The IRS is now in the middle of a program of sifting through county records to see if there were unreported gifts in order to go after people according to the Wall Street Journal.

This happens all the time, particularly in immigrant communities and often with poor results.  If you plan to live in the home, whatever the tax result, don’t give away your home, even to your own son.

Under the Islamic Rules of Inheritance, so long as you are not in your last sickness and you are not giving the gift out of a desire to hurt others, you are free to give large gifts during your lifetime.  However giving it away without reporting and when necessary, paying to the Federal government will have consequences.

                          

Here is a link to the event.

                          

An exceprt:

For virtually all families, some sort of tax planning is useful.  In our view however, tax planning will always take a back seat to the rights of the Islamic heirs.  If paying less in taxes means doing an injustice to someone, and paying more means not doing an injustice, you pay more.  Fortunately, most people do not have to make this choice.

for the article, click here

                          

My practice has been dedicated to Estate Planning, and much of that has been with the Muslim community.  I got into this field because there were no “experts” in an area that was a forgotten faridah.  Sure, there were always general practitioners who would use forms from the internet or other sources when they had a case.  However I had learned many of these wills and  trusts ended up causing too many problems and frequently did not follow the Islamic Rules of Inheritance.  Just saying you want “Islamic Inheritance,” the “mawarith,” “irth,” “according to the hanafi school” or even writing down specific shares will not necessarily mean much, or anything to anyone.

Estate Planning is a complex field, its among the most important things a person can do for their family.  For Muslims, its fundamental to Islamic Society.  It demands expertise, at least for people who actually care about their families.

To become a “Specialist” in my field, its necessary to practice law for more then 5 years (10 for me), demonstrate plenty of practice experience, have peer acceptance and pass an exam set up by the Board of Specialization  that would demonstrate a  knowledge in probate, the estate tax, estate planning strategies, business succession planning,  charitable planning, asset protection and other areas that fall under the broad area of “estate planning.”

I will make a few announcements in the coming days and months about my practice, which will make a few major changes.  I plan to move, change my business name and expand my focus on business planning and asset protection.   As many of you know, the law itself is about to make some fundamental changes.  As of this writing the estate tax is still up in the air.   However my website on Islamic Planning, www.planislam.com, my email list and my commitment to the planning concerns of the Muslim community will not change.

                          

In many cases, people simply assume that they took care of everything when they did their trust. Not true.  It does not matter that you have written everything down. What matters, is where you wrote it down. Retirement plan administrators typically have their own forms. They are not obligated to follow anything but what those forms say. If the form says the property goes to a charity, that’s where they go. If a form says it goes to our ex-wife divorced 20 years ago, that’s where the assets go. This particular point has been established by Supreme Court precedent.

Most of the time, married couples name each other as beneficiaries of their retirement plans. While this may be appropriate for a variety of reasons, this does not fulfill the rights of the Islamic heirs under the Islamic rules of inheritance. Therefore, doing such a thing, particularly in isolation, would be inappropriate.

Another option with beneficiary designations as to name the heirs who are entitled to inheritance and give them whatever percentages they are owed. This could also be problematic if such information could become outdated.  Other issues, such as potential creditors may also make such transfers problematic.  I often prefer a “trust-based” solution where trust may be the beneficiary of a retirement plan.

It important to look at the beneficiary designation forms at least once every three years or when major changes have taken place in your life, such as a divorce or death in the family.

                          

Often when people learn about a technique or rule on estate planning (or any other subject that they are largely unfamiliar with) they may assume they are limited in what they can do. The unlimited marital deduction is fairly simple in concept, though it has exceptions and rules associated with it, you can give whatever it is that he wants to the surviving spouse without any gift or estate tax.  Such a rule does not lend itself to complex planning, indeed, if all you want to do is give everything to your surviving spouse, right now or after death, no complicated planning is required.

In the article I cited, I note some exceptions, such as noncitizens, unregistered spouses in the “terminable interest” rule. You should never assume you are forced into doing something the wrong way because of tax reasons. That is not and never has been the case. Tax law can encourage you to do the wrong thing, it will force people to do the wrong thing, except for those people who believe paying taxes is the wrong thing.

The right thing to do is to follow the faridah obligation of Islamic inheritance.  The surviving spouse inherits and to that extent, the unlimited marital deduction is helpful but does not solve all tax problems.  In general, most inheritance goes to people who are not the surviving spouse.

If you have any comments or questions on the unlimited marital deduction, please note them in the comments section.

                          

While it is still possible that Congress will act (there is a debate scheduled this month), there are presently no viable proposals on the table that would continue the status quo, at least with respect to the estate tax. That status quo is that there is no estate tax. The U.S. Treasury is lost billions of dollars already from its absence in 2010..

In 2011, the estate tax rate goes up to 55%-a number that affects everyone who has more than $1 million in their name. This is the state of the law 10 years ago before the Bush tax cuts.
Here is a brief guide on what you should be doing based on where your overall estate is:

Net worth of any amount, no Islamic inheritance plan:

Whether or not there is an estate tax is only relevant when it comes to the type of plan that you will be doing. You will of course need to plan regardless, Islamic Inheritance and are doing the responsible thing is a Faridah. The assumption will be that you have to plan based on current law, which is not a $1 million exemption. However given that there is this obvious uncertainty many families have been holding off on any advanced planning. Don’t hold off, get it done but assume a smaller exemption. Doing so won’t hurt.

Net worth exceeding 3.5 million
While there is a proposal in Congress to have an exemption amount of $5 million, in our view of this is unlikely to occur. If you have an estate that exceeds or is close to $3.5 million you will definitely need to look at integrated or advanced level planning.

We will update this space further as the law develops.  The primary goal of this website is to address justice among American Muslim families.  Taxes is not the main issue, its important to address however.

This post addresses the need for action, not what specific things should be done, other then get help.  However we will be sure to  use this space to provide some ideas from time to time that American Muslim Families may find useful.

I prepared a short video on advanced planning you can view here: