Tuesday, March 10, 2009

Huge potential in Islamic estate planning

By Dafizeck Daud
The potential for Islamic estate planning business in the country remains positive due to the huge number of Malaysian Muslims who have not made their "wasiat" — a declaration made during a person's lifetime with respect to his/her property to be carried out for the purpose of charity or other purposes permissible under the Shariah law after his/her death.
The number is estimated to stand at five million Muslims.
"Of these five million Muslims, only 2% of them have made their wasiat. A lot of us tend to think 'there's always tomorrow' and procrastinate (when it comes to making a wasiat) because we sometimes forget that we don't determine when we should 'go'... we just don't know," as-Salihin chief executive officer Abdul Aziz Peru Mohamed said.
The main issue now is about creating awareness, he said adding that: "If we keep disseminating the information, sooner or later Muslims will realise the importance of having their wasiat done.
"We need to have an instrument to safeguard the welfare of our children and grandchildren once we are gone from this world".
Industry experts stressed the importance for Muslims to have an effective distribution method for their property upon their demise.
"Whatever (assets) that you have, you'll need to have an instrument for how to go about distributing it when you're not around, so it's a tieup to their (present) financial planning concepts" more so for high net worth individuals, they said.
"Faraid" is the Islamic Law of Succession, which concerns the entitlement of beneficiaries in a deceased Muslim estate and not its distribution.
The concept of faraid has been generally misunderstood by a number of Muslims who fail to appreciate the twin roles of faraid and wasiat in Islam. When a person who dies leaving everything he has to be distributed in accordance with faraid, it may not have appreciated, such as the economic significance of his decision action.
For example, a person dies intestate (without having a wasiat or will) leaving a wife and five daughters and a brother as heirs, with a house and a car as the only assets. Faraid would then determine the respective shareholdings of each of the heirs.
To obtain the benefit of their inheritance, the properties would have to be sold before the proceeds can be divided accordingly. However, each beneficiary must agree to actually have the assets sold, otherwise the property would be left stagnant.
The position would be different if the deceased has made a wasiat, Abdul Aziz said.
The deceased can still decide in his wasiat to divide the assets according to faraid but the wasiat will provide the executor with wide discretion to sell the assets without the necessity of having to obtain any consent from the beneficiaries. From the proceeds of sale, division of the estate can be done without much delay.
Under the Islamic Law of Inheritance, assets of a deceased Muslim are apportioned among designated heirs in pre-ordained shares. For example, if a husband dies leaving only his father, a wife, a daughter and a son, his assets after payment of all his debts, would be divided according to the faraid rules with the father getting a one-sixth share, the wife one-eighth, while the son and daughter receiving the residue in the ratio of two shares for the son and one share for the daughter.
That being the case, many Muslims tend to be under the impression that writing a wasiat, that is a Muslim will, is unnecessary and a waste of time. But a wasiat is not merely doing what Muslims are encouraged to do by no other than the Prophet Muhammad himself.
Neither is it simply the putting into words of how one wishes to distribute one’s estate to specific beneficiaries in the event of one’s death.
More importantly, the mechanism of a wasiat makes it possible for the deceased, while still alive, to choose a trusted person as an executor for the purpose of administering his estate in accordance with his wishes once he leaves for the hereafter.
Furthermore, in the case of a male testator, he is empowered by Muslim law to appoint a person whom he trusts most as a guardian of the property of his minor children. According to experts, the existence of faraid or Islamic Law of Inheritance does not mean that a person entitled under it can obtain his entitlement under a deceased estate immediately upon the occurrence of the death of the deceased person.
The assets and liabilities of a deceased person fall under the generic term of "estate". The estate of a person who dies without leaving a wasiat is called an intestate estate (as opposed to a "testate estate" where a person dies leaving a wasiat). Many steps would have to be taken before a beneficiary of an intestate estate can enjoy the fruits of his inheritance.
Various provisions of the Probate and Administration Act 1959, the Small Estates (Distribution) Act 1955, the relevant Administration of Islamic Law Enactment in addition to the Rules of the High Court 1980 need to be complied. Abdul Aziz noted that the various obstacles described above can be greatly lightened if the deceased has, during his lifetime, made his wasiat and appointed a trustee company as executor.

(This story appeared in The Malaysian Reserve on Mar 11, 2009 in the Wealth Squared section. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)


Joyeal Ryan said...

Thanks for the post... There are many Estate planning specialists who will help people to know about securing their life as well as help in writing a good will...
You have provided many points which are very useful...
Tanks again...

Noc said...

But not for Bob’s real estate investing courses. Being the compassionate guru he is, he founded the Enlightened Wealth Institute so he that could spread the word that wealth is for everybody interested. That means that you and I, given the right know-how are bound to be millionaires! But not for Bob’s real estate investing courses. Being the compassionate guru he is, he founded the Enlightened Wealth Institute so he that could spread the word that wealth is for everybody interested. That means that you and I, given the right know-how are bound to be millionaires!