Halal Money Matters
Episode 11: Estate Planning
Halal Money Matters Podcast
Episode 11 – Estate Planning
CHRISTOPHER PATTON: Welcome to Halal Money Matters presented by Saturna Capital. I’m Christopher Patton.
MONEM SALAM: And I’m Monem Salam.
CHRISTOPHER PATTON: Something that came up in one of our Ramadan episodes was this idea of... even if it’s not exactly fun to think about, making sure you have a will and everything you need that goes with it: basically, making a plan for your estate.
MONEM SALAM: Yeah, it’s really important, especially in the life of a Muslim. Your estate can be divvied not according to Islamic values if you don’t do anything about it. It’s an important topic to cover.
CHRISTOPHER PATTON: And there are very specific requirements that are laid out, so it seems like it could be very easy to have it not go your way if you don’t have a specific plan in place.
MONEM SALAM: Yeah, in the Quran there are multiple sayings of the Prophet Muhammad, so yeah, there’s a lot of literature on that.
CHRISTOPHER PATTON: Speaking of literature on that, we have a great guest to help us sort out... what are the obligations? Why is it so important? What can you expect when you’re making an inheritance plan? Yaser Ali. He’s an estate planning attorney from the Phoenix area, specializing in Islamic estates, also author of the book, “Estate Planning for the Muslim Client.”
MONEM SALAM: Really excited to talk to him. Let’s get into this.
MONEM SALAM: So, thanks Yaser, for joining us on the show today. The topic that we’re talking about, for our listeners, is the importance of estate planning, especially when it comes to Muslims in the US. And so, I guess we can start off, and maybe Yaser, you can tell us a little bit about, you know, maybe the differences between—if there are any, I’m sure there are—about regular estate planning versus for Muslims. But then, particularly, for Muslims, why it’s more important, maybe, to do it than maybe if you were doing a regular estate plan.
YASER ALI: First thing: As-salamu alaykum and thanks for having me. It’s always nice to catch up and chat and specifically, today, on the topic of estate planning, which is, you know... what I do professionally is counsel clients around the country—particularly Muslims—on how to develop religiously compliant estate plans. And this is a field I think that, you know, you counsel clients from a financial perspective on thinking about Shariah compliant investing and that’s something that, I think, a lot of Muslims understand on some level. But when we get into estate planning, it’s like a different universe. It’s a different world. People are not very familiar with... what are we talking about? And often, when I introduce myself as an estate planning attorney, people will say, “That’s awesome; I’ll tell my friend.” Thinking, “I don’t need to do this kind of planning.” So, it’s a great place to start. What are we talking about? If you think about it from an Islamic perspective, if we look at any type of subject matter, it’s important to note the definitions. So, when we talk about estate planning, we’re really talking about the planning for the management and transition of wealth. So, not only are we concerned about what happens after I die but also what happens if I become incapacitated? As, you know, modern medicine advances and there is more technology and more scientific advancement, most people don’t tend to die suddenly. And so, we want to think about, “If I become incapacitated, who is going to take care of me and how are my loved ones going to be taken care of? Those that may be dependent upon me: children, parents, etc.”
MONEM SALAM: It’s interesting that you mention that... a lot of clients have a very difficult time with the estate planning process because it’s probably the longest time they’ll ever spend thinking about what happens after they die. For a lot of people, that’s really scary. For myself, having recently gone through it, there’s a lot of thinking you have to do, sometimes uncomfortable thinking. Sometimes there are uncomfortable conversations you have to have with your loved ones. All of those things go into it and make people say, “Yeah, it’s for my friend; it’s not for me.”
YASER ALI: Yeah, absolutely. We see it all the time. Not only that but also, there are some cultural biases, too, particularly within certain immigrant cultures, that many Muslims may come from. And it’s ironic on some level because the Quran constantly emphasizes and reminds us of the reality of death. Kullu nafsin daa’ika till mowt [every soul shall meet death]. And to prepare for death. And the hadith teaches us this. But within our cultures, it’s like... don’t talk about it because it’s going to happen if you talk about it and if we don’t then somehow we will think it’s not going to happen. And so, there is a cultural piece to it, and then... these are real, difficult questions. Who is going to take care of my children? Who is going to take care of my parents, that I might be supporting? Is my spouse going to have enough? What is going to happen in the event of incapacity? In the event of... if I pass away? And then, you know, the other piece to this whole question, with estate planning, is also... a lifetime planning component. So, how are my assets currently owned? And there’s a whole sort of sub-field of estate planning known as asset protection which many of our clients that are physicians or business owners are constantly concerned about. In a litigious society, how do I protect what I have so somebody doesn’t come and take it from me? So, that’s also a dimension or a component of estate planning. Your actual question was, “How does it differ for Muslims?” So, what I talked about is something that everyone should be thinking about. If you’re a parent, you’re naturally going to be worried about your children. If you’re a business owner, you’re worried about protection. If you have anything of any sort—any assets—or if you owe people money, you’re going to want to make sure that you have a plan in place. And we will talk about the components throughout the conversation, inshallah. But that’s universal. Across the board. If I don’t have a plan, the state is going to make one for me and it’s probably not consistent with my wishes. And so, as Muslims, we now have a double sort of dimension, or another reason to do estate planning, which is... Inheritance is actually the only obligation in our entire tradition that is explicitly laid out in the Quran itself. And it’s pretty amazing, if you think about it. The Quran tells us aqimassalaat, aatuz zakat, kutiba alaykum assiyaam [stand up for prayer, give zakat, prescribed for you is fasting]. All of these obligations are mentioned in generalities and you have to open the books of hadith and fiqh to figure out how to actually perform salah, and what to do when you go for hajj, and how much zakat, and what’s zakat eligible, and what’s zakat exempt, and how much percentage on agriculture versus gold. But when it comes to inheritance, it’s actually explicitly detailed in—primarily—in three verses of Sura al-Nisaa [Chapter: The Women]. And it’s something that has tremendous importance when you read those verses and the verses that come after it. So, as Muslims, we have this whole dimension living in America where we have to create a plan in order to ensure that that obligation is accounted for and it’s not going to happen just as a matter of course as it does often in many Muslim majority countries.
CHRISTOPHER PATTON: Do you find that that is commonly known? Is there an educational component there or do people come to you knowing that there is a specific obligation?
YASER ALI: It’s a combination. So, there is, on one level, a massive education gap, which, interestingly is foretold by the Prophet, sallallahu alayhi wa salaam [prayers upon him and peace], in a hadith, in which he says that the knowledge of inheritance law. It’s known within the Shariah as fara id. He says learn and teach inheritance law for verily it’s half of all knowledge. And he says that it’s going to be forgotten. And so, that is absolutely the case today, when we look around the Muslim world or the Muslim communities, you’ll see that people have some vague idea that, “I gotta do it Islamically,” but really don’t have any—for the most part, obviously some people are experts—but for the most part people aren’t really too knowledgeable about what does that mean and what does that look like and how do I implement it here in America, in particular? And also, I think it’s not something that, Monem as you alluded to earlier, it’s just not a pleasant thing for a lot of people to think about and so you don’t hear a lot of jumma khutbas about inheritance law. You don’t have a lot of halaqa and so, it’s normally not front and center on a lot of peoples’ minds.
MONEM SALAM: Another reason why is that you mentioned, earlier, in Muslim countries, as long as your ID card says you’re Muslim, they are going to mostly likely distribute your assets according to Shariah guidelines. So, it’s really like... if you’re learning how to pray. Well, you have to do it individually, so you have to learn how to do it, or how to give zakat: you have to learn how to do it. When you’re distributing an estate, you’re already dead, man. You’re not doing it. So, it’s one of those things where the state comes in and does it, but it makes it even more important in the US because they are not going to do it. I mean they are going to do it, but they’re going to do it according to their own laws.
YASER ALI: According to the state. And that, I think, is absolutely right. Within not just Muslim countries but, in fact, even countries that have large Muslim populations. So, even in India, for example, like you said, if your ID is Muslim, Muslim personal law would apply, even in a country where Muslims are not the majority. And this is really fascinating because no matter how secular the Muslim majority country is, Islamic inheritance law is still the default law in each of those countries. Now, there has been some movements to try and, you know, make some adjustments and modernize some of the rules of things like that, but as a principled matter, Islamic inheritance law applies in all of these countries. So, it’s not... you don’t have to set up a trust if you’re from Syria or you live in Pakistan or you’re in Egypt or Saudi Arabia or, you know, Somalia, or wherever the case may be. It’s just not typically something that you need to do. And then, the other point you mentioned is interesting, too, about, you know... you’re already dead. And I think this is really important. The hadith that I mentioned. One of the things that the scholars mention about that hadith is the Prophet, sallallahu alayhi wa salaam, says that inheritance law is half of all knowledge and when you think about why it’s described as half of all knowledge... partially or one of the explanations is that it impacts so many relationships around you but one of the other explanations is that it’s the only thing that you have to do after you’re dead, whereas everything else you study, you have to apply it in your life. This is the only thing that you’re responsible for when you’re no longer around. And in America, it’s not possible... it’s just not going to happen unless you plan for it. Otherwise, some other default rules will apply.
MONEM SALAM: So, now let’s get into a little bit more specifics, now. I know there’s a hadith of the Prophet—and you’re much more knowledgeable about this than I am—where he says that, you know, a person that has something to bequeath shouldn’t go two nights without having something written on his behalf. So, that kind of brings up the question, you know... I don’t think estate planning is for just those people who have money. It should be for pretty much everybody, right? Those who have anything to bequeath. It could be maybe some person in college, even, or just recently married, or those types of things. So, where do we start with or what do we focus on? Is it everybody has to be treated equally or is it different stages if you’re alive, you have different types of estate planning?
YASER ALI: Yeah. The last part, I think, is probably a good approach for a lot of people. Anyone with any type of wealth. So, when we think about estate planning, we’re thinking about our assets and our liabilities. Now, those words might sound complicated—as does estate planning—but really, it’s planning for your stuff. The stuff that you own and the stuff that you owe to other people. So, whether you’ve got only debts and nothing else or you’ve got, you know, a few hundred dollars to your name, you want to make sure, from an Islamic perspective, that you’re planning for it and the hadith you quoted is a very famous one in that regard. So, I think it’s important to take an approach that, you know, “I have to create a plan that’s applicable to me today and as my wealth grows then that plan can become more and more sophisticated.” Just like the same sort of approach we take in financial planning and other components of our life. It’s not typically something that, you know, we recommend putting off until, you know, you’re older and you’re well established and all of that. Simply because we never know. And so, that’s why a basic plan, I think, is something that everyone should have in place. And a basic plan is not complicated. So, if we want to simplify this for people to understand. What does a basic plan look like? We generally describe three documents that everybody should have. Every adult should have, which is a will, a power of attorney, and a health care directive. So, a will is a simple document. It can be a simple document. It can be much more complex. But a simple document that says, “After I pass away, I name such an such person to be in charge of the administration of my estate and I want to make sure that if I have any minor children... my brother Ahmed is going to be the guardian for them and I want my wealth to be distributed in this manner.” And that, of course, would be consistent with the rules that are laid out in the Quran.
MONEM SALAM: So, I mean I remember, you know, back in the 80s, even late 80s, early 90s, Islamic Society of North America had basically a document that you could get ahold of, print out, fill in your name and then sign it and for some estates that would be good, or you could get it notarized. And I think they still have that but there’s also website you can go to and kind of fill in your information and it just kind of prints out a will for you. Is that something that everybody should consider?
YASER ALI: Yeah, for basic cases I think that’s a good starting point. I think that, you know, we sort of analogize that as the sort of TurboTax model of estate planning. If you don’t have much, it probably works. The more you have, the more, you know, you probably want to go to a CPA for your tax planning. In the same vein, you probably want to go to an attorney who understands Islamic law to do your more complex trust planning and more comprehensive planning for your family. Now, what I will say, though, is it’s really important to understand the limitations of a will. So, almost everybody that contacts us says, “Hey I need to create a will,” not really understanding that a will has certain limitations. I think three of them are worth mentioning for everyone to understand. The first is that even if you have a will, the will has to be submitted to the probate court. And so, the assets would have to go through the probate court process. So, that’s a court. You know, a government court process that most people want to avoid. It’s inefficient, it’s expensive, there’s generally no reason to do it. Regardless of which state you are in. Now, some states like California, it’s a terribly inefficient process. Other states, it’s more streamlined and it’s easier, but to the extent that you can avoid it, I would say most people, you know, will try to avoid it. Muslim or not Muslim, they try to avoid going through probate. That’s the limitation number one. Number two is that it doesn’t cover any assets that are jointly owned. So, if you go to one of these websites, or you go to a lawyer and say, “Write up this really nice Islamic will that calculates who gets what after I die,” the reality is that if you’ve got a home that’s owned between a husband and a wife, it’s going to go 100%, most of the time, to the surviving spouse. Same could be the case if there are other joint tenants or joint owners of that property. So, a lot of people don’t realize that the right of survivorship is going to trump whatever is written in that will and then the same goes for beneficiary designations. So, whether it’s an IRA beneficiary or a life insurance beneficiary, if you’ve got somebody named there, that person is going to receive the wealth directly without the will applying to that. We talked about the will. The power of attorney is for incapacity. So, when I’m no longer able to make decisions, I name my sister Aisha to make financial decisions, to make investment decisions, to be able to, you know, file taxes for me and go to the post office—all kinds of financial management decisions. And then, health care is somewhat, you know, a different topic than our core financial planning, but it’s really, really important. Especially in light of COVID now, where it’s critical that you memorialize end of life wishes and also who is going to be responsible for making those decisions. Fortunately, everybody has heard of disputes arising where, you know, people are supposed to be getting together and praying for the person in their last moments and instead, people are fighting about, you know, who makes the call and what should happen. Unfortunately, that happens a lot nowadays, and so we want to sort of have real good clarity as to who’s in charge and what are my preferences on end-of-life care decisions.
MONEM SALAM: So, you brought up a good point and now, we have kind of maybe talked a little bit about what’s allowed, what’s not allowed, those types of things. I’ve heard people about this idea of joint tenants with rights of survivorship, right? Is that valid? I know that is the default for even pretty much everybody, including Muslims, when they buy their house or open a bank account. Those types of things. Is that something, A. that’s, from an Islamic perspective, okay? And B. something you recommend, even from a conventional perspective? Now, knowing... I realize you’re not a scholar, but very similar to me, we’ve been in the business, we’re practicing enough to kind of give a general answer about yes or no. So, I’m really not looking for a fatwa, just your opinion on that.
