Islamic Inheritance Step 6: Funding

Address Everything

The process of “funding” involves making sure that your assets will be moved based on your overall plan. You can write it down in the best documents in the world; however, anyone planning inheritance without addressing how their property is organized will simply be frustrating their own intent.

Virtually every single piece of property will need to be addressed in some way during this process. There are two goals when working on the issue of “funding.”

All probate property is owned by the trust so that there is no longer any probate property. And, this property can be properly distributed to the people who are entitled to inheritance under the Islamic rules of inheritance.
For property that is “beneficiary designated” it is necessary to make sure that the beneficiary designations are in accord with the Islamic rules of inheritance. Frequently, this will mean naming a trust as the beneficiary.

Deed to home

Any home held as “to joint owners with right of survivorship” or any other method of ownership will have to be changed. The deed gives the property right back to the owners, as trustees for the owner’s own trust. This will enable a successor trustee to transfer the property without much trouble. This change in ownership is going to have to be recorded at the county in which the home is located.

Home Mortgage

One concern that many people have is that the mortgage contains a “to do on sale” clause that will cause the entire mortgage balance to be due immediately with the transfer of the deed. However, for a personal residence, a federal law protects families from getting a large bill when you transfer property over to a trust. For other types of property, it may be necessary to make other arrangements.

Business Entities

The process may involve creating assignments or reissuing shares of stock and making sure appropriate corporate records are kept so the specific plan is implemented.

Beneficiary Designations

Life Insurance

This series does not address the Islamic (halal or haram) issues present in life insurance and addresses it as an asset that must be inherited.

For many families, naming the revocable trust is appropriate if the beneficiaries of the trust are all the people who are entitled to inheritance under the Islamic rules of inheritance. Naming the surviving spouse rarely is, since that causes an injustice to other family members.

Depending on the tax planning needs of the family doing the inheritance, there may be a need to create one or more irrevocable trusts to legally move the asset outside the estate for estate tax purposes.

Retirement plans

All beneficiary designations must be changed so that the Islamic rules of inheritance are respected. In some cases, the beneficiary can be the surviving spouse if there is a property agreement that moves other property to the beneficiaries who are entitled to inheritance under the Islamic rules of inheritance.

In general, a trust is not an efficient beneficiary of retirement plans unless it is specifically designed as a “see through trust” under IRS rules.

One underlying assumption in Islamic Inheritance planning is that tax planning considerations should take a back seat to recognizing the rights of the Islamic heirs. Paying some taxes and being fair is better than paying a little less and being unjust.

Be Vigilant

The Islamic rules of inheritance is not the law anywhere in the United States. Therefore, the process of planning based on the Islamic rules of inheritance essentially means that you create your own “law.” This is typically referred to as the “a law of the contract.”

As things change in the law as it relates to your plan, or as things change in your family it is necessary to make appropriate changes.

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