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Islamic Inheritance in Trump’s America

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Extreme vetting.

You go to the airport, are asked about your views of “Sharia Law.” How do you answer?

You?

Sharia?

Kris Kobach, the Secretary of State for Kansas, who let’s face it, if you are Muslim, hates you and hates your family, has the ear of the President-Elect.  Mr. Kobach is also exceedingly sloppy when it comes to walking around with government documents.

What does it mean to be “high risk”?  Does this apply to you and your children or does it apply to “other people?”  If we agree that Sharia, which is the practice of Islam, is somehow bad, can we get off the hook?  People who dislike Muslims are also trained to think that all Muslims lie anyway.  So if you say you like Sharia, or don’t, if you are considered a Muslim, you are stuck.  Much of this is not quite clear yet.  Things are going to get worse before they get better though.

Islamophobia as a system was not absent from the Federal government during the Obama Administration.  It is clear it will be more overt and the FBI, which is full of Trump supporters largely because of institutional Islamophobia, will feel like it has freer rein to exploit the most vulnerable in the Muslim community.

However, there is good news.  Sharia in your estate planning is not going anywhere, assuming you want it or have it.  The Federal government has absolutely no power to ban it.  The constitution does not grant the federal government the ability to govern inheritance issues.  There is a taxation power for transfer of assets, but that is about the extent of it.  The Trump Administration wants to end that taxation anyway. Furthermore, state law continues to allow you to distribute your estate largely however you want.  If you live in a state like California, not a whole lot will change.  In other states, it is certainly going to be the case that those who dislike Islam know the electorates in those states are behind them, and that turning the screws on the Muslim community may be a winning strategy.

Thankfully, this is very unlikely to happen in California, much of we west coast or the Northeastern United States.  For others, brace for a difficult few years with state legislatures and local governments.

Wherever you live though, there is absolutely no need to apologize for who you are and what you believe.  If you believe in Islam, you should feel free to practice Islam, which includes inheritance, regardless of what papers get shoved in the President-elect’s face.

Don’t allow any angst or fear prevent you from acting justly with your family members.

On Muslim leader “nobility”

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I wrote yet another article on Countering Violent Extremism called “the Muslim Lords of CVE“- please do check it out.

As many of you who have been reading stuff I write (thank you!) know, I have been interested in corruption among Muslim leaders for some time, particularly when there is government money available for leaders to influence what Islam is and what it is not.  This has made some people angry, but not too many.   We have a First Amendment in the US Constitution that provides for religious freedom, and it is worth defending.  This is the same freedom that allows us to do Islamic Estate Planning.  We don’t have an official Islam in the USA.  The government’s excessive entanglement with religion on “national security” grounds and the creation of an industry of Muslim Security contractors who pose as leaders and activists inside the Muslim community is a dangerous development.

Please read it.  If you like it, share it.  In any event, please feel free to comment and let me know what you think.

 

ISNA West Zone Appointment

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Just a brief announcement for my blog, I have been appointed by the Islamic Society of North America (ISNA) as the “West Zone Representative”- which is a volunteer role that has some major responsibilities for oversight and management of the organization, including attendance at tISNA Logoheir “executive council” and “Majlis.”  It is a role held by some of the most esteemed individuals in the Muslim community, most recently Imam Tahir Anwar, which makes this a tremendous honor.

I do have a history with this ISNA, I have spoken at their National Convention several times on Islamic Inheritance (obviously), though I had not attended these past few year, at least until this past September when I did attend.   In addition, I have been a member of their Endowments Committee, though that means a lot less than it sounds.    I anticipate though that I will have to show up at ISNA for the next few years (this role has a two year term).

ISNA is a unique organization in the Muslim community.  It is fairly general and open to Muslims with a wide range of backgrounds and beliefs, at least as far as Muslim organizations go.  It is over half a century old, having been founded as the Muslim Students Association.  Its conventions tend to set the standard for events in the Muslim community.  It is going through some challenges right now, as is bound to happen with all organizations.

This is a new thing for me.  To the extent the organization is important to ISNA as a national organization and to the limited extent it operates on the west coast.  Currently, ISNA has a west coast education forum in Anaheim (January next year) and often does a “west zone conference” in the Bay Area.

A Muslim Guide to the 529 Plan

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University of Toronto by Ming_Bear on Flickr Many parents feel just a little guilty that they may not be saving enough for their children’s education, the 529 plan is one way to do it.

In the United States, post-secondary education is expensive, and most Americans with college educations now start their professional lives in debt. This adds needless stress to their lives, as well as pressure to pursue career paths that may not reflect their (or your) values. Perhaps you are banking on how your child will be a star athlete, get a full ride for being an amazing scholar, or you just plan on sending your child to Germany for free tuition.

The goal is to save and invest money and have plenty of cash by the time your child grows up and is ready to ask for it.  If they end up not needing the money, you can use it for other things.

Congress came to the decision to encourage savings for education by offering tax incentives. What I want to discuss in this post is the 529 plan. I will leave other methods of saving for another day.

There are two kinds of 529 plans; one 529 plan is essentially prepaid tuition. This is where you lock in tuition at a particular academic institution. This will have very limited appeal for most parents. The second is a savings plan, where every state has its own sponsored plan. For example, California has the ScholarShare savings plan administered by TIAA-CREF.

