Estate Planning: Living Trusts, Wills, and Preparing for the Inevitable
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Estate Planning: Living Trusts, Wills, and Preparing for the Inevitable
Owaiz Dadabhoy: Thank you again, all, for joining. So, I’ve actually been looking forward to this particular conversation. We’ve been doing these webinars for I think 7 or 8 months. Maybe 7 months now. And I’ve been looking forward to this one for a long time. We had this planned out for this month of the year. We have a couple of speakers here today with us that are going to go through this with us. The reason I’m so interested is it’s an under-talked about topic. It is something I talk about, my colleagues talk about, often times in presentations we make, but we’re not experts, right? We’re just trying to convey to people that the subject of money and Islamic finance doesn’t end at your death. It continues on and what I like to say and tell family and friends or whoever will listen to me, is... you know, say you’re practicing Muslim who’s trying to pray five times a day. You went to Hajj already. You’re fasting 30 days of Ramadan. You’re being good to your parents and to anyone around you. You’re giving your Zakat, right? You’re doing all the things you’re supposed to do. But you did not take care of your will or trust. So, you took care of all of your obligations but not the one that still exists after your death. Right? It’s just as important to take care of those things, as well. You just have to plan for it. But we’ll give you the benefit of the doubt. It might be that you just don’t know this information yet. And that’s what we’re going to try to get to today. It is a weighty topic so we’re going to try to get to as much of it as possible. I have two speakers here with me today. I personally invited them because I have gotten to know some of the work that they do and they’re, you know, very good at speaking, as well, which is also a good thing for webinars like this. So, Yaser Ali is a wealth planning attorney in Tempe, Arizona. He’s the co-author of the American Bar Association’s Practice Guide on Estate Planning for the Muslim Client. He’s a trusted counselor and advisor to business owners and families with all of their corporate, tax, philanthropic, and estate planning needs. Since founding the firm in 2015, Yaser is proud to have planned hundreds of millions of assets for his clients and structured tens of millions in sophisticated charitable gifts. We also Amina Saeed. She’s an attorney in private practice in Illinois. She provides extensive estate and tax planning services to individuals and businesses. She’s been an attorney since 1996 and devotes her practice exclusively to estate and legacy planning. She’s a member of the prestigious American Academy of Estate Planning Attorneys and she’s a member of the National Academy of Elder Law Attorneys and has been appointed to the Illinois State Bar Association’s section on Trust and Estates. She’s admitted to practice law before the Supreme Court of Illinois as well as the US District Court. Amina earned her Bachelor of Arts degree from Loyola University Chicago. Her Juris doctorate, her JD, from Valparaiso University School of Law, and a Master of Laws degree from the John Marshall Law School. She’s married with four children and she tries to balance her spare moments between baseball, field hockey, scouting, and her family’s passion to visit all 62 National Parks. So, hopefully she was able to do some of that during this pandemic as well. So, let’s go ahead and get started. I’m going to first ask Yaser this question. So, tell me about the work you do and your area of expertise, Yaser.
Yaser Ali: As-salamu alaykum. Thanks for having me. It’s an honor to join and to be with all of you. You know, as you mentioned, wealth planning and estate planning... what we do is we’re basically one of the few times you see an attorney when you’re not in trouble. And we think about how to help our clients protect and plan their assets. So that’s during your lifetime in terms of protection of the wealth that you’ve accumulated and then how do you pass that one? Whether that’s in the form of lifetime gifts to others, charitable donations, or upon our death—and all of us at one point or another are going to die—how do we transfer that wealth in an intelligent, efficient, tax-optimized manner? And then layering on top of that, for me, most of my clients are Muslim clients that are looking to overlay Islamic inheritance rules into that plan. So, that’s kind of the crux of what we do, and that intersection of Shariah compliance and then utilizing all the conventional tools that exist to an estate planning attorney to facilitate that process.
Owaiz Dadabhoy: Perfect. And I think that’s why people are listening today, for that very thing. Amina, same question to you. Tell us about the work that you do and your area of expertise. I think we got some of it from your bio.
Amina Saeed: Alright. So, in terms of the work I do...I help people take care of the two most important aspects of their lives: everyone that they love and everything that they own. I’ve been practicing estate planning law for a very long time. I’ve been an attorney for 25 years in Chicago and suburban Illinois and my interest in estate planning developed based on three different experiences that I have had. First, I used to work for a government agency in Chicago where I saw first-hand what happens to children when they’re exposed to the foster care system. You know, if parents pass away, what happens? The children end up in foster care, and from that experience, I realized the importance of parents having a will in place, and short-term guardianships in place, so that, if they do pass away suddenly, that their children will not end up in foster care. Secondly, after 9/11, I took a break from practicing law to join a non-profit organization as its director so that I could be part of our nation’s healing process. I did a lot of community advocacy during that time and I realized that the key to a non-profit organization’s success is having planned giving programs in place. So that for the long-term they can have a vision for the future and develop into a very successful non-profit. So, when I returned to practicing law, I decided estate planning is how I can accomplish both of these goals. Because I want to leave the world a better place and I do that by practicing estate planning in all of its related fields. Our goal at our law firm is to build long-term relationships with each of the families that we serve, and we want to be the trusted advisor for each family when mom and dad are there, when something happens to mom and dad, we want to be there for the children. We do that with estate planning, asset protection, charitable planning, special needs planning, and all the other aspects related to estate planning.
