There is increasing interest in the Middle East in structures designed to ensure that family wealth remains available for the benefit of future generations.

A trust structure is a useful vehicle for this purpose and, with the long established use of the Islamic waqf, general trust principles are not an alien concept under Islamic law.

A waqf is an inalienable religious endowment in Islam, typically devoting a building or plot of land for Muslim religious or charitable purposes.

The Islamic waqf system is conceptually similar to the common law trust, with the idea of someone gifting to a third party specific property to be held for the benefit of others.

Muslims may be able to use a trust to achieve many of the same ends, since the flexibility of the trust allows adherence to Islamic law and the holding of property for the benefit of others, including charities.

When drafting a Shari'a compliant trust, the Islamic rules of inheritance and the restrictions on investment have to be the primary focus.

Islamic inheritance rules provide a formula for the division of property that is regarded as having been divinely revealed, and is designed to prevent the familial strife that may result from mere human calculation.

Restrictions on investment provide that a Muslim is not allowed to benefit from lending money or receiving money from someone.

As far as creating a trust is concerned there would appear to be no restriction under Shari'a law in relation to lifetime gifts, but on death The Qur'an sets out precise rules for the division of inheritance.

Surviving relatives of the deceased are grouped into an order of preference based on class and degree of strength of blood relationship.

Rights accrue to the legal heirs of the deceased by the operation of law.

A settlor who wants to create a Shari'a compliant trust will require a trust that provides that on the death of the settlor the trust fund is paid to the settlor's heirs under Shari'a law in the proportions set out in the Qur'an.

The division of an estate follows a two-step process in which the qualifying "sharers" take their Qur'anic entitlements, and then the closest surviving agnate (a relative whose kinship is traceable exclusively through males) inherits whatever remains.

For example, if a man dies leaving his wife, one son, two daughters, and two brothers, the wife inherits one-eighth of the estate as a "sharer" and the children inherit the remaining seven-eighths of the estate according to the Qur'anic principle, "the share of a male is equal to that of two females".

Thus, the son inherits seven-sixteenths of the estate while each daughter inherits seven-thirty-seconds of the estate.

As the closest surviving agnates, the sons and daughters totally exclude the decedent's brothers from the inheritance.

If the dominant motive of the settlor is to preserve assets for the benefit of future generations, whilst nevertheless having regard to the Shari'a inheritance proportions, then the most useful vehicle is likely to be a fully discretionary trust.

Careful attention must also be paid to how a Shari'a compliant trust is administered in respect of investment policy. Central to Islamic finance is the belief that money itself has no intrinsic value; it is simply a medium of exchange.

Each unit is 100 percent equal in value to another unit of the same denomination and one is not allowed to make a profit by exchanging cash with another person.

The key to identifying whether an investment is Shari'a compliant is the type of profit that the investment generates.

Where the investment generates a pre-determined fixed return, then this profit will be regarded as illegitimate (haram) under Shari'a law.

The most important example of haram is usury (earning interest) or riba. The Qur'an strictly forbids Riba.

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. There are formidable economic reasons for arguing that the very idea of an obligation to pay interest in relation to business activity that is, by its very nature uncertain, is economically unjust.

A businessman is forced to pay interest regardless of whether or not he makes a profit. The inflexibility of the interest based system results in bankruptcies and inflation.

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

Any profit made from such investment is regarded as halal and therefore Shari'a compliant.

Trust practitioners and service providers who are looking at the Middle East for potential business are now finding themselves being asked whether they can provide a Shari'a compliant trust. This article summarises a number of important principles and the practical consequences for preparing trusts for Muslim settlors.

Shari'a law is a complex area, and clearly special care needs to be taken in particular cases to ensure that all relevant formalities are complied with.

Attorney Leah K. Scott is a member of the Trusts Practice Group of Appleby. This column is available on the firm's website at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.