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Free Islamic Estate Planning Resources

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Free Islamic Estate Planning Resources

So why would a lawyer suggest free Islamic Estate Planning resources? For me, being an Islamic Estate Planning lawyer is more a labor of love than anything else. It is the notion that there is this fard out there, one that has been fundamental to Islamic society, yet largely forgotten. It is about doing whatever it is that I can to make it more accessible and sophisticated over time.

Along with this, I need to be able to account for the limitations that come with being a law practice. What lawyers typically do, when they are at their best, is that they solve problems by gathering facts, making arguments about the law and working to get the client in a better situation than they were before. Naturally, this does not always work (especially in litigation), but we need to do our best.

Estate Planning is about counseling and developing solutions and documents are merely a byproduct of this. The economics that comes with having a law practice where I need to charge substantial fees for what is an even more considerable service is something I understand many people cannot afford, or possibly, can’t see the value worth their money.

So the purpose behind this post is to provide some guidance as to what estate planning options there might be for people who are not yet ready for a lawyer and the fees that come with it. I will also caution you about a few things as you go on this journey.

Calculating Islamic Inheritance

One of the first things you should do in your journey in completing your own free Islamic Estate Planning is to calculate Islamic Inheritance. Inheritance shares are essential information that you will need to know.

There are several calculators available on the Internet. Without casting aspersions on any particular calculator, I have been disappointed by several of them over the years. One calculator that I have appreciated, despite some minor issues (and the author has historically been responsive to them) is Islamicsoftware.org/irth. This calculator not will show up (at least for me) on the first page of Google, but it has been around for almost as long as the web itself.

In using the calculator, make sure you don’t shortchange certain relatives by excluding them entirely from the inputs. Many Muslims are not aware, for example, that Muslim parents get an inheritance in Islam. They also may not be aware that brothers and sisters are frequently entitled to inheritance as well. Not adding them can be an injustice.

The advice of Shuyukh and Imams

Imams and Shuyukh are often a source of exceedingly lousy advice and outright ignorance when it comes to Islamic Inheritance and Islamic Estate Planning. Not everyone, but there are very few Shuyukh or learned people working in Islamic Centers today who are up on the subject.  I have been the beneficiary of a whole lot of good advice from Shuyukh over the years.  Yet I know not everyone has been so fortunate.

I have heard clients tell me their Imam said to them that in America, all you have to do is write “according to Sharia” and a judge would make it happen. There is almost no limit to the bad advice out there. So I would recommend making sure advice from Shuyukh is limited to fiqh and Islamic questions about inheritance rules (can I give more to my daughter? Can I give away a house to my wife? etc.) and not legal advice.  Shuyukh are not permitted to provide legal advice, and the consequences of doing so can be devastating. It’s a felony in many states that that does not typically stop some from doing it anyway.

While Shuyukh can and should give spiritual advice, it is essential for you to ask someone with knowledge of the subject. As is the case with any large field, not everyone is an expert on everything. Many Shuyukh will acknowledge this and point you in the right direction when they don’t know the answer themselves.

Last Will and Testament

One of the biggest weaknesses in doing the last will is that it is not an estate plan. The last will only address what is known as “probate property.” Not all property, indeed, for many people, most property is not going to be “probate property.” As a result, a plan based on the last will as its foundation is often going to be mostly useless. You may get a sense for this as you read on.

That is not to say that you should not have the last will (you should) but you need to be realistic about the limitations that they have.  Another thing about the last will is that it is not the same thing as a wasiyyah.  That is completely different.

For many years, particularly in presentations, I have provided a sample last will for people who do not want a lawyer or cannot afford a lawyer. You can get a copy of that right here (it’s for California).

Fill in the blanks

In recent years, there have been automated fill in the blanks forms have been made available. There has been some marketing around this idea as well for template fill-in programs that cost some money.
Yasir Ali, my co-author in an upcoming Islamic Estate Planning book, has developed an entirely free will template filling program for all 50 states.

I am not involved in the project and don’t like will-based plans in general (I know Yaser agrees since that will be in our book), but Yaser Ali is an expert in Islamic Inheritance, and this falls into the area of being valuable for people who don’t want or need a lawyer. I tried it out myself and it does what it sets out to do: It fills a will form for you with a calculation (based on the “irth” calculator I like).  In the right cases, it may be the right thing to do.

These services, if you pay for it or not, do not provide legal advice and offer a document that is extremely limited in scope.

As I’ve stated elsewhere, I am dubious that it is possible to have an “Islamic” last will for many if not most people. Both because of how assets tend to be structured as well as the probate process itself, which has its own rules and internal logic. The Islamic provisions of a correctly stated last will can easily be ignored by a judge, not because of Islamophobia, but because a statute may require it. It is often the wrong type of plan.

Holographic Wills

Say you don’t want to give your personal information to anyone to generate these documents (ok, I understand), you can do what is known as a “holographic will.” As best as I am aware, all states have a provision allowing for minimal formalities when it comes to the last will. State law will typically fill in the blanks.

In California, holographic wills fall under probate code §6111. The material portions of the document need to be in your handwriting. You need to specify who your “executor” will be; this is going to be the person who will carry out your wishes after you pass away. Of course, if you have minor children, you should state who you want as a guardian for your children.  I have written a separate guide for guardianship for Muslims here.

You will also need to specify how your executor will distribute inheritance. So you need to state the shares for all of your beneficiaries which you can do by calculating it as I described above.

You will need to sign the document. It would be an excellent idea to date the document, though this is not required, strictly speaking (in California). Under the law, it is not necessary for you to have any witnesses in a holographic will. However, you should note that witnessing wills is an Islamic requirement and it is something that you should incorporate into your document if you are doing one.

Being Married

Married couples with assets represent special concerns, both in how a person might plan and obstacles that exist in planning.  I have written about this here.  Many of the problems have to do with ownership of assets, but also default rules under state law. For example, some states have forced heirship provisions as well as other provisions in both state probate codes and default rules in how assets are owned.   You may also be concerned about how the home would be owned if one of you passed away.

Ownership of Assets

It is a mistake to think you can sign a magical document that solves all your problems. Estate planning is fundamentally about organizing. Having the most brilliant documents in the world will often mean little if you arrange your assets in a manner that is not consistent with your goals.

For example, the most common way people own their home is through joint tenancy with right of survivorship. People also have bank accounts with a POD or TOD designation (that is “payable on death” or “transfer on death”), they may have beneficiary designations done wrong, or they may have other affairs, such as business ownership problems.
What you should do is make a list of everything you own and figure out what happens to it after death. For example, if you have a brokerage account that transfers to your wife after death, the last will or a living trust will probably do nothing to stop that from happening. The result is a plan that won’t follow your goals, assuming your goals include following the deen.

Beneficiary Designations

Certain types of assets are beneficiary designated. For example, retirement plans such as 401(k)s. In some ways, these plans are mostly designed to pass on all assets to the surviving spouse. The surviving spouse has a benefit other beneficiaries do not have, the “spousal rollover.” Understand that retirement plans and withdrawals create complex taxation issues for different kinds of recipients.

It is possible however to construct a beneficiary designation that follows the Islamic rules of inheritance. You need to get your spouse’s permission in many cases though. Last wills generally do not control the distribution of retirement plans.

Banks and Brokerage Accounts

There are multiple ways to handle these types of assets. If it is an asset that is in your name, the distribution would (possibly) be based on the Islamic Rules of Inheritance if you had an Islamic will. You can also do a payable on death or transfer on death designation (for some accounts) which is going to be similar to a beneficiary designation I discussed above.

Other Assets

There are of course a wide range of assets that will have different ways of transferring wealth from one generation to another. You may need to account for royalties, oil drilling rights, buy-sell agreements, digital assets and a wide range of other assets may need to be considered for in your overall planning. It is essential to have an understanding of all of these assets and how your executor or trustee (in the case of a trust or other trusteed asset, like a 401(k)) will distribute them. Of course, at some point, it will start to feel irresponsible not to hire an Attorney.

Unpredictability

One major problem with this “hodgepodge” style of Estate Planning you would be doing yourself is that you are dealing with a subject that is inherently unpredictable. When you plan for what will happen after you pass away, you are preparing for a time and circumstances for which you are completely and utterly ignorant. You do not know when you will pass away, who your survivors will be and what the exact years of inheritance will be for these people.

Now you might be a man with a wife with two parents and a son and a daughter. You can calculate with precision what share of inheritance each one will get if you died today. Assuming you will not die today and your last will has provisions that are outdated because you do not think to change your will and all beneficiary and POD and TOD designations immediately or were unable to do so, how would it shake out?