Owaiz Dadabhoy: Yeah, and I think we’re going to get to that, as well. Because, you know, let’s say, myself and my wife, we create a will, a trust, both of them, and something happens to one of us. There is, you know, if I’m working with you, Amina, or with you Yaser, I’m going to be having those conversations. My wife and I are. But upon my death, the children are going to need to be involved and then what happens after that? Really, you’re going to have a long-term experience and relationship with the entire family. So, you know, you had mentioned something, Amina, that during the COVID-19 pandemic, it’s more important than ever to, you know, consider estate planning. What did you mean by that when we were talking?
Amina Saeed: Sure. So, first of all let me explain exactly what estate planning is. A lot of people get nervous when they hear that term and they think, “Oh no, no, I don’t need estate planning. I just need a simple will.” It’s important to understand exactly what that concept means. Estate planning means that you have a plan in place to take care of everyone you love and everything you own. For Muslims, this is a required religious obligation. We are all required to have an estate plan in place. It’s essential, especially during the pandemic, because of the high risk of hospitalization and death across the country. We’re all seeing the tragedies unfold, right? We’re seeing people ending up on ventilators. We’re seeing people dying. Young people dying. Someone has to step in. If a person is sick, if they’re in the hospital, they’re on a ventilator, someone has to step in and make decisions on that sick person’s behalf. If you haven’t decided who will make those decisions for you then depending on the state that you live in, guardianship may be required for someone to step in and take care of your affairs for you and take care of your family on your behalf. That guardianship is the court process where your loved ones have to file a petition in court, ask the judge to appoint a guardian on your behalf. That process is time consuming, it’s costly, and it opens up a person’s private affairs to the court and to public scrutiny. All of that can be easily avoided with proper executed documents. So, a properly drafted estate plan will make sure that you and your loved ones are taken care of. If you get sick, and you pass away, it will include a bunch of different documents. Generally speaking, almost all Americans need the following documents as part of their estate plan, right? So, whether we’re in the pandemic or not, you should have these documents in place. But especially during the pandemic, it is even more important. First of all, you should have a health care power of attorney that identifies who can make health care decisions for you in the event that you cannot make your own health care decisions. It should also identify your wishes regarding organ donation and your wishes regarding life support. What should someone do if you are on a ventilator or if you are on some other form of life support? Secondly, you need to have a HIPPA authorization, which identifies who exactly can have access to your medical records and making sure that your loved ones will have access to your medical records if they ever need them. Without that in place, because of the HIPPA laws, hospitals are going to be very reluctant to share any information with your family.
Owaiz Dadabhoy: Right.
Amina Saeed: Next thing: everybody should have a financial power of attorney to identify who can take care of all of your financial affairs in the event that you can’t take care of your own. You need to have a will to identify who will receive all of your assets in the event that you pass away or at the time that you pass away, I should say. Also, you need the will if you have minor children, because the will is where you identify who will become guardians for your children in the event that you get sick, you pass away, and you can’t take care of your own kids. Who is going to do that for you? It’s important that you make that decision rather than a judge making that decision. If you don’t have it in writing, a judge is going to end up making that decision, and they may not choose the person whom you would have wanted. Now, the other thing that’s important to have in place is beneficiary designations, especially for retirement accounts: IRAs, 401(k)s, 403(b)s, life insurance policies, bank accounts, brokerage accounts, anything that allows you to have the beneficiary designation, you need to make sure it’s up to date. Make sure that all your kids are on there as secondary beneficiaries if you have your spouse as the primary beneficiary. All too often I see people who have a primary beneficiary but then when I ask them, “Who’s your secondary or contingent beneficiary?” they give me a blank look, like huh? What are you talking about? Because it’s never something that was brought up to them. So, it’s important to have that secondary beneficiary.
Owaiz Dadabhoy: I think that’s a great point as well, because even here at Saturna Capital, we do have beneficiary forms that you can select who your primary beneficiary is and then who your secondary beneficiary is. What that really means, in practicality, just to slow it down here and get to the real basics right... Let’s say I have one person as the primary beneficiary and we’re friends. We’re long-term friends. And so, they’re the beneficiary of my bank account. But, you know, we both pass away together... if there was no secondary beneficiary, then it’s not going to be as effective. But let’s say you have a secondary beneficiary. It’s my other friend. So, if one of my friends, the primary beneficiary and I, pass away at the same time, now it’s going to go to the secondary beneficiary. And you can split it up, different percentages. Staying on the basics, Yaser, I want to ask you and really get to something here that, you know I think is... basically the first thing people think about when they think about, you know, coming up with a will or a trust, right? Which one do I need? And why? And I think it might be different for a 20-year-old or a 22-year-old coming out of college and just starting their employment versus somebody that’s 45 versus somebody that’s 80. So, if you could just tell us about that.