YASER ALI: It’s a critical question because, like you said, most everybody that buys a house as a married couple buys it with joint tenancy as a right of survivorship or community property with a right of survivorship. And from an Islamic perspective, the rights of an heir vest when the person passes away. And so, it’s very important to understand within the Muslim family who owns what because my mom and my dad are entitled to one sixth, each, of my wealth, depending upon who else is alive. But in general, if you’ve got children, a spouse, and parents, the parents are going to be entitled to one sixth. The spouse is going to be entitled to either 1/4, 1/2, or 1/8, depending upon husband or wife or whether there’s kids or not. And then, the children are generally—if you’ve got boys and girls—it’s going to be 2:1 among the children. Right? So, the boys would get double. I’m sure we can talk a lot about that. It’s critical that we define, within a married couple, who owns what. So, when we typically start an estate planning conversation, that’s where we start. With who owns what. Now, to your questions about whether the joint tenancy is valid, the joint tenancy itself is valid. The right of survivorship is the piece that is problematic under Islamic law. Right? So, if 100% goes to my spouse, then necessarily we have violated the rights of the people that were entitled to inherit. Now, my wife would, you know, then, could, as an ethical obligation, then distribute the shares to the people that are entitled to inherit, be they my parents, and manage the shares for my kids or our joint kids. So, that often can happen and does happen, but it’s only done as an ethical obligation, not as a legal obligation. And so, where we start with most Muslim couples is to say, “Look, let’s define who owns what and transfer assets into a trust and sort of sever the right of survivorship,” so it’s not going 100% to the survivor. Now, in certain cases there is asset protection considerations that need to be taken into consideration and account, but in general, yes, this is not an Islamic method of owning and transferring property.
MONEM SALAM: So, must from experience, let me kind of throw a scenario out there for you. And this doesn’t only happen in houses. It can happen in IRA beneficiaries, as well. That I’ve had some people come up to me and say, “Well, I’m alive right now. I have these IRA assets. If I designate my wife as beneficiary, I’m doing it in my lifetime. It would be as if I gave a gift.” Or, the same thing with a house, which is, “I’m doing it with my clear mind and body. Right? We are putting it together known that I die that we both owned it and she’s going to get it. I’m doing it while I’m alive. It’s almost like a gift.” Is that not something that’s valid?
YASER ALI: Yeah, so, great question. So, the gifting... So, let’s talk about gifting under Islamic law. Right? So, the rules of Islamic inheritance law only apply on death. And so, what I have upon my death needs to be distributed per the Shariah. And maybe if we take a step back, if you think about, sort of, if we break Islamic financial ethics into three components. The first is how you earn your money. It has to be in a Shariah-compliant manner. And most people understand that. And then, the aspect that you deal with, which is how do we invest our money? That, “I can’t take my halal income and then gamble it away at a casino. I don’t have that discretion. It’s not something that I can do.” And so, how I invest it and how I spend it is something that, you know, we want to be cognizant of and do in a Shariah-compliant manner. And the third component is what happens to my wealth after I die. And again, we just don’t have discretion under the rules of the Quran, that if I want to do something different, the rules are laid out. Now, the way that you can say... the discretion that we do have, or on death we only have up to one third that’s discretionary. But prior to that, you can do whatever you want without violating... without committing zulm or injustice. Right? So, if I’ve got a hundred dollars. I want to give it all away in my lifetime: not a problem. If I want to give all of my wealth to my wife: no problem. Right? I’m allowed to do that. And so, very frequently will come and say, “Look, the wife’s share, under Islamic law is only 1/8. If I’ve got children. And that’s not enough and she needs more, and I want to give her more. And so, I would like to make that one third.” Right? And so that exercise is not allowed. What we generally recommend is, you know, gift during your lifetime. And so, this notion of hiba, which is a gift under Islamic law, is one that we should use and we recommend all the time, but the classical definition of hiba is a gift in which the beneficiary or the recipient takes control. And so now, with these complicated assets, modern financial instruments like retirement accounts, that’s not possible. Right? I can’t actually gift my IRA assets while I’m alive, to another beneficiary. Or my 401(k) assets, without a penalty, right? And so, it’s a little bit... it’s a little bit different now from that type of asset. But with regards to a house, where you can deed it over, we would say that you can gift and you can call it 50/50 ownership, if the husband is the one that’s earning, but the right of survivorship piece, which is like... basically, I gift it to you unless I die first. Or some sort of, you know, conditional... if this comes back to you, otherwise you come back to me, that’s where we get into problematic terms, and that’s sort of the work, also, that scholarly bodies here in the US and in the West, in general, I think need to look closer into. Estate planning and inheritance is an area that, you know, mashallah, there’s been a lot of work in Islamic finance and I don’t think that we’re there yet when it comes to inheritance, at all. And so, looking at sort of the practical application of all of these inheritance questions and looking at the law and how do we bridge these two together is something that, you know, inshallah, hopefully a lot of the scholarly bodies and councils will do in coming terms, inshallah.
MONEM SALAM: That’s true. And just to clarify, you mentioned something about gifting the one third from your estate. My understanding, so we are very clear, is that one third cannot go to a gift to anybody who’s an immediate beneficiary of the other two thirds.
YASER ALI: That’s right.
MONEM SALAM: I can’t one third gift to my wife. Correct?
