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.

                          

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.

                          

I had a question recently from a reader (and not for the first time) on what would be an inappropriate way for Muslims couples to own a home.  It may surprise many that I actually change the form of home ownership for most of my clients.

You can always own a property individually, that means one person owns it.  That individual does a Trust-Based Islamic Inheritance Trust Plan and it passes to the Islamic heirs.  I have to note that just because a deed says the property is owned individually that a court will accept this as fact if there is a dispute.

The question usually has to do with joint ownership of property, where a husband and wife both own the property.  The underlying question when owning property together: Can the partial or concurrent owner can do an Inheritance plan that distributes that person’ property based on the Islamic Rules of Inheritance?

I will not use this post to discuss the other benefits or drawbacks of owning property one way versus the other, and only address the Islamic Inheritance aspects:

Community Property does this, since the 50% (the only percentage one person can own) can be distributed based on Islamic Rules of Inheritance.  This is also true for Tenancy in Common, which is a method of ownership where a person may own an unequal share, is also fine from an Inheritance perspective.

Avoid owning property as “community property with right of survivorship.”  You should also avoid owning property as “joint tenants” or “tenancy by the entirety.”  Many people like the later because of the asset protection benefits (it does not exist in California and several other states) – but it’s inappropriate for Muslims, so avoid it.

These forms of ownership will pass along all assets to the surviving spouse automatically, which I should remind you, is bad.

Of course even if you own it correctly, it would be foolish to not have an Islamic Inheritance plan along with ownership, since you will have no control over distribution and injustices can still occur.

                          

The current estate tax situation in the United States, where no estate tax currently exists on virtually any amount of money left two children while an estate tax of 55% with an exemption of $1 million comes into effect on January 1, 2011 has led to much speculation some parents may find themselves with an untimely demise.  While this may or may not be true, it is a worthwhile exercise to review the rules in this regard.

One of the often repeated rules regarding the Islamic rules of inheritance is the fact that a murderer is excluded from inheritance under the Islamic rules of inheritance. Inheritance is the right of the person who receives it. That right comes because it exists in the Shari’ah. The right is similarly extinguished for the same reason, if at all.

While it is true that this is the rule of Islam, it is also true in the United States.  It is known as “the slayer rule.”

This rule is codified in virtually all states and is included in the uniform probate code. In California, there are a series of probate code sections starting with probate code §250 that address what occurs in the event of murder. This is a public policy issue. In general, this was also the rule of common law, a murderer cannot benefit from his or her own bad acts. This may seem like an obscure planning point since it’s unlikely to happen in any given family, however, there are many cases on the books were these statutes come into play.

Nevertheless, this rule may be applied differently in different states. It is possible in some states, if the killing was done by a person without adequate mental capacity or was in self-defense, the result would be different.  One recent case in Illinois so that a person who is not guilty by reason of insanity can still not obtain any benefit. Other states have found differently.

The California statute specifically includes “state of mind” language in it which would affect the results of a person seeking to obtain inheritance after killing the person he or she is to inherit from.