Yaser Ali: Yeah. So, Amina mentioned the necessity of having a will. I think that’s something that everyone should have, and it functions in a way that—particularly if you’ve got young children—right? Who’s going to be the guardians of the children? And it says who’s going to be in charge of my estate and how is the wealth going to be distributed? It’s a relatively simple document. What it doesn’t do, and particularly for most of us on the call that are interested in Islamic perspective, of how do I ensure that my wealth passes according to Shariah and the Islamic rules? Now, the challenge of relying on a will is that the will... structurally it’s limited in that it doesn’t cover anything that has a joint ownership with a right of survivorship. So, for most people, they’ve got a house, they’ve got a brokerage account, a bank account. If you’re married you’ve got a husband and wife on it. Something happens to one of you, it’s automatically going to go to the other person, right? With the beneficiary designation that you just alluded to, on the retirement accounts, or different type of... insurance policies or what not, there’s usually beneficiary designations and those pass automatically regardless of what your will says. So, in essence, the contract will trump the will. So, if a person is married and, you know, especially before hajj, a lot of people prepare their wills. It’s customary. And the assumption is that you’ve fulfilled a religious obligation. Well, in reality, you haven’t ensured that the wealth is going to pass according to Shariah because it’s going to go 100% to the surviving spouse. And then they would just have an ethical duty, then, to distribute the wealth further. So, for most people, and to the extent that the will does have an impact and does govern, the other limitation is that the assets have to go through probate. So, there’s this court process where you submit the will to the judge or the county clerk and then they review it. They approve it. And then all the distributions have to be administered through that process, which generally... I mean some states are better than others, but in general it’s an inefficient process. It’s an expensive process. And it’s an avoidable process. And so, for most people, Muslim or not, probate avoidance is one of the reasons they go to an estate planning attorney is they want to ensure that we don’t have to go through the court process. Some people describe probate as like a lawsuit against yourself. It’s totally unnecessary. All of the stuff has to then be, you know, a reporting obligation and such to the court. And then that second piece, like I said, from an Islamic perspective is if we create a trust, which is what I think probably most people that have some savings, some assets, a married couple that are into their career at some point, are probably going to be better suited with a trust. It’s not something just for really rich people anymore, right? It’s a bucket. It’s a tool we utilize to essentially manage assets while we’re alive and so you put your assets inside of the trust, you transfer them, you retitle accounts. You can make the trust a beneficiary. And then everything inside of that trust can be administered the way you want. And so, for Muslims, that means we can embed, within the trust itself, the Islamic inheritance rules that are laid out the Quran explicitly. And you mentioned this at the outset. This is really the only obligation that we’re responsible for after our death. Right? And this is the only obligation that is expressly articulated in the Quran in detail. And so, we can include and embed all of those things within the trust instrument such that, you know, upon our death, this person will be in charge and the assets will be distributed, you know, in this manner and we can provide sub-trusts for the kids to, you know, have their wealth protected until certain ages. We can include charitable provisions in there. So, it’s a very, very versatile, flexible vehicle. I would say almost all of my clients, we do trust planning. There are situations, surely where, you know, a will is adequate, but a trust is almost always going to be the better solution.
Owaiz Dadabhoy: And what is the reason... give us the religious context behind this, right? The urgency of creating a will or a trust. Because when I speak to people, if there’s a room of fifty people and I ask them who has created one of these, I might get 10% of them to raise their hand. It’s really surprising. So, what is the religious reasoning behind this?
Yaser Ali: Yeah, it’s interesting you raise that point. I think, nationwide, I think the statistics show that the majority of people don’t have an estate plan in place. And that’s the general public. Obviously, pre-COVID, I had the fortune of visiting a lot of different Muslim communities, like yourself, and I think 10% is on the high end of the estimate. And it’s ironic because, you know, it’s a religious obligation. And so, the obligation is twofold. You know, there’s the obligation of just protecting your wealth and caring about your family, which you can achieve through estate planning. But then, specifically, you have this obligation of the distribution of your wealth, and why this is so important... if you look at the Quran and particularly almost all of inheritance law is in two versus of the Quran. Verse 11 and 12 of Surah Nisa’a. And there, it reads with fractions. You know, algebra was in part developed or invented to solve Islamic inheritance problems. You know, complex equations of Islamic law. It’s fascinating. That’s of benefit to society at large. And so, it’s impossible for us to fulfill that religious obligation until we make a plan to do so. I mean, it’s possible that the surviving heirs will distribute wealth accordingly but that’s a hope, not a plan, right? That’s just hopefully people will do what they’re supposed to do. And sometimes it happens, and often it doesn’t. But, that’s why we lean towards trusts so much because you can define who gets what and not just who gets what but who owns what. You know? Between a husband and wife, this is not a normal conversation. Like, what’s mine and what’s yours? Right? We’ve just got joint accounts, joint house, joint everything. We just throw it in the joint pile. Well, you know, under Islamic inheritance law, my mom and dad are entitled to a share of my wealth. And so, you know, they’re entitled to 1/6th. And 1/6th of what? Is it 1/6th of 100? Is it 1/6th of 50? Is it 1/6th of something else? If you’ve never had that conversation and never defined it, it would literally be impossible to implement the rule post-death. And so that’s why this stuff is so important. That’s why we prefer to use trusts over wills.
