14(C), which lets them decline in two cases, including where the parties agreed in writing on another court. That rule governs the DIFC Courts' jurisdiction. It does not decide how a court elsewhere treats assets located within its own jurisdiction.

This article is for general informational purposes only and does not constitute legal advice. Consult a qualified advocate for advice on your specific situation.

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