It probably won’t be Islamic anything. Whatever “planning” you do would need to consider these contingencies; otherwise, it is just a “band-aid” that cannot withstand normal life.

Living Trusts

Another possibility that you can look at would be an Islamic Living Trust. What you might find it amazing about trusts is that under state law (particularly in California) there are even fewer formalities to creating one then there is a living trust. That does not mean they should be “simple.”

A trust is a form of contract, they can be as long or short as you need them to be. In a revocable living trust, the parties are a grantor, a trustee, and beneficiary. You would be all of these things. Then you have successors who will act as Trustees. It is a rulebook, and you make up all the rules, and there are many. To the extent, you did not include the rules, a state like California has a “trust law” that will fill in the gaps. It is not the foundation of an Islamic Estate Plan. You might end up with problems similar to what you would get with a will-based plan, or they can be much, much worse. Indeed, I have seen poorly drafted living trusts to result in hundreds of thousands of dollars in legal fees.

As far as legal formalities go you can draft a trust on a paper napkin, say who your trustees are after you die, divide up the shares of inheritance and it can be legally valid. Of course, legally valid and beneficial are two entirely different things. If you are looking at doing a trust-based estate plan, get a lawyer.

Power of attorney

Any good estate plan will have provisions for incapacity. One simple way is through a power of attorney document. A Power of Attorney is a document that lets another human being sign your name. It is inherently a scary document. However, people use them all the time. Say for example to transact business in California when you tied up in Pakistan.

It can also be used in the event of incapacity when a person cannot make financial decisions anymore. Most states provide free “statutory” power of attorney documents on the web. You can download it and use it.  For example, here is one for California.

Healthcare Documents

There are several different considerations when it comes to healthcare powers, something I have written about previously. Most states, including California, have forms available for free. In California, it is called an Advance Healthcare Directive (fillable form). I have previously written about these documents here.

Burial Instructions

In my law practice, when there is a Muslim that comes from a Muslim family and lives in an established Muslim community (like we have in Orange County, California), my advice on burial instructions is don’t worry about it. Burials happen so quickly and efficiently that it is often unrealistic to assume anyone would even look for burial instructions.  Your family can easily figure out who to call and they will do a good job. You might know what I am talking about if you have been through it. In Orange County, everything can easily take less than 15 hours, from death to burial.

However, some people would want to include burial instructions in their last will. These people may include those who are new to Islam and do not have many Muslim family or friends. In such a situation, it is essential to not only have burial instructions but also make sure that close family members and friends know about it and have a copy of it. Some Muslim mortuary organizations have wallet cards that include burial instructions. In California, if you sign instructions that are detailed enough and have paid for your arrangements or have the money to spend, the instructions are binding.

Doing it yourself

The Free Islamic Estate Planning resources are here for you at your own risk and that of your family.  In my view, the actions you take should give you peace of mind that you are doing right by the people you care about, that you are doing right by yourself and your values. For many people, this means going to a competent lawyer that can guide you through the process. For others, it may just be figuring it out yourself.

Owning a home jointly with your child is a bad idea

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Joint Tenancy with Children is a bad idea

I see a lot of situations where Muslim parents own their homes with adult children.  This is a problem.  I will go straight to the example of what I am talking about since this is the way to communicate the most beneficial information to you (I hope):

Saleem, Harita, and Samy

Saleem is a retired widower with a 23-year-old daughter, Haritha, and a 30-year-old son, Samy. Haritha married two years ago after graduating from college and lives about a three-hour drive away. Her husband is a plastic surgeon. Samy married about a year ago and had been doing pretty well in his career since he finished his education about five years ago. He started to help pay for the mortgage on Saleem’s house. Eventually, he began to pay for the whole mortgage payment. Saleem owned this home for about 20 years, and there is still about $150,000 left on a halal mortgage. The house is worth $700,000.00.

Saleem sees Samy as the person who is taking care of him. He is now paying off the mortgage. Saleem can now relax about his home mortgage expenses as he is now retired and has a limited fixed income and not a large amount of savings other than the equity in his home and a 401(k) he would instead not draw on since he is not sure it is enough.

