08 Jun 2010


Authored by: Mohammed Al Salti and Tarek El-Bakri


Part four in a seies (part one, part two, part three) of questions and answers on Islam, nationality and inheritance considerations in the UAE. The series should be read in its entirety.
Is it possible to distribute an estate among the beneficiaries during one's lifetime while retaining the right to benefit from the estate?
Yes. It is possible to dispose of the assets of an estate during one’s lifetime and to continue to benefit from income that might be generated from the same. Besides inheritance and wills, property may be transferred by sale or gift as well. In this context, it is important to distinguish between real and personal property.

There should be no problem in disposing of this personal property where official formalities and procedures are minimal. As for real property (real estate, for example), a person may implement transfers during his lifetime to the intended beneficiaries while retaining the right to benefit from the property in question. This will require a record in the land/property register of the transfer, as well as a record in the same register of any beneficial rights that are retained by the transferor.
Ownership of interests in companies may also be transferred during the lifetime of the owners, and be subject to special agreements entered into between the transferor(s) and transferees/ beneficiaries regarding how the transferor may continue to benefit from interests in the company.
Transfer may also be in the form of a gift (“Heba”, in Arabic), which requires "handing over" ie, surrender, or passing of possession, as well as the right to benefit from the "gift". It is important to note that a gift is a voluntary legal disposition among the living and it is therefore a contractual bond that, consequently, is subject in form and substance to the laws of the country where the parties reside (if they reside in the same country), or the laws of the country of where the gift was made if the parties reside in different countries, unless the parties agree otherwise or circumstances indicate that the laws of a different country were intended to be applied. This does not apply to real property, in respect of which the law of the place the property is situated will be the applicable law.
Finally, the above actions may be subject to challenge in court by a beneficiary or creditor claiming that the disposal was merely a sham intended to benefit one person to the exclusion of another. The outcome of any such challenge will depend on the application of the law to the particular facts.
How are shares in companies treated under the inheritance rules in the UAE?
Article 274 of the Personal Status Law provides that an estate comprises immediately available property (“Amwal” in Arabic) as well as future rights of the deceased (“Huquq”), such as shares in companies. In other words, shares are treated in the same manner as other forms of property, or Amwal, and may devolve to the beneficiaries upon death.
Article 165 of the Commercial Companies Law No. 8 of 1984 (as amended) provides that upon the transfer of ownership of shares by way of inheritance or will, the beneficiary must request that title to the shares be recorded in the company’s share register. Specific documents are required to perfect this task.
What about joint accounts?
Article 379 of the Commercial Transactions Law provides that two or more individuals may open a joint account and further provides that dealing with and operation of such an account is subject to the agreement of the owners of the account. It also provides that upon the death (or loss of legal capacity) of one of its owners, the remaining owner(s) must inform the bank of such an event within 10 days of the occurrence of the death or loss of legal capacity and the bank is required to block any withdrawals until the court formally determines the distribution of the estate among the beneficiaries. 
The money in a joint account will be regarded as part of the estate and will be divided among the heirs according to the provisions of the law applicable to the estate, which may or may not be Shari’a, depending on the nationality of the deceased.
Based on the declaration of the court, the beneficiaries may access the account to the extent of their legal share in the deceased's estate (as sanctioned by the court), unless any beneficiary is authorised by the other beneficiaries to withdraw more than his share.

Is there inheritance tax in the UAE, and if so, how is it calculated?
No, there are no inheritance taxes under UAE law. However, certain fees and charges may apply to situations where the estate includes assets such as property or shares in a limited liability company.
What law would apply to the estate of a deceased Muslim who bears the nationality of a non-Muslim state, or one that does not apply Islamic Shari’a?
As mentioned earlier in this series, Article 17 of the Civil Code provides that an estate shall be subject to the law of the country of the deceased at the time of his death. This is qualified by the proviso that such "foreign" law does not contravene Islamic Shari’a or public order.
So, for example, foreign law will not be applied if the relevant country's inheritance law restricts inheritance to the elder male or deprives females from the receipt of any part of a deceased's estate, or where the "foreign" law provides for equal distribution of an estate between males and females or deprives a husband or brother from a share of an estate. In such cases, the courts of the UAE would not uphold the foreign law because those provisions directly contravene the inheritance provisions set out in the Holy Quran and other final and agreed rulings of Shari’a.
In such circumstances (where the deceased and beneficiary are Muslim and the inheritance law of the country of the deceased is contrary to Shari’a), the relevant inheritance provisions under UAE law will be applied.