Estate Planning for Muslim



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Under the blood relationship, if the deceased have heirs to the estate such as surviving parents, children and even siblings, therefore they can inherit a portion of the estate. Of course if the deceased is married to a Muslim, the estate also goes to the surviving spouse, but if all attempts to locate the heir fails, than the unclaimed estate shall be given to the Baitul-Mal. The unfortunate assumption made by a lot of Muslims is, there is no necessity to do estate planning since their wealth is already covered under the Faraid distribution.

That presumption is obviously incorrect because under the Probate & Administration Act 1959 (revised 1972) all deceased estates are required by court to file in for probate. In that case, a Muslim who has
predeceased, will have all his/her assets be frozen pending for probate approval even if they have a Wasiat, or else a lengthy process of applying for a letter of administration will take place. Without proper planning, assets of the deceased shall remain frozen until an executor or administrator is appointed. Not only that, while estates are intestate, two sureties are also required. As you Trust would realised by now, the same probate and administration applies to Muslims too.

With the growing numbers of Muslim high net worth in the country, wealth planning becomes more complex with mixtures of assets in local and global equities, real estates, joint shareholders in a number of compa- nies, etc. With such wealth complexi- ties, there is a demand for proper Islamic Estate Planning to preserve and protect the wealth for genera- tions to come.

Introduction to Islamic Estate Planning:-

Wasiat

Wasiat or Islamic will writing is very similar to conventional will writing. The main objectives of having a Wasiat is to reduce the probate time and making distribution more effective whereby heirs of estate will have to respect the instructions laid out in the Wasiat. Appointment of executors (wasi), trustees and guardians in a Wasiat are part of the planning to protect the interest of minors and incapable members of family. In Wasiat, the Muslim can only gift away 1/3 of assets to heirs and non-heirs of the family under the Muslim will (Selangor) Enactment 1999, Section 26(2). Non-heirs are also refers to children of family whose heir have already passed away, not immediate heirs, charity and non-Muslim relatives. The rest will have to follow the Faraid laws, unless the testator (person who wrote the Wasiat) manage to get approval from all the Faraid heirs to agree on his Wasiat distribution. The main tasks of the appointed execu- tors are to settle funeral expenses, debts, claims on Harta Sepencarian and the distributions by Faraid laws.

Hibah

Another popular Islamic estate planning tool is Hibah, it can be done during the lifetime of the donor with certain conditions addressed in the Hibah or by giving away perpetually. There are two concepts called Umra or Ruqba, the asset is only to be transferred when the donor iss deceased, while in Ruqba either ways applies, the transfer to the donee can be revised upon death and revert back to the donor who is still alive which usually applies mainly in businesses where non heirs are joint owners in the business or assets and same goes to the case of adopted children and Muslim converts. Hibah is not subjected to Probate and Administration Act, however it is commonly used in business insurance planning to reduce the complexity of Faraid distributions. In this context, the business enterprise may have heirs

and non-heirs as shareholders therefore, Hibah can be applied for business succession planning to minimize disruptions to transfer to the rightful owners and compensation to heirs of deceased by insurance claims. As Muslims, no insurance nominees can be named but with Hibah, the policyholder can chose to nominate the beneficiaries.

Wakaf

It is an irrevocable dedication/gift made expressively in charity for purpose of acquiring merit in the eyes of Allah. There are two types of Wakaf (sighah), direct wakaf and conditional wakaf. Under conditional wakaf, certain requirements have to be met before the gift can be delivered.

Islamic trust

Islamic trust takes effect immediately upon execution of trust deed and will not be subjected to Faraid upon death. Also known as living trust, it is the creditor’s proof and the beneficia- ries rights to be protected and secured. Due to the trust which takes effect immediately, the creator of the trust will have no ownership except the trustee through the trust deed created in his lifetime. The most appropriate trustee would be the private trust company and not an individual/person for perpetuity reasons. The duration of the trust will depend on the asset in the trust and also the number of years the trust was set up for. By forming a trust, the owner shall have full confidentiality to who the beneficiaries are and the general public strictly have no access to the details of the assets. There is also another trust which only takes effect upon death which is the testamentary trust. This trust is similar to the Wasiat and will only give away 1/3 of the estate, however, if more than 1/3 of the estate is to be given to certain heir, than consensus from other heirs must be approved before the trust can be effective. (Section 26(2) Muslim will (Selangor Enactment) 1999. Testamentary trust are subjected to probate and administration laws and not creditors proof.

Another popular trust among wealthy Muslims is charitable trust. Certain assets of the Muslim client shall be formed into a trust for the purpose of charity. The different types of charities are usually for orphanages, education for the poor and single mothers. The trust shall be managed by a trust company and it’s functions shall be spelled out in the trust deeds.

Harta Sepencarian

This planning refers to a married Muslim couple whereby during their lifetime both parties have contributed either directly or indirectly towards the acquisition of such property. The form of contribution can be define as either directly in terms of monetary and indirectly by providing family support such as love, care, welfare for the home, etc. The only way which the assets do not fall under Harta Sepencarian are by receiving an inheritance or receiving a Hibah while they are still alive. The main advantages of Harta Sepencarian are to allow both spouses to agree upon the distribution during the lifetime, rights of both spouses to be protected, avoiding legal suits and hasten the distribution process.

With the increasing number of wealthy Muslim individuals, the estate becomes more complex and will require better estate planning to minimise time for distribution, peace of mind and protection of wealth from squandering heirs. There is also an increasing need of awareness among Muslim converts on how to distribute the wealth among Muslim and non-muslim relatives. Failing to plan, will leave non-heirs of Muslim converts with no access to the assets. Even worst if they do not have any Faraid heirs, it will then goes to the Baitul-mal. Why deprived your loved ones from inheriting part of your wealth? And how would you answer to the Almighty on the day of judgement for failing to provide enough? Please seek advice from your trusted financial planner to give you a complete solution to your estate planning today.

 

 

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