Not having a mortgage, for anyone is a massive weight lifted off a person’s shoulders. He is grateful to Samy for this. Saleem puts Samy on the deed to the home, so both of them own the house as “joint tenants with right of survivorship.” The right of survivorship means that after the death of one, the entire rest of the property will be passed on to the other joint owner. By its terms, it violates the Islamic Rules of Inheritance. So if Saleem passes away, Samy gets the whole home.

Is there a better way?

So here is the question: Did Saleem did the right thing here? Is there a better way to handle this?

Saleem should, of course, be grateful for Samy’s staying with him and paying the mortgage. However, the financial arrangement he made in rewarding Samy was excessive, and the way he did handled it (and this is common), but more importantly, it violates Islamic rules.

For one thing, there is the basic rule that Inheritance I distributed to children based on the faraid, that is the basic Islamic Rules of Inheritance. Saleem has carved out an entire asset that merely gets passed on to the son, without anything being passed on to the daughter. That is a fundamental injustice to Haritha. It does not matter that she does not need the money or that she took no part in paying for the mortgage. He has an inheritance right that needs to be vindicated.
There is also another practical problem. What happens if Samy, in the coming years as Saleem continues to age, gets sued, divorced, has significant medical bills or another financial calamity? Saleem would then worry that he would have to leave his home because someone had a claim against his son. He might lose everything.

Things to consider in owning a home

Here we need to balance a few things. There is no one solution to the challenge that a person like Saleem faces, but a lot of it would depend on him and his goals.

If he wants to give the house to his son outright, he can do that. There is nothing wrong with that. But he should have no ownership claim to it and should not expect to have the right to live there.  His son can sell it, his wife can kick him out after a fight or lose it betting on horses. Now it may, however, be possible to create an arrangement where he can continue to live in the home. I have written about this kind of planning (in a somewhat different context) previously.

Another thing we need to consider is the nature of the transaction. Samy staying with his father is not without benefits to both Samy and Saleem. If he remains in a home that has been in a mortgage for many years already, it is very likely the monthly mortgage payment is less than what he would pay to rent a comparable home. Saleem can regard the entire amount as rent. He can also decide part of it is rent and part of it is payment for the equity in the home.

That Tax Deduction

One reason for transferring ownership to Samy is that Samy may want the tax deduction for the mortgage interest. Saleem has no use for a mortgage interest deduction anymore, having a low enough income to not worry about taxes too much. Samy is in a higher tax bracket, so the tax savings would be more significant for him than for his father, who may get no benefit at all if he was not paying income taxes anyway. So Samy wants to put the mortgage in his name and thus, the home in his name as well since you cannot mortgage something you don’t own.

While we still have all the same problems as I described above, the solution may be different because there is this desire to transfer actual ownership to Samy. Here, maybe we want Samy to own the home. But one other thing we want to do is preserve the inheritance rights of Haritha.

Sameer can accomplish Samy’s goal of getting ownership of the home. At the same time his goal should also be not shorting Haritha on inheritance.  Sameer does this by creating a note and “deed of trust” that shows there is a loan given by Sameer to Samy. There does not need to be any interest (though there may be some tax consequences, like minor if any). So this way, the home itself is owned by Samy, but Samer holds the equity.

Sameer would still be concerned about Samy being sued or going through some other kind of financial calamity. There are a few different solutions here as well. We can carve out interests in the house for Saleem. A solution may include making sure he has equity in the home as well as other rights. For example, Saleem wants to continue to live in the house and cannot be “kicked out” by a creditor or in the event there are inlaw issues.

Don’t co-own a home with your children

My point in all of this is that the most apparent solution many Muslims engage in, in the case of Saleem and Samy, transferring part of the home to a son is a bad idea and it always worth exploring alternatives that accomplish the same goals.

Your goals should be justice. Anything that results in an injustice to a daughter, a son, a spouse or yourself is always going to be the wrong solution.

Excellence to Parents, Even When…

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Our relationships with our parents, our children, and their families can be complicated. When we are at our best, what we want for our parents, and other elders in our families including aunts and uncles, is to preserve their dignity as they age. Diet, exercise, environment, injuries, and genetics all play a role in our health. Everyone’s health is to varying degrees connected to their dignity. Sometimes a person’s “poor health” is not apparent and may be debatable. What I want to discuss here is how to deal with the situation where the elderly become vulnerable to exploitation and abuse.

