x Abu Dhabi, UAEThursday 27 July 2017

Inheritance law in UAE is complicated by contradictions

Inheritance laws related to real property and assets are complicated in the UAE. Residents must understand where they stand, but legal changes are also in order.

'A lawyer must ensure that the client comprehends the lawyer's advice and recommendations." That rule, or one like it, appears in most codes of conduct for legal professionals.

It seems obvious, doesn't it? But I must admit that my best efforts to ensure that my clients understand my advice have sometimes failed, and on one subject in particular. So bear with me while I try to explain why the UAE courts have decided that an important law should apply to marriage and divorce but not to inheritance.

The UAE's Sharia-based Personal Status Law (No. 5 of 2005) covers marriage, divorce and succession. Article 1 says the law applies to non-Emiratis - unless they choose their home-country's law. (It also applies to all Emiratis "except where non-Muslim Emiratis have special rules relating to their specific creed or sect".)

The UAE mandates that Sharia be the primary legal basis for public order, but in matters of inheritance the Sharia courts had planned initially to follow the laws of the deceased's home country. After extensive debate and consultations, however, the Sharia courts decided that on succession, the Article 1 option to not use Sharia should not be available to non-Muslims. This is because in Islam inheritance is clearly structured in the Quran. Ordaining distribution of an estate in a manner contradictory to Sharia as incorporated in the Quran would not be appropriate.

Consider this example: A man dies who bequeathed his estate to his wife and children although his mother is alive, despite the fact that Sharia sets the mother's share at one-eighth of the estate. So the will of the deceased, disinheriting his mother, is in essence contradictory to Sharia and cannot be enforced (unless the mother relinquishes her right to her share).

Inheritance, especially of real property, raises other difficulties in the UAE, too. How assets pass to heirs after the demise of a non-Muslim is covered by two contradictory regulations:

Article 17 (1) of the UAE civil transactions code says "inheritance shall be governed by the law of the deceased at the time of his death". But Article 17 (5) says UAE law "shall apply to wills made by aliens disposing of their real property located in the state."

The position is that UAE courts should respect the terms of a non-Muslim's foreign will, provided it is valid under the laws of the country of which the deceased was a citizen, yet is bound by the laws of the state, or the UAE laws on inheritance.

So the uncertainty continues, largely because the courts have the discretion to apply Sharia when they consider it appropriate. One cannot always rely on the courts to rule as one might expect - or the way that the deceased intended.

This is perhaps why I meet many people, Muslims and others, who attempt to escape the inheritance law by setting up their businesses as Jebel Ali Free Zone (Jafza) companies. These can be used to own property, taking it outside the scope of the inheritance law.

On the first day of this year, Dubai decreed that property cannot be purchased through offshore companies except those registered in Jebel Ali. The decree further says that the Dubai Land Department can permit registration of property only in name of individuals, companies registered onshore in the UAE or in the Jebel Ali offshore jurisdiction. But at a cost of 3 per cent of the price of the property, this can be a very expensive way to get an exemption from UAE inheritance law.

Few homeowners and property investors in the UAE are fully aware of the implications of the laws governing inheritance, especially in relation to property. Certain property-services firms and consultants, not qualified to advise on UAE law, have been sending scary messages warning people against living in the UAE if they haven't drawn up a will. I have received one such email myself and although I am a Muslim, I was frightened by it.

So where can people turn for help? The light at the end of the tunnel could come if efforts are made to acknowledge that a trust can be the best option if it becomes a company under the UAE Companies Act.

True, Sharia is the basis of public order in the UAE, and Sharia scholars may consider a will or a trust to be contradictory to the public order. But judges and lawyers sometimes must tackle, understand and advise on issues outside this mainstream of domestic family law. This is where trusts could be of use, if the law were changed.

Trusts and foundations set up for the ownership and management of assets have not been given their due by jurisdictions in this region. But such investment vehicles can serve a purpose, since a trust can negate the need for a will - thus avoiding probate - and can protect assets and mitigate forced succession.

At present, however, trusts are not among the types of companies recognised under the Companies Act. This means a trust cannot directly own property here. Trusts are, however, available as companies under DIFC Companies Law.

It is not clear how much DIFC trusts are used by individuals and corporations for the purpose of easing inheritance. The jurisdiction of DIFC courts has been extended while the structures and scope of activities beyond the DIFC of companies set up under DIFC laws, and registered in the DIFC, is not yet clear at all.

 

Diana Hamade is an Emirati lawyer and legal consultant. She is the founder of International Advocate Legal Services in Dubai