Islamic estate planning is one of the important structures for a Muslim to ensure that wealth is distributed accordingly. It is a proactive approach to managing your estate in life and ensuring its smooth transition upon your death. Managing assets during a lifetime is crucial to ensuring a fair distribution of assets among the beneficiaries and your loved ones. In this article, we will cover estate planning through the instruments of Hibah and Muslim will.
What is the meaning of estate?
An estate is everything comprising the net worth of an individual, including all movable and immovable assets, not limited to real estate, possessions, financial securities, cash, and other assets that the individual owns or has a controlling interest in.
Estate planning under Shariah law involves structuring inheritance arrangements, hibah (gift) wills, and trusts in accordance with Islamic jurisprudence. This ensures a fair distribution of assets among heirs, adhering to the prescribed shares and guidelines outlined in the Quran.
What is estate planning?
Estate planning is a legal and effective method of making arrangements to dispose of and manage your estate at death through the use of hibah (gifts), wills, trusts, waqaf, charitable foundations and other permitted legal instruments.
Generally, estate planning is important in order to decide how you want your assets to be owned, managed, and distributed. In addition to that, it empowers you to distribute the assets according to your values, priorities, and purpose. It is also a great way to ensure security for your family and/ or beneficiaries and the people you have deemed fit to inherit your assets.
What are the ways for Muslims to plan their estates?
1. Making a hibah (gift) declaration
Hibah is a “gift” from a Donor to family members or other recipients known as “donees”.
Hibah means the giving of ownership of an item to a person without any return; in other words, hibah also means a gift given by a person to another person voluntarily while he or she is still alive.
The Central Bank of Malaysia (Bank Negara Malaysia) issued a policy document that defines hibah as a form of benevolent (tabarru`) contract. The inherent nature of a
Hibah is the unilateral transfer of ownership of a hibah asset from the donor to
the recipient without any consideration.
The act of giving is encouraged in Al-Quran, as stated in Surah Al-Baqarah, Ayat 177:
“.. and gives wealth, in spite of love for it, to relatives, orphans, the needy, the traveler, those who ask [for help], and for freeing slaves.
There are four (4) pillars of Hibah:
1. Donor
2. Donee
3. Gift
4. Offer and acceptance (Sighah: Ijab & Qabul)
Hibah is one of the important instruments used in Islamic wealth management. Hibah occurs when an individual confers a valuable asset on another, during his lifetime without any return.
The practice of giving the hibah is encouraged among the Muslims as it promotes the concept of maqasid of Shari’ah in terms of the protection of wealth as well as strengthening the relationship with one another.
In Malaysia, the Hibah instrument is normally used by Muslims in planning asset distribution to the intended beneficiaries.
In relation to that, hibah can be viewed as an adequate solution to overcome issues concerning the use of fara’id particularly on the aspect that property may be transferred to family members with the terms of the donor’s decision and choice . In addition, hibah is also a transfer of property inter vivos and takes immediate effect after the contract . Thus, the implementation of hibah will not only ensure the distribution of property to the legal beneficiaries is in accordance with donor’s wishes but also to reduce the number of unsolved and complex cases in the distribution of properties through the process of fara’id
2) Drafting a will
Secondly, drafting a will is one way to plan an estate. Muslim wills can be defined as the intention or wish of the testator with regard to the entitlement of the beneficiary to his estate after he passes away.
There are four pillars of a Muslim will. These pillars are:
1. The person who is giving the instructions – is “the testator”
2. The person who is receiving property from the testator – “the beneficiary”
3. Property of the testator: “The Estate”
4. Sighah – “The Offer and Acceptance”
Muslim will can be defined as a person’s will made during his lifetime on his property or benefits to complete something for a purpose of welfare or any purpose permitted, according to Hukum Syarak, after death.
In Section 26 of Selangor-Muslims Will Enactment (State of Selangor) 1999, the limit to a non-heir, i.e., the beneficiary, is one-third of the estate of the testator. This one-third of the estate is a computation after the payment of debts.
However, in practice, it is allowed to leave an estate more than one-third of the testator’s estate, subject to the consent of all the rightful heirs for such distribution.
One of the benefits of a Muslim will is the inclusion of non-beneficiaries in the estate of the deceased.The testator had the right to include his loved ones, such as adopted kids, in the Muslim will.
Conclusion
In conclusion, Islamic estate planning is significant to ensure the smooth distribution of assets among heirs and loved ones. There are a number of instruments for estate management among Muslims. One of those is through hibah instruments that can be done during a lifetime. By managing assets properly during lifetimes, parties can minimize potential disputes among the heirs.
Written by,
Syafiqah Abdul Razak
Partner
syafiqah@legalasa.com