Sufian and Ibrahim

Let’s walk through an example of a senior who starts. Say, for example, getting involved with a shady and risky investment.

Example:

Sufian is a 76-year-old retiree in Simi Valley, California. He “invested” $100,000 for a rice farm in Vietnam, owned by his housekeeper’s family. Sufian gave this money to his housekeeper, Kathy, through a cashier’s check. His son, Ibrahim, who lives in San Francisco, learned about it after a phone conversation with his father. They talk at least once a month. One of the other things he learned was that this was part of a pattern of “investments” with Kathy. She started to get him involved with small loans, like for a used car. Then Kathy moved to get $50,000 to start a “vitamin franchise” last year. The terms for these investments were sketchy, and it looked a lot like there was an enormous amount of risk with not a lot, and likely no reward for his money.

Sufian may handle this news a few different ways. These options are not all mutually exclusive. He can select a combination of options, as can other children of parents with similar concerns:

Berate his father for making a bad decision

Ibrahim can talk down to his father, tell him he is making horrible decisions and that this housekeeper is a crook and that Sufian should have known better. This berating might go on for 20 minutes, and he can make his father feel 2 inches tall.

This strategy may work to a point. Sufian may realize that he should consult with his children before making such decisions. It can also backfire (this may be more likely). It can cause the father to not speak to his son about things like this anymore. Why spend the little bit of time you have with your son in conflict mode? Just don’t bring up financial stuff, or anything beyond small talk about the grandkids.  Maybe not even do that.

Maybe Sufian will just shut down completely and become more isolated and more dependent on non-family members like Kathy.  This happens with many elderly parents.

Of course, Kathy is still around, and if she is gone, there may be more willing to take her place.  The world is not hurting for greedy, manipulative people.  Financial elder abusers tend to march into senior’s lives like a parade of darkness. There is still a risk of elder abuse.

Berating also has the result of making Sufian feel like he lost his dignity.

Lastly, this strategy is probably the most common but falls against Quranic guidance. For Example:

And your Lord has decreed that you not worship except Him, and to parents, good treatment. Whether one or both of them reach old age [while] with you, say not to them [so much as], “uff,” and do not repel them but speak to them a noble word.

Berating is always the wrong strategy. I completely understand that it would be tempting though.

Ibrahim gets his father to identify the problem and solution.

The reason this may have come up in a conversation is that it is not a run-of-the-mill transaction.  Ibrahim walks through the deal with his father without making any conclusions about it or the housekeeper, nevermind how transparently ridiculous it seems or if he thinks the housekeeper should be in jail.

Any business transaction has risks and rewards. He brings out what the risks are, and what the potential rewards are for the investment. Seniors don’t like being victims of scams any more than anyone else. They don’t often think of themselves as having feeble minds. We all make mistakes, and we are all susceptible to influence of some sort or another. As consumers, we all make irrational decisions from time to time, albeit on a smaller scale. Younger adults will convince ourselves that a purchase of a timeshare makes perfect sense when there is no possible way it could be justified on paper.

With financial elder abuse, the numbers can be more significant and be financially devastating, but a lot of the same tendency to be manipulated is in play.

The goal of such a discussion is to allow the parent to come up with their solution, but with some input from you in a 2-way conversation. It is best that Sufian come up with the fact that the housekeeper is a problem, and that there are some problems with these transactions. There should also be a solution for how to deal with these issues if they ever come up in the future.

Call Adult Protective Services

If Ibrahim thinks Sufian has been a victim of financial elder abuse, he can call the county agency that deals with this kind of thing. Calling a government agency is not easy or the obvious thing to do of course. In California, unless you are a mandated reporter, reporting to Adult Protective Services can be anonymous. Ibrahim might balance the fact that calling APS may do nothing more than cause Sufian aggravation. He may also get some flyers. He may want to talk to them anyway to evaluate his options.

Conservatorship

Ibrahim can get a conservatorship in probate court to prevent his father from making more terrible decisions. A conservatorship may or may not work. However, it can potentially damage his relationship with his father, perhaps for a long time. Sufian can even get his lawyer to dispute the conservatorship. We then have the specter of Ibrahim and Sufian, son and father, both hiring lawyers in a case against each other.