Owaiz Dadabhoy: And attorneys that are familiar with the Shariah compliant or Islamically principled estate planning will ask those questions when, you know, you, the person that needs it, like myself... I did this a few years ago and we went through all of those questions with the local person that handles it here and he asked about, you know, what my wife brought into it, what I brought into it, what we brought in together, and so, you know, what that means later on. Because part of what’s going to happen is if I pass away first, some of the assets need to... my assets need to go to my parents, but if my wife does, her parents are also involved, right? So, that’s why it needs to be really talked about and figured out. So, question for Amina and this is for anyone, not just Muslim folks but anyone. You know, we hear about probate, right? And sometimes you might hear on the news, “This person didn’t have a will or a trust, estate planning...” and so, you know, it went into probate. What does that mean and why do we want to avoid it under all costs?
Amina Saeed: That’s a very good question. So, the probate process is the process that takes place when someone passes away and they had assets that they had not designated properly through a revokable trust as Yaser just explained. So, in most states there is a threshold amount of assets. For example, in Illinois, that threshold amount is $100,000. So, if you pass away with over $100,000 in Illinois, that are probate assets—meaning assets that do not have a beneficiary designation—even if you have a will, you still have to go through the probate court process before your property can be distributed to the heirs. This process is costly, it’s time consuming. If you have real estate, the probate court process will take place in the county where the real estate is located. So, if you have multiple pieces of real estate in various different counties, or if you have, you know, a vacation home in Florida and you live in Illinois, you’re going to go through, or your family is going to go through the probate court process in Illinois and in Florida. So, it takes time. Minimally, the probate process takes a year in Illinois. I think most states it’s the same way, but many states actually take a lot longer. And that’s if the situation is complex. The more there are assets, the more complications there are. If there are disputes between the beneficiaries, that process can take a lot longer. It can take several years. So, most people who we talk to say they don’t want to go through that probate court process. They don’t want their loved ones to have to deal with that. They would rather make sure that they have a revokable trust in place so that they can avoid the probate court process.
Owaiz Dadabhoy: So, that’s a great answer. So, thank you for that. You know, you hear about this sometimes out there in the news, right? A number of years ago, Leona Helmsley. She was like a hotel heiress or something, right? She owed a lot of property and what not. She passed away and she gave a huge amount of money to a cat. Her cat. To take care of that cat. Like, it was an unbelievable fortune that went there. Some people will say, “You know, I don’t like this person in my family. One of my kids has done, you know, on the wrong side, right? Or “This one here, I don’t like the way that they color their hair.” Or whatever it happens to be, so I’m not going to give a portion of my will or my estate to them. So, how are we supposed to handle this in Islam. What are the rulings on how you split money upon your death?
Amina Saeed: Great question. So, Islamically, the shares that apply upon death are set forth in the Quran. Surah Al-Nisa has the provisions regarding distribution to family members at death. Now, you cannot disown somebody who is entitled to inherit from you under the Islamic rules of inheritance. So, if you don’t like the fact that they color their hair purple, or if you don’t like that they drive a car that you don’t like... as long as it’s someone that’s entitled to inherit from you, and they have not disavowed Islam, you cannot disown them. And there are examples I’ve had of clients that come to me and say, “You know, my child married somebody that I don’t approve of. Well, can I disown them?” Well, if the child is a practicing Muslim, no. Just because they married someone that you don’t like doesn’t mean that you can disown them. They have a right to inherit. It’s their haq. It’s their right. It actually takes effect when you’re on your death bed. And the Quran sets forth the shares. It depends on who your family members are at the time that you pass away, what they’re entitled to. Generally speaking, between spouses, if a husband passes away, a wife inherits 1/8th of his assets. If a wife passes away, husband inherits a quarter of her assets. If there is a parent who survives you, your parent is entitled to inherit 1/6 of your assets. Each parent who survives you is entitled to receive 1/6 of your assets. And then, after that, if you have children who survive you then your children are entitled to inherit with sons receiving twice as much as daughters. Those are the very basic rules.
Owaiz Dadabhoy: Yeah.
Amina Saeed: But beyond that, there are more complex rules, and they apply individually based on each person’s situation. So, it’s very important to make sure you talk to someone who understands Islamic inheritance planning to really understand what applies in your specific situation.
Owaiz Dadabhoy: And there is a lot of wisdom, obviously, behind, you know... because it’s in the Quran. It’s told to us by Allah Subhanallah. So, there is wisdom behind the rulings of why somebody is going to get a certain percentage, which moves me to my next question, Yaser. You know, there is the 33% rule, right? So, everyone is supposed to get a percentage, right? The remaining family members that are there that are named are supposed to get a percentage. But there’s... you can take out 33% and you can categorize that for other reasons. Can you give that 33% to any of the people that are already entitled to it? And also, who else can you give it to?