YASER ALI: Correct, yeah, yeah. This is a great common question. “I’m going to use my one third to enhance the share of my wife or of my daughter’s.” Right? We see that all the time. And so, the hadith of the Prophet, sallallahu alayhi wa salaam, is very clear that you can’t [make a bequest to an inheritor]. So, somebody that’s entitled to inherit from the mandatory shares, which are known as the fara id. You can’t use the one third for that unless all of the other heirs’ consent. So, the one scenario would be... typically, where we see the one third is charitable bequests and building endowments and sustainable institutions. This is what we highly encourage when we think about, you know, long-term sustainability of our organizations and institutions in America. You can do a lot from that one third. But people also use it for grandchildren. People also use it for nieces, nephews, people that they are supporting personally and privately. If just can’t go to the benefit of the heirs that are specific in the Quran, which would effectively be just throwing off the whole framework.
MONEM SALAM: And so, okay, just kind of recapping. So, let’s talk about it. So, a husband and wife come up and the wife is like, “Oh, I only get one 1/8 or 1/4? I’m worth more than that.” And the husband says, “Okay, yeah, maybe that’s not fair.” And your recommendation is let’s start doing something in your lifetime to be able to give that gift away. And what I find is a lot of people are not willing to do that.
YASER ALI: Yeah.
MONEM SALAM: I kind of come back and say, “Well, why are you willing to do it after you die but you’re not willing to do it when you’re alive?”
YASER ALI: Absolutely. It’s very common. But a nuance here that’s really important that a lot of people don’t realize is we can’t also have this conversation without talking about what is community property. So, for those folks that are living on the west coast of the US. And the southwest, from Texas, basically, if you draw an “L” across Arizona and California and Washington and all of these states. These are states that operate under what is known as a community property regime. And basically, community property is a notion of property ownership in which whatever is earned inside of a marriage is presumed to be 50/50 between the couple. So, the marital unit, basically, is the community. And so, if a husband earns $500,000 or a million dollars a year, and a wife is taking care of kids at home, $500,000 of that is presumed to be hers and $500,000 is presumed to be his. Now, this really only matters in the case of death or divorce, is the only time that it comes out in sort of... Where do we need to apply this? It matters in the case of death or divorce. And so, a lot of people are not aware of that, that this is actually the default assumption. The starting point in community property jurisdictions. And on some level, the inverse of this, from an Islamic perspective, generally what a wife earns is hers to keep. And you know, a husband has no claim on the wife’s share. And so, if we take the inverse analogy, which is, the wife is a neurosurgeon and the husband is a stay-at-home dad, and she’s earning the million dollars a year, and he’s earning zero, you know, from an Islamic perspective, when people say, “Hey, the Islamic shares are not fair. It’s not enough.” You know, this would be a situation where we would... most people would look at it and say that’s totally unfair. That the husband who does nothing is now, you know, a 50% owner in the wealth. But it’s based on this notion of, you know, you’re sharing responsibilities and obligations within a marital unit, and so therefore, all the income is going to be 50/50. And so, that’s something really important to think about if we’re talking about a wife gets 1/8. Is it 1/8 of $100 or is it 1/8 of $50, whether he intended to gift it or not. And so, that’s a conversation that we often have, even if he didn’t think he was going go gift it, she is already entitled to that as a matter of state law in most cases.
MONEM SALAM: And where do you lie? Is it 1/8 of $50 or 1/8 of $100?
YASER ALI: I think community property is not an Islamic form of property ownership in principle because of the example I gave, which is because the wife earns...under classical Islamic law... what the wife earns is hers to keep and the husband has no claim on that. But, I think, what’s important to remember is that the idea of—and maybe you could think of it from two different ways—one is this hiba in which the party that’s earning is gifting over to the other spouse. No problem at all with that, and in fact that’s great. Right? They’re supporting one another. And so, whether you take that approach or you take an approach of, you know, the default law within the state and so we’re starting from that perspective. I think the problem with that approach is that it’s a default law, and you’re allowed to opt out of it, as long as the parties consent and understand.
MONEM SALAM: And also, the thing that I kind of tell people is in a scenario where both husband and wife are working, what typically ends up happening is the wife puts all of the money she earns into the joint account and the husband is the one that runs the account. So, then you’re looking at it saying, “I only get 1/8; that’s not really fair.” What I encourage people to do is say, “Well that’s good, but keep your accounts separate.” And whatever you decided to spend on the children or on the household... that’s a gift. That’s not a requirement. And then, if you’re not required to do it, then it goes back to Islamic history, when, for example, you know, Khadija was able to spend it on the dawah of the Prophet, sallallahu alayhi wa salaam, because she had her wealth. So, all of these great Islamic institutions can be built by the support of women because they’re not forced to be able to take care of the household.
YASER ALI: So, I definitely agree, and this is something that we recommend frequently, as well, which is... and it really depends on how a married couple, how they’re coming into the conversation. So, in some cases we have clients who do keep everything separate. They’re both working. They’re two physicians. They both have their separate accounts and they’ve got a joint account and so whatever goes into the joint account is, you know, from the wife’s side, it’s considered a gift. The husband, of course, has financial obligations towards the family in which he has a responsibility to provide for their clothing and their shelter and their food and all of that. But then, upon death, it’s really clean. That the wife’s assets, in the separate account, are going to be distributed to her heirs per the Shariah and from the husband’s side, the same, and then within the joint account, we have, you know, a split of 50/50 assets potentially, that are going to flow into the separate accounts. Or if we are setting up trusts, into the separate trusts. And so, this is definitely something that... whichever approach you take, whether it’s a flat 50/50 or it’s a separate trusts, I think the most important piece from an estate planning perspective is clarity. Right? Because we just... it’s impossible to implement the rules unless you, in your lifetime, have clarity as to ownership of property. And so, it’s an important conversation to start. And I’ll tell you, you know, sometimes those conversations aren’t as pleasant as, maybe, one spouse had envisioned. But it’s an important conversation because letting people argue about it after death, or even worse not fulfilling your religious obligations, which are clearly laid out in the Quran, would be, you know, far more problematic than a little bit of stress, I guess, in your life, to think about these questions.
