Mastering the Art of Estate Planning: Practical Steps to Securing Your Legacy

Developing an understanding of inheritance law and using the right tools to plan your legacy can prevent family disputes. Here’s how to plan your legacy the way YOU want it, while ensuring full compliance.

You’ve worked your entire life to build a legacy to pass on to the next generation, but how do you ensure that it creates the impact that you want it to? It needs to go into the right hands, in the right proportions, with specific instructions on how to utilise it.

Without proper planning and documentation, things can get messy, and sadly, you won’t be there to settle disputes between your heirs. The distribution of your assets can be subject to intestacy laws if you don’t have a will or wasiat. Taxes will eat into a big chunk of it, leaving your heirs with much less. Assets subject to probate can be tied up in court for months, even years, delaying the inheritance process, and it can be a very expensive and stressful process. If your assets fall under Islamic inheritance laws, the complexities can also leave a lot of room for uncertainties and disputes.

Take matters into your own hands. Understanding the ins and outs of inheritance laws, whether Islamic or civil, will empower you to mitigate these issues before they occur. By providing structure and clarity through proper estate planning, you can safeguard your assets and grow them, minimise disputes, and ensure a fair distribution of wealth.

In the Islamic context, estate planning is the process of managing and distributing one’s assets according to Shariah principles. It involves ensuring that one’s wealth is transferred in a manner that aligns with Islamic teachings on inheritance and wealth management.

Addressing the challenges of Managing Faraid Distribution

While faraid law provides a framework for distributing inheritance, there are practical challenges that can arise, which proper Shariah-compliant estate planning can help address.

Rigidity of fixed shares: The fixed shares specified in faraid may not align with the specific needs of the heirs or the deceased. For example, a man with three daughters and a son faces challenges due to these fixed shares. Proper estate planning can better accommodate individual circumstances within the one-third discretionary portion available in a will (wasiat).
Unfair distribution perception: The unequal distribution of inheritance shares, particularly between female and male heirs can cause uncertainty. Estate planning can help mitigate disputes by ensuring clarity.
Insufficient provision for non-heirs: Non-heirs include dependents or individuals who do not automatically receive a share under faraid, such as adopted children or non-Muslim relatives. Estate planning allows these individuals to receive a share under the one-third discretionary portion.
Complex family structures: Modern families can be more complex than those typically addressed by faraid. Multiple marriages, stepchildren, or blended families can create complications that estate planning can help simplify.
Differing interpretations: Clear estate planning can help reduce misunderstandings and disputes among heirs, which can arise from differing interpretations of faraid or disagreements on asset distribution.
Asset protection and management: Inheritance can sometimes lead to assets being split in ways that reduce their overall value or effectiveness. Trusts and other financial tools, compliant with Shariah, can help in managing and protecting assets.
Estate administration: Proper estate planning can help streamline the estate administration process, ensuring that the estate is settled efficiently while respecting faraid rules.

Embrace growth-oriented investments: Allocate a larger portion of your portfolio towards growth-oriented investments like stocks or equity funds. These have the potential to deliver higher returns over the long term, albeit with increased volatility.

Using the right tools

As the first step in planning your estate, you should engage a qualified Shariah advisor to ensure compliance. Your advisor will help you portion your estate according to the tools mentioned later in this article. They will also advise you on regular reviews and updates to your plan to accommodate your circumstances and legal requirements.

RHB’s Islamic Wealth Management service offers tailored solutions that align with Islamic principles. They provide specialised financial instruments and advisory services that can effectively address estate planning challenges. Bear in mind that this is not some sneaky way of taking advantage of a loophole in faraid, but rather a means to fully utilise the methods afforded under Islamic inheritance law.

Drafting a wasiat

The wasiat allows you to dictate how up to one-third of your estate should be distributed to non-heir beneficiaries, such as adoptive children, charities, or even friends. The remainder of your estate will be distributed under faraid.

Declaring Hibah (gift)

Any portion of your assets can be declared as a gift to any individual or association. It’s a way to transfer ownership of an asset or property, such as a house, cash, jewellery, prized artworks, a business, or even intellectual property. So, in the case of a man with three daughters, he can allocate a fair portion of his wealth through Hibah. The receiver will gain immediate ownership of the gifted assets upon transfer. What’s interesting is that non-Muslims can also use Hibah to plan their estate.

Setting up a Waqf (trust) and using Takaful

Waqf (such as a living trust) can manage and protect assets in accordance with Shariah principles. There is no limit on what can be placed under waqf. Takaful (Islamic insurance) can also be used to protect assets for an agreed period.

Zakat and sadaqah

Charitable giving, such as zakat (mandatory charity) and sadaqah (voluntary charity), is part of estate planning, fulfilling important Islamic obligations and supporting the community.

Executorship and estate administration

An executor, known as wasiy in Arabic, is an individual appointed to manage and execute the estate of the deceased, ensuring the distribution follows Islamic inheritance laws. Their responsibilities include identifying assets and liabilities, paying off debts, distributing inheritance, implementing your wasiat, and handling administrative matters.

Estate administration includes obtaining probate, that grants the authority to administer the estate. The administrator manages the estate’s assets until distribution according to faraid. In case disputes arise among heirs regarding the distribution, the administrator may mediate or involve legal authorities to resolve issues according to Islamic law.

Navigating the intricacies of Islamic inheritance law is not as complicated or intimidating as most people presume. With a little bit of strategic planning, the right tools, and the right advice, you can secure your legacy for the next generation.

Get in touch with RHB Premier today.

Visit www.rhbgroup.com/overview/premier or any of our Premier Centres

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