Yaser Ali: Maybe if we took a step back, at the high level of Islamic inherence law. So, you mentioned, Amina mentioned, these are Allah, Subhanallah, these are mandatory shares that are outlined in the Quran. And, you know, in our sort of understanding, in general, people think that what’s mine is mine and I can do what I want with it. And the Quran here says no. Right? It regulates the way you earn your wealth, and it regulates the way that you invest your wealth, right? Which is where you guys come in. And how you spend your wealth. And then, that third component now is upon your death, you, again, don’t have discretion to do what you want. You’re bound by these rules. And as I said earlier, these are the, you know, the Quran talks about fasting and prayer and hajj, but it doesn’t give you the details. The details are found in the books of fiqh and the books of hadith. But when it comes to inheritance, they are detailed in the Quran and that’s what makes it so fascinating to study and learn. So, at a high level, we start off with the first thing that a person is responsible for is the funeral costs and burial costs, right? That comes out first. Now, in most cases the family will support that and take care of that. But that’s something that if I’m planning for, I want to make sure happens. The second thing is debt, right? So, debts that I owe to someone need to be memorialized because within our tradition in particular, the prophet wouldn’t pray for people who had debts outstanding. And so, it’s really, really important, especially in a society where we’re buried in debt, that we have a plan for repayment of debt. When we think about estate planning, we’re only thinking the assets, but we also should be cognizant of the liabilities that we might have. And then, the third part is this wasiyat. And in certain cultures, like, you know, within Arab cultures, when people say, “We need to make a wasiyat,” they’re thinking of a will. But in the fiqh context, a wasiyat refers to a discretionary optional share that you have, which you said is up to a third. And the key is it’s up to a third. You can give up to a third. The rule is you can give that to anybody but not someone who is going to inherit by right from the mandatory share. So, the hadith is very explicit. I can’t make a [bequest] to an [inheritor]. For someone who’s going to inherit. So, in a normal context, it’s parents, children, and spouse, right? The general, close family. But of course, there’s going to be situations where siblings might inherit or grandparents or so on and so forth, but generally we’re talking about parents, children spouse or more distant relatives if they’re entitled to inherit. And I can’t use the wasiyat for them. But what I can do, and what we really highly encourage people to do, is to utilize that for their own Sadaqa Jariyah. So, if you think about the opportunity to build endowments, to fund our institutions in the Muslim community. In America today, we’re at this point where we are shifting from survival and creation now to sustainability. And so, you have the ability to leave up to a third of wealth that is illiquid, generally. Right? Real estate, retirement accounts, stuff you don’t have access to give in your life. Now, upon your death, you can have the ability to donate. Particularly retirement accounts. One of the best type of assets to donate because it’s pre-tax money and if you take out the money, or your beneficiaries take out that money, they’re going to get taxed on it. But if someone... if a charity receives those funds, then there’s no tax that’s due. And so, it’s a very, you know, optimal way to utilize your wasiyat share is to give to, you know, your favorite relief organizations and charities and masjid and learning institutions. And that’s Sadaqa Jariyah. That’s the continuous, perpetual charity or family foundations or endowments that are built even within families. And the last point that I’ll mention on that piece is if a person has... we didn’t talk too much about estate taxes initially, but if a person is particularly high net worth to where the federal estate tax is applicable to them... so, right now that’s above $23 million. That might change under President Elect Biden. It might be cut in half. So, we’ll see what happens. But the amount that you leave to charity doesn’t count. And so, this is another opportunity, rather than paying a 40% tax to the government on state taxes, you have the ability to, you know, donate to charity and that would count as an estate tax deduction as well. So, a really, really valuable tool that is underutilized within our community through this concept of bequests and planned giving through the wasiyat share, which is part of our tradition. So, highly encourage it.
Owaiz Dadabhoy: I think in other communities... so, the Muslim community is relatively young in America, learning some of this stuff. Some of the community knows this, but a lot of it doesn’t. So, you’ll find that somebody very wealthy passes away and they give, you know, $100 million to Stanford University upon their death, right? They give $50 million to Harvard or they give it to March of Dimes or Children’s Hospital or what not. So, this is something we should do as well. And that’s what Yaser is talking about is... we can do that up to 33%. We can’t give a billion dollars to our cat if we have a billion dollars. Not something that’s allowed. You know, just to further inspire people, I don’t know if we mentioned but if you have something to will. If you have something of value to give, we can’t—it’s a religious obligation—for us not to go two nights without having a will, right? So, what I would say is look, if you don’t have one yet, that should be inspiration enough or motivation enough to get started. But for those people that already have a trust or they already have a will and they have not considered the Islamic rules of inheritance... Amina, what can they do at this point? Is that something that you all can review? Can they go back to their counselor who may not be aware of these rules but maybe they can learn about these? What would you do next for somebody like that?