CHRISTOPHER PATTON: I feel like you partially answered this just now but let’s say you’re somebody who’s finally brought themselves past the reluctance to think about death and they’re coming in to make a plan. What kind of challenges can people expect in that process?
YASER ALI: So, the primary challenge is just getting over the reluctance, like you said, to come in, or to start the conversation. Even if it’s a self-help type of approach, right? It’s just... once you overcome that hurdle, now you have to start thinking about some difficult questions about property ownership, who’s giving up what, what am I going to be able to depend upon, am I going to be able to maintain a certain lifestyle? And in some cases, the answer, frankly, is no. Right? It’s just not possible and so you have to come to terms with that reality as well. And then, obviously, there’s a sense of vulnerability, of, “I don’t know what’s going to happen and even with this plan, I can’t guarantee that everything is going to go perfectly and that everyone is going to get along and things are going to be fully harmonious, but I want to do my part.” Right? And on some level, you know, as Muslims, we do our part and then we have our tawakkul [reliance on Allah] but blindly having tawakkul and saying, “My family is good; they’ll just take care of everything after I’m gone. I’m not going to address it.” That’s sort of more of a hope than a plan and so I think that just, taking the first step is the most challenging for most people.
CHRISTOPHER PATTON: And on the other side of that, do you find that when you work with clients that there is a sense of relief or unburdening that occurs once there’s a plan in place?
YASER ALI: Oh, 100%. Because for most people, they’ve been putting this off for a good chunk of their lifetime. We do have clients, you know, I think if you look at the spectrum of clients, there are going to be clients that are young who maybe recently got married and had their first kid. And so, that’s going to be the first trigger for, “I gotta take care of my child.” So, we do have clients, and those are the smart clients, that start early and that do their planning. But for the most part, this is something that everybody puts off. And so, it’s been on their backburner. Like, COVID for example. When COVID started, at first, I mean the amount of people that sort of rushed to get plans in place was incredible. And then, it sort of shifted as people were sitting at home for longer and longer. More and more of the calls that we were getting were like, “This has been on my to do list for like 15 years or 20 years or 10 years and I never had time and now I’m sitting at home, stuck at home, so might as well check off that box,” right? So, definitely, once people get, you know, the process started, they tend to finish it and they tend to want to finish it. And then, it’s not something you update every day. It’s not a burden. We do recommend clients not unlike yourself, I’m sure you guys recommend that we should have a financial check-up periodically with our clients. Same way with your estate plan. You know, it can go stale. Like, maybe the tax law changes. Maybe the person you named as trustee is no longer alive or you had a falling out with them or they’re not the best suited person to do the job anymore. So, you need to replace them. You have new kids, or somebody passes away. Major life events, basically. Every few years is when we recommend updating. Not necessarily starting from scratch but updating the plan, potentially. Or at least taking a second look at it.
MONEM SALAM: Yeah, that’s a great point and gives a great segue way into my next question which is, you know, appointing somebody as a trustee or an executor on your estate or doing it more of a third-party... a corporation or something like that. What I’ve found with a lot of estate planning is, it’s complicated. And you’re giving a lot of responsibility for somebody to deal with on your behalf and you’re... I mean, it’s not a matter of trust, it’s just a matter of you putting a burden on somebody that might be really complicated. For example, if you do it one way, they might not be invited over for Thanksgiving dinner at certain points. So, what do you recommend? Is it something that you do get your best friend to do? Or is it something that’s better to leave it to a corporate entity?
