Blog

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.

 

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.