Amina Saeed: They need to get started right away. Don’t wait another day. You need to take action. That’s the only way you’re going to get a plan in place. If you pass away and you do not have a plan in place that you have put together... trust me, you still have an estate plan but it’s not the plan you want. It’s called the law of intestacy and it’s your state’s law that applies. Your state has a default estate plan in place for you that will apply if you pass away without having your own plan in place. It does not incorporate the Islamic rules of inheritance. It does not incorporate any charitable giving. It’s a basic law that will be a different result from what you want. So, if you want a plan in place with Islamic inheritance or whatever provisions you want in place, you need to take action. You need to contact an attorney. Most of estate planning is federal law in nature. However, there is a good chunk of it that is state specific, which means that it’s best to contact an estate planning attorney in your state, someone who understands inheritance planning law and ideally someone who also understands Islamic inheritance planning. And contact them, set up an appointment. We’re getting close to the end of the year. Yesterday, I just received a call from somebody that’s going to end up paying a lot of money in taxes this year unless they get some tax planning in place. We’re helping him do it. It’s not too late. You may have some money that you can save in taxes if you get on the phone, get somebody to talk to you right now, and get the basics of a plan going. Look for an estate planning attorney. You can contact your local bar association for your county and get a referral from them. If you need help, feel free to contact us. If Yaser or I know someone in your state, in your county, if we can’t help, we’ll be happy to refer you to somebody who can help you.
Owaiz Dadabhoy: If people contact me, as well. I know a number of, you know, attorneys that know how to do this throughout the country. But let’s say someone calls you, Yaser, after this, from Little City, Iowa. Right? A very little city there. And they say, “Hey um, can you handle this? I like the way you’re presenting today. I’m going to call Amina next and find out what she has to offer as well. But can you help out with this?” You may not practice in Iowa, so what would you tell somebody in that situation?
Yaser Ali: That’s a good question. I think one that’s on many people’s minds is... you know, you said find someone who knows this stuff and there aren’t that many people that know this stuff, right? And so, but that said, every state is slightly different. There’s some nuance to the law in a particular jurisdiction. Some things are very, sort of meta differences in regard to community property versus separate property. So, those concepts are going to dictate part of the planning. And then there are specific things about rights that a widow might have or, you know, a surviving heir may have under state law that have to be taken into context as well. So, if someone is from a different jurisdiction, we try to co-counsel with attorneys in various jurisdictions in different states, particularly with regards to the local components of their plan. So, if it’s something that we can assist with, you know, we’d be happy to, and if not, I mean as we said, we can try to find other practitioners or work with other practitioners, even ones that aren’t necessarily Muslim or have any knowledge of the rules, just to be able to assist with that planning work.
Owaiz Dadabhoy: So, I have about probably ten more questions and I wish I could ask them, but we have so many questions in the chat group, as well. I’m going to turn to that.
Amina Saeed: Can I just add something to what we were just talking about? I just want to emphasize the importance of talking to an attorney versus going online and downloading documents and just finding a template for a will and filling in the blanks and thinking that you’ve taken care of this responsibility. That is a false sense of security. I would make sure that you do not do that. I discourage people from doing that because you can have a horrible result that comes from that, something that you did not intend but you didn’t really understand what you were doing. You thought you just needed a simple will, so you took care of that and your family isn’t actually protected, doesn’t have everything in place because the things that you really needed were not part of that plan. So, I’d strongly encourage you to see an attorney, don’t just go online and use the template and download some that may or may not make sense in your situation. And that alone will not be your full estate plan. It won’t be the power of attorney documents you need, the guardianship documents you need for your children. It’s really important that you understand the full scope of the documents you really need in your situation.
Yaser Ali: So, I agree, in general, that we don’t change our own oil. We don’t, most of us, right? We’re not doing our own mechanical work for a lot of people. They go to experts to do that. Right? And so, the consequences of not doing that, in this case are far worse than messing up your car, right? It’s messing up your whole family, messing up a lot of stuff. That said, I do think that, like you mentioned, less than 10% of Muslims have any sort of planning. And something is better than nothing in many cases. And so, particularly guardianship of children. If you’re a parent and you’ve got children, you should at least have that in place. Right? If nothing else. And so, we have this free Islamic will template or app that we created that works in simple cases. It has all of the limitations that I described. It doesn’t cover joint property; it doesn’t cover beneficiaries. It still goes to probate. All of those things. But it’s a better-than-nothing solution. And so, if somebody wants to use that as a stopgap before they get to their attorney and before they develop a whole comprehensive plan, a lot of people have found that to be a good sort of in-between. Not necessarily a substitute, but something to get them there, so that’s www.muslim.estate.
Owaiz Dadabhoy: Hey, Yaser. Quick question for you. We’re going to try to get some quick answers from you all on this. These are questions from folks out there. So, somebody says, “If I had a non-Muslim lawyer who really didn’t,” I mean it’s fine to have a non-Muslim lawyer, “but in this case they didn’t know about the Islamic rules of wealth estate planning. If they prepared it, let’s say a long time ago, what sorts of things do I need to do to adapt it from an Islamic standpoint?” is the question.
Yaser Ali: So, I mean, fundamental among those is to make sure that the distribution provisions are consistent with Islamic law, right? And so, you either take that information back to your attorney who drafted the documents and say, “Look, I want to update them in a way that is consistent with Islamic law.” And here’s how I’m going to help you do that. Or you can then either contact somebody who understands those rules or tell your attorney to contact somebody who understands those rules. So, you know, we get this kind of question a lot and it works in different ways. Directly, with a client, or assisting the attorney in, you know, helping re-draft the documents to comply with Shariah.
Owaiz Dadabhoy: Amina, I’ll ask this question and let’s see if you can understand it. Re-listing children as secondary beneficiaries. Right? Instead of, like, if you don’t have any second beneficiaries. Is this appropriate when one has minor children, or do we need a separate document to handle financial affairs of minors.
