What is Islamic estate planning and Faraid? How is Islamic estate planning different? How do you properly distribute your assets upon passing to the hereafter?
The final state of planning is for the distribution of wealth according to one’s objectives and wishes upon passing. This is done in accordance to Shariah guidelines based on Faraid. Islamic estate planning involves writing a wasiat, takaful trust creation and estate distribution.
Faraid Law
Faraid is the prescribed portions of entitlement fixed by Shariah to various legal heirs as prescribed by Allah in the Quran.
- Only 1/3rd of the estate in the wasiat can be given as wasiyyah (gift; bequest) with the remainder 2/3rd following Faraid law (unless it is agreed upon by all the Faraid heirs).
- 2/3rd of the estate in the wasiat must be distributed according to Faraid law with male heirs generally receiving 2x the portion of female heirs.
- Male heirs: husband, son, grandson and direct male descendants, father, paternal grandfather, brother, half-brother, nephew, uncle.
- Female heirs: wife, daughter, granddaughter, mother, grandmother, sister, half-sister.
- There are 3 key classification of heirs:
- Quranic heirs: husband, wife, father, mother, grandfather, grandmother, daughter, son’s daughter, sister, half-brother, half-sister
- Residuary heirs: son, father, brother, uncle, etc
- If there are no claimants to the estate or there is a no heir (aka “stopper”) then the portion goes to Baitulmal.
Properties Divided Among Heirs
- Land
- Buildings
- Jewelry
- Investment and insurance
- Livestock
Faraid Entitlement
- Father: 1/6 or 1/6 + residue
- Mother: 1/6 or 1/3
- Husband: 1/4 or 1/2
- Wife: 1/8 or 1/4
- Son: 2:1 or residue
- Daughter: 1/2, 2/3 or 1:2
Examples of Common Basic Faraid Entitlement Distribution
- Deceased with son only:
- Husband: 1/4 or Wife: 1/8
- Father: 1/6
- Mother: 1/6
- Son: residue
- Deceased with both son and daughter:
- Husband: 1/4 or Wife: 1/8
- Father: 1/6
- Mother: 1/6
- Son & daughter: residue in 2:1 ratio
- Deceased with daughter only:
- Husband: 1/4 or Wife: 1/8
- Mother: 1/6
- 1 daughter only: 1/2
- >=2 daughters: 2/3
- Father: 1/6 + residue
Common Islamic Estate Planning Considerations
Matrimonial assets (harta sepencarian) are financial assets that are considered jointly acquired, whether contributing directly or indirectly, during the course of the marriage. It is especially important for a declaration of matrimonial assets to protect the rights of the wife. For example, the proportion of matrimonial assets can be declared as a proportion 50:50 whereby the wife would be entitled to 50% of the matrimonial assets plus her rightful Faraid share. Gifts by way of inheritance, hibah and EPF are not deemed aprt of matrimonial assets.
Wasiyyah (bequest) giving a right of ownership upon death of up to 1/3rd of the estate for the purpose of charity or any other purpose permissible by Islamic law. It is the giving away of property during lifetime but only effective upon death of the giver.
Hibah (gift) is the voluntary giving away of the ownership of an asset with immediate effect. It must be done without any consideration during the lifetime of the giver and encompasses the intention of gifting, the actual gifting, and the receiving of the gift. A common use of hibah is with a takaful policy where a beneficiary is given takaful benefits upon death under a conditional hibah.
Waqf am (general trust) is an endowment made by a Muslim to religious, educational or other charitable cause. A waqf can be setup to provide continued benefit to the needy. Besides a charitable waqf, a waqf khas in the form of a family waqf (family trust) can be setup to make sure that especially female heirs (i.e. daughters and their descendants up to 2 generations) are taken care of. Waqf cannot be sold, given as a gift or inherited.
Islamic Estate Planning Obligations
- Settle all funeral expenses
- Settle all deceased’ debt
- Execute will of the deceased
- Resolve matrimonial asset claims
- Distribution of remaining estate according to Faraid law
Other Estate Planning Concerns
- EPF (KWSP) savings must be distributed according to Faraid law for Muslims. The EPF nominee serves as the executor and administrator.
- Gratuity is not part of the estate but is a payment given to the member or other beneficiaries.
- Pension is not part of the estate but is given to a retired employee and upon passing to the deceased’s spouse.