A conservatorship involves going to a Judge in a public hearing, even trial with witnesses, including expert witnesses, who don’t come cheap. Most importantly, it may be treated as an insult even if Ibrahim has the best of intentions. In some cases, it is the only real legal remedy that can prevent Sufian from self-ruin. So Ibrahim may need to go this route if things go badly enough. Of course, he needs to do this with the most excellence he can muster.

The Quran does not mandate that we not act against the wishes of our parents or never disappoint them. It mandates that we treat them with excellence.  A conservatorship may be good for him.

Become the Trustee

If Sufian has a living trust, say to do Islamic Inheritance, there is going to be some mechanism to deal with incapacity. Preferably, it would be a system that is private, keeps all the concerns within the family and does everything possible to maintain the dignity of the father. Evaluation inside the family of if Sufian has the executive decision-making ability needed to continue acting as his Trustee. The rest of the world does not need to know. Checks on Sufian can be mostly invisible to Sufian, where the Trustee maintains control over larger accounts but regular bills and obligations, continue to be handled by Sufian, and account activity is monitored by the Trustee to make sure there is no abuse.

People who have lost their executive decision-making ability can be quite ordinary in many other ways. They can be people I would turn to for valuable advice. I am sure you know elders, including your own parents if you are still blessed with them, from whom you would love to draw on for wisdom.

That seniors make financial mistakes from time to time should not change that. We need to treasure them and act like our own dignity depends on their dignity, because it does.

Fake Sadqa Jaariya!

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Sadqa Jaariya

You hear the term “Sadqa Jaariya” during fundraising pitches. It’s the kind of thing that Muslims want to contribute to charities that are, while not forever (since that is only Allah) is perpetual in existence. Muslims are rewarded for Sadqa Jaaria long after they die and are otherwise unable to contribute good deeds in this world. Another way of course based on the famous oft-quoted hadith is beneficial knowledge and a pious child that prays for you.

I distinguish between Sadqa Jaariya and other forms of Sadqa. You spend money for the needy, and the benefit fulfills a human need, but it is not continuous. It is still a virtuous deed but not relevant to the cautions in this post.

Let me give you an example of a questionable Sadqa Jaariya practice in the Muslim community.

It Starts with Intent

Harris is a doctor. He wants to donate to a group headed by Salman, that wants to establish an Islamic school in his community. Harris feels this is a beneficial thing to do. Harris wants Islam to flourish in his area. He and other donors want their children to grow up in an Islamic environment, at least part of the time. They want to establish an institution that shows children a love of the deen, of learning the Quran and Arabic. Creating this institution must be Sadqa Jaariya.

So Salman and his group, with generous funding from community members like Harris, established the school. Salman is the Chairman of the Board of Directors. He realizes that it is exceedingly difficult to get paying students in his area. It takes a lot of time and effort to run a nonprofit, pay teachers decent wages and deal with parents, students, regulators, lawyers, and community members for continually raising money. Salman and his board of directors, after five years of this, figured they needed a change in direction.

The Change

They decide they will change their Islamic school to a charter school. Under state law, it will have a secular mission and jettison any connection with Islam. It will be free for all to attend and will charge no tuition. It is easier to run this non-profit than run an Islamic School. There will be no religious programming at the school during school hours, and the promise of an Islamic environment for the children will disappear. However, there will still be Arabic instruction. There can also be some Islamic programming after school if parents so chose.

Within five years, there is more board turnover. Salman moves on. Islamic programming after school starts to disappear. The school is now secular.

Many formerly religious institutions over the past hundreds of years in the United States decided being secular was a better deal. Don’t expect Muslims to be any different. The tendency of Islamic Schools to go charter has happened before, and that is an easy example. But this can happen to virtually any Muslim institution. At a minimum, an Islamic School becoming a charter school can be Sadqa Jaaria because it is still an educational institution, it’s just not the kind of Sadqa Jaariya the donors intended. It is entirely possible for me also to provide an example where the entire mission changes from the education of children to political advocacy. Future generations often shift the purpose of an older institution.

Was it?

The question is: Did Harris ever make a Sadaqa Jaaria donation? He intended to donate towards establishing an Islamic educational institution. He wanted an Islamic environment. Maybe Harris was not hoodwinked when Salman told him his gift would be for Islamic education and an Islamic Environment and the contribution counted as Sadqa Jaariya for precisely this. Everyone started with good intentions.