YASER ALI: In the estate planning practitioner world, they usually say, “If you hate someone, name them as your trustee.” It’s an incredible amount of responsibility and a burden. And that person is subject to all kinds of fiduciary obligations, right? So, they can’t squander the wealth. So, they have this legal duty to invest and manage the assets for the benefit of the beneficiaries. And from a Muslim perspective, there’s a whole other dimension to serving as trustee, which is usurping the rights of an orphan. You look at the first page of Sura al-Nisaa, how strongly that condemnation is laid out in the Quran. It’s a very heavy obligation to name someone as a trustee. And when we eliminate the court from this process then there is much less oversight of that person and so they do have a lot of discretion because nobody is constantly looking over their shoulder. That said, most of our clients name family members as their trustees. And so, I would say, a majority of the clients will name family members as the trustees. In some cases, yes, if you don’t have family members, say, in the US. Or you don’t have people that you feel are well suited, maybe. You don’t trust them. You think their judgement may be compromised in some respects or they’re not mature enough. You know, any number of reasons why if you don’t have someone that you’re close to that you trust, then the alternative is either a private fiduciary which is an individual that’s going to be doing this job, or a corporate trustee which is a bank, a trust company, who can manage the assets, follow your instructions, distribute the wealth to your beneficiaries, under specific conditions and when they meet certain criteria. And also, in certain cases where we want to have asset protection. So, the more distance you create between the beneficiary and their right to make decisions, the more protection that wealth has from the attack of creditors. So, that’s one other reason to use, potentially, corporate trustees. Again, there’s a bit of a tension with Islamic law there, as often we have clients that come in that say, “I don’t want my kid to be able to access this wealth until they’re 45,” you know, and that’s unreasonable, that sort of controlling from the grave. There’s going to be a tension when you, you know, put too many restrictions on the right to withdraw and the right to control, but reasonable restrictions are appropriate as well. You don’t want the opposite result which is when trying to take care of your children, you ruin them by giving them too much, too early, and we’ve all seen examples of, you know, leaving an 18-year-old with a bunch of money. What’s that going to do to their work ethic and to their desire to seek out education and develop a career? They might just squander all of the wealth or harm themselves in the process. So, there’s an important, delicate balance there.
MONEM SALAM: And that’s across the board with pretty much everybody. So, now let’s talk a little bit about, just in modern life but also from a while back, you know, maybe, let’s talk about, for example, the grandkids don’t inherit so you can something from the wasiyat side, the 1/3. How about either foster or adopted children?
YASER ALI: I don’t think you can categorically say that grandkids don’t inherit, but they don’t inherit to the extent that there’s a male child in between.
MONEM SALAM: Correct.
YASER ALI: So, Islamic inheritance law is fascinatingly complex and so, the simple case is usually parents, children, spouse, are going to be the universe of heirs. In some cases, you’ll go higher, ascendants, descendants. If there’s nobody in between. So, grandparents or grandchildren. And you may go lateral as well, to siblings and so on and so forth. But it can go extremely, extremely distant. There will always be people that inherit, whether they are from the first class of those Quranic heirs or more distant, residuary heirs. There will always be a class of people that inherit. Now, certain classes of people don’t inherit, and this sort of Islamic law prioritizes... or you can clearly see from analyzing the rules the preferences to blood relations. And so, foster children, adopted children, do not inherit by right under Islamic law.
MONEM SALAM: And stepchildren as well, I’m assuming.
YASER ALI: Stepchildren, as well. So, it’s one in which blood relations are given priority. Now, that doesn’t mean you can’t support them. Of course, you can do any sort of hiba in your lifetime. You can set up investment accounts for them or UTMA or education accounts or whatever the case may be. And on death, you can leave up to 1/3 for any beneficiary: anybody you want that’s not from the heirs that we already talked about that are entitled to inherit. And that one third could be more or less than their similarly situated, you know, actual child, for example. Right? The real child might get 1/4 but you give 1/3 to an adopted child or a stepchild or a foster child. That’s all allowed because there are no restrictions and also from within the wasiyat, if you have an adopted boy and an adopted girl, the 2:1 ratio doesn’t apply, as well. So, you have discretion within the wasiyat share in how you want to handle it.
MONEM SALAM: I wanted to talk a little bit about some stories. I had one that I want to particularly mention. When I was starting off as a financial advisor, I was living in Dallas at the time. And within the space of about 6 months or so, I had two of my clients whose husbands passed away. And it was a stark contrast between the two. I wanted to kind of share this, then Yaser you can give some feedback as well. This was in Texas, you know, one of them died with a will and the other one died with a trust. Okay? But upon discovery of the will, we realized that they hadn’t notarized the will. The court didn’t accept it. And in the case of the trust, I mean, everything looked okay. So within about a month and a half to two months of the person who died with the trust, everything had been transferred to the wife. The wife was taken care of. The children were on their way. Everything was getting back to some semblance of normal that you can have when your husband or father passes away. On the other one, what was interesting was they had to go to court. It had to go through probate. And one thing that was interesting in the probate was because they realized that they had spent some time abroad... in this particular case in India, the court actually mandated that an advertisement be placed in the city they lived in that said, “Hey, is there anybody that has any living heirs to this person that passed away?” After a couple of months, they came back with no. Then they began to distribute the assets. That whole process took about a year to be able to do. And the entire time, because the wife was a homemaker, a domestic engineer, she wasn’t out there working, and it was a very tumultuous kind of thing. How do we access the money? When do we actually declare the death certificate for the bank so that they don’t freeze the accounts? All of that kind of stuff. It’s really important that not only go 100% with whatever you start, even in your estate planning. Which is... if your state requires a notary then you actually get it done because if you don’t, then everything is as if you never did it in the first place. Any stories that you can share? I don’t know if that’s similar to what you’ve experienced.
