trusts

Other Jurisdictions

Introduction | Origins | The Concept | Deciding on a Trust | Civil Law

Trusts and other Jurisdictions

Oakfield Corporate Services Ltd. is committed to the promotion of the trust concept to the global markets and different systems of law. We are active in the delivery of our corporate philosophy, in the arena of trust services, by making available the flexibility of the trust device not only to other common law jurisdictions, but to jurisdictions where civil law and sharia law prevails. Our professionals are strong advocates of the belief that the trust offers unique flexibility in helping to achieve business solutions and other benefits in circumstances involving: tax planning, avoidance of conspicuous ownership of assets, asset protection, avoidance of forced heirship laws, and in cross border commercial activity, with the use of international trusts.

In doing so, we consider the trust to be an appropriate planning vehicle for assets held by Muslim families.

Waqf System

The trust concept is not entirely unknown to Muslims. The Islamic waqf system bares close resemblance to the idea of an English trust as this system embodies the idea of someone gifting to a third party specific property to be held for the benefit of others. The flexibility of the trust may allow Muslims to achieve many of the same ends by arranging their affairs in a fashion that adheres to Islamic law while holding property for the benefit of others, including charities.

A proper structuring of a trust that adheres to Islamic law requires an understanding of the Islamic faith as enshrined in the Quran and the Sunna. The Quran for Muslims is the ultimate legislative authority, with the Sunna encompassing the words and actions of the Prophet Mohammad, which together form the 2 main pillars of Islamic Jurisprudence.

Structuring the Trust-Practical Considerations

1. The Settlor can appoint an Alim (an Islamic Holy Man) as the Protector of the trust. The general idea of a Protector is to have certain negative or positive powers that relate to the trust property. In practice, where the Settlor chooses an Alim as Protector, it is advisable to state clearly that the powers of the Alim are held in a fiduciary capacity.
2. One alternative is to appoint the Alim as Trustee if one desires a more "hands on approach". Where the principles of unanimity apply, this should ensure that the day-to-day activities of the trusts comply with Sharia law. However, as a matter of practicality, where trusts are administered from an offshore jurisdiction, this could be inconvenient in practice.
3. Another alternative would be for the Trustees to appoint or consult with an Alim in relation to their investment decisions or the exercise of their discretions, an alternative that can effectively be confirmed with a carefully drafted letter of wishes. By way of interest, an analogy to this alternative can be found in the world of Islamic Banking, in which a Sharia Investment Committee is appointed. This committee is made up of Islamic scholars who may also be experts in Islamic banking and financial instruments. The committee's role would be to offer advice on whether certain investment decisions and the choice of financial instruments comply with Sharia law.
4. If the Settlor does not appoint an Alim or a committee, he would still need to prepare a letter of wishes requesting that the Trustees observed the requirements of Sharia in administering the trust.
5. A trust that is designed to follow Islamic law should normally take the form of a number of fixed interests for the various relatives of the Settlor for whom provision is made. In practice, a discretionary trust may not be problematic if the trust is accompanied by a letter of wishes indicating that the devolution of the Settlor's assets follows Sharia principles, so long as the letter is drafted in terms of non-binding guidance.

Other General Considerations - Compliance to Sharia law

Obtaining of Confirmation of Compliance

Muslims could seek prior clearance that the trust arrangement envisaged and its terms, comply with Sharia law. This can be achieved by obtaining approval from an appropriate doctor of Islamic law confirming that the trust is compliant in principle.

Compliant Investments

The determining factor as to whether an investment is Sharia compliant is the type of profit the investment generates. Where the investment generates a pre-determined fixed return, then this profit will be regarded as illegitimate (haram) under Sharia law. An example of haram is usury (riba). Usury is strictly forbidden by the Quran. In western financial institutions, the main incidence of riba is the charging of interest on loans. The concept of interest is regarded as inequitable in Islamic law.

For an investment to be legitimate (halal) there can be no guaranteed return, but instead, the investment must carry with it not only the chance to make a profit but also the risk of loss.

Please contact us and we will be more than pleased to assist you with any questions you may have on establishing a trust.

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