Amina Saeed: That’s a great question, who ever asked that. When I say, “have a secondary beneficiary, have your children as secondary beneficiaries,” that’s a stopgap measure that’s better than not having a beneficiary, a secondary beneficiary. Let’s say you have your spouse as your primary beneficiary. You’re both out together. You get in a car accident. You’re gone. If you don’t have a second beneficiary, you’re going to end up in probate court. Your assets, whatever that account it, is going to go through probate. So, having your children as secondary beneficiaries at least makes sure that you don’t immediately end up going to probate court. However, if your children are minors and they are the secondary beneficiary. Then, you may still end up having a probate court problem. What happens in those situations is, in many states, this is state specific but, in many states, if you have minor children who are the beneficiaries, then they have to have a guardian appointed. A legally appointed guardian by a court and that person has to go to court on an annual basis until the child turns 18 and make a report to the court.
Owaiz Dadabhoy: That sounds like a lot of work, Amina. And there’s going to be a lot of details behind that. I want to save you for that person, for whoever asked that question, so they can get a little more detail from you. In order to answer some of these other ones, let me ask you this other one. Who are the relatives that can inherit from a person? And another question that’s related: are there rules in Islam regarding how the wealth should be divided? Are we free to make those decisions on our own? I think we already answered that. You’re not allowed to make those decisions on your own except for that 33%. So, who are the relatives, in a short answer, who are they that can inherit from you?
Amina Saeed: That really depends on... that’s a fact-specific question. So, it depends on who your relatives are. You can’t answer that, generally. It depends. Do you have parents surviving? Do you have a spouse? Do you have children? Do you have daughters? Only daughters? Sons and daughters? There are a lot of specifics involved in answering that question. I think we’ve already answered it in a general point of view because we’ve specified the share amounts for parents, for spouses, and for children, but beyond that, it really depends on your specific situation.
Owaiz Dadabhoy: There is an Islamic inheritance calculator online. I don’t know how accurate that is. But if you want to go check that out, you can, and then, still, go see someone to advise you on it. Yaser, how can you set aside money in your lifetime for your spouse so that they don’t it doesn’t come under this ruling where all of it is going to go to these different places and that spouse is not going to get enough. How can you do that while you’re living?
Yaser Ali: That’s, I think, one of the core decisions and conversations, and I see this in the chat, as well. It’s who owns what? Right? And California law as well as all of these community property jurisdictions assumes it’s 50/50 regardless of which spouse is earning it. And that’s a default assumption. So, you can opt out of that default assumption if both spouses want to. What we can’t do is change the fractions, right? The Quranic fractions are unambiguous, clear verses. We can’t say, well, this doesn’t apply anymore. What you have the ability to do is essentially change the pie. Right? So, you can take out the 1/3rd. You can also gift, in your lifetime, no problem. So, I get this question all the time. “An eighth is not enough for my wife. I want to make sure she gets much more than that.” So, we tell them why don’t you gift while you’re alive? And then they say, “Well, I don’t love her that much.” Right? And so that’s obviously not the approach. Now, lifetime gifting, you can buy a house, you can do anything you want in your lifetime and gift your children, gift your daughters, gift your spouse, gift the opposite way. That’s all fine, as long as you’re not intentionally depriving someone or doing injustice to someone. Gifting is a great way. Now, there’s tax consequences to gifts and stuff. I’m not going to get into that now, but you can gift such that you owe nothing on death. And then you have nothing to distribute. You can donate to charity and gift all to your relatives.
Owaiz Dadabhoy: And this is where professionals come in, right? So, in this line of work you have folks like these two attorneys here. And then on the tax side, you have other people and so it makes sense to get people involved like that. Another quick question for you, then and I’ll ask one to Amina. How often should a will or trust be updated?
Yaser Ali: Major life events. Somebody is born. Somebody dies. We just had one yesterday where a guy had shares in a startup that were almost not worth anything when we set up the plan and he called me yesterday and said they got acquired by a company and now they’re worth significantly more than he had anticipated. Right? So, Mashallah to him. That’s not normally the case, right? But any major life event is when you’re going to want to update this stuff.
Owaiz Dadabhoy: Got it. Got it. Alright, Amina. Somebody is asking... they may be moving to another state. Does that affect their will or trust?
Amina Saeed: It can. So, if you move, your documents will still be effective but best practice is to have it reviewed by an attorney in that new state to make sure that it’s in compliance with all state-specific rules.
Owaiz Dadabhoy: Got it. Very good. And Yaser, if this person’s husband passes away and they do not have any sons nor is his father with us anymore, do his sisters and brothers get a share?