YASER ALI: I think, definitely, there are two or three points there that you mentioned that are critical, which is it’s one of the cautionary tales of using self-help, which is... you can create a document but do you meet the state formalities. And, you know, it’s not that hard to determine what the state formalities are. Everybody is pretty adept at Google these days. You know, figure out what needs to be done, whether there’s... in general if there needs to be two witnesses on every will, there needs to be... if you can notarize it, in most cases that’s going to be even better. In some places, some documents require notarization, some require witnesses, some require a combination. Make sure you do it correctly, absolutely. And you know, we do a lot of planning work, sort of the preemptively preventing the disputes and the probate proceedings and such. But we also do the back-end stuff. We do see families, plenty of times, where someone passes away. They had no will. They had no trust. And now they’re like, “What do we do?” And going through probate, especially if you own a business, is often a nightmare. Right? If the husband was a business owner and passes away and only had his name as the sole name on that LLC or that corporation and the wife’s name not even listed there... even in a community property jurisdiction. She’s technically a half-owner. She doesn’t have the right to do anything. She doesn’t have any right to access anything. Often what that ends up leading to is the business slowly starts to crumble and somebody might want to come in and buy the business, but you don’t have the right paperwork in place to do it and it might lead to, like, a fire sale eventually, and so, particularly if you own a business. It’s really critical because the businesses are usually not in both names, from what we see, often. You know. If the husband or the wife is starting it, most of the time they don’t put both names on it. So, that’s a really important thing. We’ve seen examples like that. Really problematic. And then, the same thing, though, goes for the trust. If you create a trust and you don’t update and you don’t fund the trust, so funding the trust is basically going in and naming the trust as beneficiary on, you know, retirement accounts and investment accounts and retitling property and retitling bank accounts and investment accounts into the trust. You effectively go through this whole process and create an empty bucket. And now, you’ve got this really nice empty bucket. The process of transferring the assets is known as funding and that’s where, you know, your clients will call you and say, “Look, I set up a living trust, and I want to make sure my trust is the beneficiary on my accounts.” And so that’s another sort of piece where we see people missing is they’ll do the drafting work but then not actually transfer any of the assets inside. And in that case, you still have to go to probate because everything is still in its original name.
MONEM SALAM: Yeah, so common ones would be your own investment account, a beneficiary on the IRAs, even your bank account, you have to kind of really have to retitle those accounts. Sometimes that’s a new obligation you have to fill out. Other times they’ll go in there and fill out one piece of paper and they’ll change the account number right then and there. But it is a process and people really need to... that’s the completion of it. If you don’t do that last step... it’s like the last mile. If you don’t get that right, it’s as if you never did anything in the first place.
YASER ALI: Yeah, exactly. You will have, you know... if you’re doing a trust, you typically have what’s known as a pour-over will which says, “Anything I own should go to my trust on my death.” That’s a backup sort of half-way. But it’s inefficient. It still goes through probate and so we do want to make sure that, you know, the titling, like you said, the accounts. And think about it this way, you know. The headache or the annoyance that you go through to do this. Right? The extra hours or going back. And you know, often people don’t even remember that they have old retirement accounts from old employers and there’s missing assets in the picture. Like, sometimes people just forget. Oh, by the way, there was this from 20 years ago.
MONEM SALAM: Mhm.
YASER ALI: And so, that type of legwork, doing it yourself... although it may take a little bit of time and it costs money and it’s a sort of a something people don’t enjoy, and generally it’s not like a fun thing to do, imagine how much time and effort and stress you saved your beneficiaries who would otherwise have to do that and who would have to try and contact these institutions and get the proper paperwork in place to do it first. And so, just think about it like a gift. Like, this is something I’m doing to make life easy for my wife and for my husband and for my children and my parents and so on and so forth, as well.
MONEM SALAM: You’re right, it does cost money but I kind of consider it more of a “penny wise, pound foolish”...
YASER ALI: Absolutely.
MONEM SALAM: You’re going to spend some money but it’s going to save you so much more in time, headache, money, whatever it is.
YASER ALI: Time, headache, money, yeah, all of those.
MONEM SALAM: Well, thank you, Yaser, for that. This is one of those topics where even my head is beginning to spin a little bit because we’ve talked about a lot of issues. But I know that there is a lot of information out there and people can contact you, as well to be able to kind of get their act together, especially with estate planning but also just to ask questions about something maybe that they heard but they didn’t quite understand. Now, you’re based in Arizona, but you do nationwide, right?
YASER ALI: Yeah, we’re based in Arizona, live in Phoenix, and we assist clients around the country with global counsel relationships. Estate planning is one of those types of fields where it is jurisdiction specific. And so, if there are clients who need assistance and they’re based in different states, sometimes they come to us with their own attorney or their attorney will contact us, or we will identify local counsel in those jurisdictions, and they’ll assist with different components of the plan. So, to make sure that, like you said, did we meet the state formality requirements? Is there some nuanced tax law? You know, every state is a little bit different, and every state has its own rules and so it’s impossible to know the rules in all 50 jurisdictions. We’re going to try to integrate the Islamic inheritance law with the various trust tools, with the help of the local attorney to make all of that happen, inshallah.
MONEM SALAM: Cool. Thank you so much for your time.
CHRISTOPHER PATTON: Thank you.
YASER ALI: Alright, take care, as-salamu alaykum
MONEM SALAM: Alaikum as-salaam.
DISCLOSURES (read by Christopher Patton):
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