The good intentions were never followed up with protective action. That is where Salman and even Harris went wrong. It was a substance-free, feel good transaction based on misplaced confidence. Not just faith in Salman, but on future generations of board members. Neither Salman or Harris has any idea who these people will be in the next several decades (if the organization lasts that long) or what their agenda might be.

The Liability

What if the institution gets sued? For any reader who has been an adult for more than a few years, you know this is not a hypothetical concern.   Islamic organizations are employers,  maintain facilities.  They interact with the world and are subject to liability that comes with it.  So it is vital they think about protecting their missions with asset protection.

Protecting intent through Waqf

To establish a Waqf, you need more than intent. There need to be assurances in place to prevent a fundamental change in mission. If someone asks for money for Sadqa Jaariya, it is worth finding out if the organization is set up to accept Sadqa Jaariya or if they are throwing around the term because of its religious power.

There’s a solid chance institutions that suggest donating to them as “Sadqa Jaariya” did nothing to protect themselves from a future change in their mission. Nonprofits are usually corporations where the Board of Directors can do what they want. Islamic Organizations make sense this year? Let’s do that! A new grant is available that makes us change our whole educational mission? Sold!

Of course, many organizations will continue to do the right thing and honor donor intent for a long time. They are on their honor. As the years pass, donors die, founders die, and successors have other interests, funding sources and even values. If you want Sadqa Jaariya, you need to limit the authority of future generations to do whatever they want.

Fight the Future with Trusts

Trusts and Waqf are related concepts. Trusts in the abstract are far more flexible property management devices. However, they are still well suited for the Waqf if well-drafted. A corporation’s whole direction can usually be changed with a board of directors changing it. Under the doctrine of cy pres, you have a nonprofit organized as a trust; you cannot change anything unless the purpose of the Trust becomes illegal, impractical or impossible.

So if you create an Islamic School as a Trust instead of as a corporation and are specific about the values of the school in the founding documents, future trustees of the Trust cannot violate the purpose of the Trust. Donor intent from decades ago has often frustrated the wishes of people who run organizations. Sometimes this can be problematic, but usually, it is a legal check on nonprofit excess or mission creep.

Other checks

There are other checks out there. However, none of them are as good as trusts. Masjid bylaws that require approval from a membership ensure that a board cannot change the mission of the organization, but the voting members could. You might presume unless there is a coordinated takeover of a Masjid by fixing members, Masjid membership will always want their institution to be a masjid. Some founders make sure nobody revisits this underlying assumption in the future.

Another thing hundreds of Masajid in the United States have done is transfer title deed to their property to the North American Islamic Trust (NAIT). NAIT was set up as a “National Waqf.” There are some safeguards in place, and Muslim organizations that have placed their assets with NAIT did well by seriously addressing the inherent problems with corporate charities. However NAIT is not a Trust itself, it is a corporation. For the most part, though, they hold properties as a trust. It’s worth scrutinizing how charities own whatever it is they claim to hold as Sadqa Jaariya in all instances though.

The last possible check on the future power of boards, which applies to very few Muslim institutions, is the Uniform Management of Institutional Funds Act (UMIFA), which is the law in many states. UMIFA mandates how some endowment funds are governed and is narrow enough in scope that it hardly matters. Muslims who donate at a fundraising dinner for “Sadqa Jaariya” will probably get no comfort here.

Donors Beware

Donating to an Islamic cause is an act of worship. You (hopefully) don’t pay zakat to random charities that say they are Zakat eligible without supporting the claim, you won’t do Islamic Inheritance haphazardly, and you won’t pray on a filthy mat. Don’t give your Sadqa Jaariya to organizations that have not cared enough to entrust their resources to a real Waqf, instead of giving to a pretend waqf whose mission will forever be twisting in the wind.  This can either be in a donation, with your charitable planning or the wasiyyah.

Another thing donors can do, especially if it is a significant enough commitment to an organization, is to create a “supporting organization” that commits to the mission of an organization, but not necessarily the organization itself, if the organization moves in a different direction. Some families do this, and often there are good reasons to that are beyond the scope of this article, but most of the time, you would avoid going to this length if you can.

Muslim Leadership Opportunity

Do you believe in your mission enough to protect it from future board members? Did you ever make a promise to donors you want to do everything you can to keep? You need to get serious about the Sadqa Jaariya claim. Establish a waqf as a trust to preserve the intent of founding and let your donors know it exists. You are not only serious about your mission today, but you are serious about charity being continuous.