This is savings for a specific purpose, a narrow one at that. Not every child goes to college, and indeed, not everyone needs to. Plenty of successful people have never attended a postsecondary institution, or have found their success through alternative educational resources. Some children use a whole lot more of their parent’s savings by being in school longer than other children or attend much more expensive institutions. Some will use less for other reasons, for example, they may have more scholarships and grants available to them.

So when you begin crafting a college savings plan, you want to be able to have the flexibility needed to move assets from the benefit of one child to another. Another option is if the money is no longer needed for your children’s education, you can use it for their wedding, a gift towards your child’s first home, for a vacation, or for whatever you wish.

Furthermore, ideally, if you went through some financial problems, or you went through a lawsuit or even bankruptcy, your children should still be able to go to college without going into debt.

Advantages of 529 Plans 

Here are some advantages to the 529 Savings Plans.

  • Anyone can donate to it (so grandparents).
  • You can change beneficiaries as many times as you want.
  • It can be outside your taxable estate for estate and gift tax purposes.
  • It can be protected from bankruptcy, depending on who the beneficiaries are.
  • Withdrawals can be free of federal or state taxes if used for qualified educational purposes (this is fairly broad but not unlimited).
  • You can get the money back, just pay taxes and penalties on the earnings (not on the principle).
  • There are no income limitations. You can be wealthy and still participate in this program.
  • You can save as much money as you want in these plans, as long as it can be reasonably used for educational purposes. Some plans do have limits however, but they are quite large.
  • You can “roll over” a 529 plan into another one you like better without any penalty or taxes.
  • It has minimal impact on your child’s financial aid application. FAFSA in particular, which only takes into account 5.64% of parent’s assets and counts 529 plans as a parental asset.

There are some caveats to these benefits (this is a mere blog post, I am writing more about it elsewhere) however if you have children you expect to be paying college bills for, and are blessed enough that you can save some money, this likely sounds like a great deal.

Dealbreaker? 

The 529 Savings plan does have one gigantic drawback that will make it a deal breaker for many Muslims. You cannot control the investments in the plan. That is to say for those who insist on “Sharia-compliant” investment products will not find them useful.

This plan is also one of many devices that is treated as your money for some purposes, and not treated as your money for other purposes. So 720 days after funds are deposited into your account and the beneficiary is a child or grandchild (step children and step grandchildren count as well), the asset is treated as essentially not being yours if you go through a bankruptcy. It is also not your own for estate and gift tax purposes if it is structured properly.

However, the money is your own (assuming you are the account owner) for other purposes. You can decide who gets the money; you can even give it back to yourself. Also, after death, the successor account holder needs to be named. The 529 account does not just disappear or get distributed to the beneficiaries. If you do not name a successor account holder, the 529 plan becomes a probate asset. This means a judicial process will determine how it will be distributed.

So if you have this kind of account, for purposes of the Islamic Rules of Inheritance, it is your money. You should pay zakat on it every year unless you have actually distributed it to a beneficiary. If you die before your children are educated it needs to be distributed based on the Islamic Rules of Inheritance, and not based on the educational needs of the children. So in that sense, it is treated exactly like any of your other accounts.  The Trustee can provide educational benefits to those who need it without regard to inheritance rights so long as other beneficiaries are compensated with other assets.

My suggestion is that you name the Trustee of a Revocable Living Trust as the successor account holder. Then instruct the Trustee on how to handle the asset, assuming the 529 plan administrator allows this.  This is based on contract and not state or federal law.

Check out my document on mistakes Muslims make in their Living Trust.

 

 

 

 

 

 

 

 

 

Counseling Sharia at the Wealthcounsel Quarterly

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Please check out my article on “Counseling Sharia” published this month at the Wealthcounsel Quarterly in print.  This is an organization I joined a decade ago and it has been tremendously helpful to me in learning the legal-technical as well as practice development aspects of what I do, both with regard to Islamic Inheritance as well as Estate Planning in general.

My practice has been about helping people live and organize their affairs based on their values. This allows for the sacred to be included in Estate Planning.  Many Attorneys are unfamiliar with the notion of an Islamic Estate Planning Attorney or Islamic Inheritance.  Familiarizing the Estate Planning bar is an important service since so many Muslims do not have the opportunity to go to a Muslim Attorney, or even if it is a Muslim community, the attorney may not be familiar with Islamic rules.

In general, we want to point to the following:

  1. They should have a level of respect and understanding for Islam, and for their client that practices Islam.  Unfortunately, many non-Muslim lawyers, like teachers and politicians and others in society, have internalized Islamophobia.  Education about Islamic Inheritance will help.
  2. Islamic Inheritance is not optional for Muslims.  Of course, non-Muslim lawyers are not bound by the Sharia to help a Muslim client who wants to “fudge” on the rules.  Muslim lawyers cannot help anyone do something prohibited in the Sharia.
  3. Estate Planning Attorneys are used to doing things a certain way.  They need to understand that they need to change their own conception of what they are doing and change their planning substantially.  Some lawyers are just not equipped for doing that.   This may include some Muslim lawyers, who may be uncomfortable with the rules and advising clients on them.   Eventually, this will change in the United States.

Check out the article and let me know what you think.