Amina Saeed: Alright, so... technical questions. Yeah, so if there’s no male heirs, ascendents or descendants, then it’s going to go to siblings. Basically, the presence of a male child or a male parent/grandparent, lineal ascendent would serve to bar any lateral distributions, so any siblings. To the extent that a person only has daughters and doesn’t have a father or grandfather, something like that, then siblings would inherit. Again, this is one of those things where you have to analyze the situation to understand who is going to inherit. And I guess that makes one point. You know, when we draft trusts, it’s important to say, well okay, how do you determine who’s going to inherit? There are different approaches people take. Some people will just slap a thing on the back and say according to Islamic law, whatever this says. Another approach is to say well okay these are the people who inherit as of today, right? If I were to pass away. And then there’s a mechanism for recalculating within the document. And so, you know, I prefer that type of approach where, you know, at least there’s clarity as of who inherits today and then to the extent someone dies, someone is born, life happens, there’s a concurrent, simultaneous death, that there’s a mechanism for ensuring that it’s always correct.
Owaiz Dadabhoy: There’s also a really good question here which is a real-life issue. So, let’s say you have a $500,000 home. It’s fully paid off. One of the spouses passes away. There’s children, there’s a spouse left, so money has to go to multiple different places. Do you have to sell that home and pay out everything? Or would you be able to try to construct something because they’re coming to you as a professional, you know, beforehand, to be able to make it where everyone can still live in the home and it can be handled in a different way. Amina, how would you handle that?
Amina Saeed: As long as it’s done ahead of time, you can definitely have a plan in place to make sure that everyone’s interests will be protected from the state-specific, from an Islamic law perspective, we talk, we have a conversation with the family, understand what the priorities are, what the goals are, and you can design a trust to make sure that the house will not have to be sold. No one will be put out of their home. And, you know, left without the home, the only home they’ve known for the last twenty years. You don’t want that situation to happen. Without a plan in place, yes that can definitely happen, but with a plan, you structure a trust in a way where a surviving spouse can continue to live in the house but there’s a mechanism in place to make sure that any distributions that need to be made to other beneficiaries can be made.
Owaiz Dadabhoy: One other question came up here. Do stepchildren—I want to get to this because I think this happens quite often—do stepchildren also inherit according to Islamic rules of estate planning.
Amina Saeed: So, inheritance rules are based on relations either by blood or marriage. So, stepchildren wouldn’t inherit by right, adopted children wouldn’t inherit by right. They are allowed to inherit from the wasiyat share, the discretionary share. And the other, important one, is if the relatives are not Muslim, that would also serve as a bar to inheritance from the mandatory share. Again, it’s an important one who are converts, who have Muslim family members who are not Muslim as well.
Owaiz Dadabhoy: First of all, we thank you for your engagement today. You stayed with us the entire time. You know, one of the things that you have to make a decision on is alright... now you have your trust. Amina, Yaser, somebody else helped you with it. And you know, upon your death, who’s going to manage that, right? So, there’s the trustee. And so, in some cases you might say, well, the children are going to be taken care of. My minor children are going to be taken care of by this person. My finances are going to be taken care of by this person. It might be a brother, a friend, or somebody else. They may not have expertise. How do you usually handle this? And Yaser maybe you can answer this, and then Amina, and then we’ll end on that.
Yaser Ali: You have got to trust your trustee. It’s the most important decision you’re going to make. Who are the guardians; who are the trustees? So, that’s something that, you know, it’s part of the counseling process is helping you think through who is best suited. And if you don’t have someone then maybe we go to a corporate trustee, a professional who, that’s their job, right? They know how to do this. As long as the documents are drafted appropriately, then they’re going to implement your wishes.
Owaiz Dadabhoy: How about you, Amina?
Amina Saeed: I would say the exact same thing. So, a trustee... it should be someone that you have 110% trust in. If you don’t have 110% trust in that person, don’t name them as trustee. And you may have someone who you want to name as trustee because you know that they are going to take care of your kids, love your kids, but maybe that person doesn’t have good financial sense. Well, that’s also a problem. You need to make sure that you name someone who has the wherewithal to make sure that they’re doing everything properly and sometimes, in those situations, maybe you divide the roles, so you have someone who has a corporate trustee, who’s in charge of investment-making decisions and then you have somebody else involved as a co-trustee. A family member. So, there are many different options for corporate trustees. You can go to the financial institution where you have investments. For example, for Amana Mutual Funds there is Saturna Trust Company based in Nevada and they provide trustee services for Muslims all over the country. They understand Islamic inheritance law, of course, because of working with Amana. And they also understand, culturally, some of the things that are important to Muslim families, and that’s a difference from having, for example, Fidelity or Schwab serve as your trustee, because they’re not necessarily understand the nuances of cultural issues and Islamic inheritance and Islamic finance issues.
Owaiz Dadabhoy: Well, I thank you both. Thank you for all of those answers. I actually learned a few things as well today. I thought I knew a lot of this, but I learned some new things. Please do reach out to Amina and Yaser or both of them. You can also reach out to me. You can start off with my email address which I put in the chat group, which is firstname.lastname@example.org. Or Oscar Mary David. OMD. So, ask any questions, right? Do you need an attorney somewhere? Do you need a trustee for your living trust? Did you not get one of the questions or the answers to one of the questions? We’d be able to help you with all of those things and we’d appreciate you contacting us anytime. So, until next month, thank you to our speakers in particular to Yaser and Amina. We appreciate you very much. Great to have professionals like you in the Muslim community throughout the United States. Take care everyone. Salam Alaikum, wa rahmatullah [and the mercy of Allah].
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