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Continuing Trusts to Protect Children

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So why continuing trusts? Here is one major estate planning problem that comes up in our minds quite frequently: a 23-year-old man suddenly gets $700,000 as inheritance, unexpectedly. What do you think he is most likely to do with the money?

a) Put it away in an investment account so that he would use it for future, well-considered business ventures, charitable endeavors And other projects designed to build on the family’s legacy.

b) Haphazardly invest and spend based on the direction provided by his new larger circle of “friends.”

c) Spend nearly all of it on luxury items and vacation.

The “lottery curse”

You may well be familiar with how people who get “fast money” tend to lose it very quickly. The “lottery curse,” is where stories of people who win the lottery (or get a big NFL paycheck, etc.) might end up robbing banks to feed a heroin addiction.

So in American estate planning, many lawyers offer estate planning that keeps assets in trust, often indefinitely. You may be familiar with the concept of “trust fund babies.” Parents often don’t trust children with their inheritance, and figure trust companies and professional fiduciaries are better stewards of a person’s legacy.

Continuing trusts, that is to say, a trust that goes on in some form or another after the death of the person who created the trust, often well after (hundreds of years in some cases) come in many different flavors. The variety can be endless.

How these Trusts are used

One common motif used in American fiction is when someone writes in a will that the beneficiary must marry by age 35, or be cut off. Famously, Leona Helmsley wanted heirs to come to visit her mausoleum and sign her guestbook. Other trusts can be a matching program, where a trustee only matches to the extent that the child earns money.

So, for example, if a child decides to become a teacher, she will get less inheritance than her brother, who became an investment banker. Being a teacher is less valued by a high performing business owner. These trusts then become known for perverse choices particular to the values of the person making these rules.

Making this about Islam

For Muslims, we want to make sure and do everything consistent with Islam. Children are entitled to inheritance because the Allah ordains this.  That is the fard of Islamic Inheritance. Muslims are unable to tie strings to wealth that is the right of the heir.

There are going to be exceptions to this of course. It would be irresponsible to fork over hundreds of thousands of dollars to a heroin addict.

Is there any way Muslims can make that “fast money” a little bit slower? Yes. You can use continuing trusts. Just not any way you might want to.

Family Waqf

You could give away virtually unlimited amounts of strings attached to your wealth if you were to give it away during your lifetime.

Example:

Bilal, during his lifetime, creates a trust for the benefit of his children and progeny. It is a “Family Waqf” that owns 300 acres of ranch land. He wants the ranch land to be operated by a committee from within his family that would only make distributions from the ranch’s business operations to deserving people within the family for educational purposes or if they are at or near poverty. The Trustees would distribute a portion of the profits is to a charitable foundation that he creates.

Bilal can do this because none of this is subject to the Islamic Rules of Inheritance and is not a wasiyyah. It is a lifetime transfer. If he creates it in a document that goes into effect after he dies (like a will or a living trust), then it is not permissible.

Continuing Trusts and Asset Protection

It is also possible to create a trust after inheritance that distributes shares not to the heir directly, but to a trust for the benefit of the heir.

Example:

Bilal creates a living trust. After his death inheritance is going to be distributed consistent with the Islamic rules of succession, to his three children, Adam, Wahida and Sultana. Instead of the estate going to them directly, he creates three continuing trusts: the “Adam trust” a Wahida Trust” and a “Sultana Trust.” A Trustee of these trusts is directed to make distributions to the beneficiaries of the trust at the trustee’s discretion.

As a general rule, the trustee is not going to say no if one of the beneficiaries asks. However, if a Judgement creditor, an ex-spouse or another person who may legally stand in the shoes of one of Bilal’s children want the money, they likely cannot get it.

There is a strong incentive to leave the assets in continuing trusts since there is the benefit of asset protection. The trust can even purchase investments and grow. So there is often no reason to withdraw anything to invest.

The Trust may also continue to future generations, depending on the state the trust is set up in (it can be set up in any state, and the laws in each are different).

It’s a nice thing to do, but often not 100% necessary

It isn’t necessary to create continuing trusts. As a Muslim, you must make sure that your successor Trustee distributes inheritance correctly. However, giving your children a gift of asset protection and a potential buffer against “fast money” is probably a good move for many families.

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