I have a new article on Trust Protectors on the education section of my website. Trust Protectors are vital to Islamic Estate Planning in my view, yet are not especially well understood
Check it out here.
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Islamic Inheritance for Fake Royalty
India has a fascinating and complicated history. There is no way I can do justice to the nuances of that history in this post. Like the history of most places, it involves powerful people exploiting their power to become rich, usually at the expense of others. Before the British Empire took over most the subcontinent, most of it was part of the Mughal Empire – a collection of “princely states.” Long after the Mughal Empire ended, these “rulers” continue to be important. Some even came to power after the British came to rule.
This history is important, not necessarily because they ruled anything, but because a legacy of accumulated wealth can also be a legacy of accumulated pain.
Primogeniture as a Muslim tradition
Say for example, you have acquired vast lands, collectors of art and other trappings of wealth because you are the head of the feudal system were you ruled as “Lord” over people less important than you. A sort of Scotland in South Asia.. The wealth that you have is not merely the money and land that can be subdivided, but all the combined is what gives your title worth. If you were to follow the Islamic rules of inheritance, which is a uniform system dividing up shares of inheritance, distribution will be fair and just. However, your title and the importance that you have in your society cannot be passed down to anybody because everything has been diluted.
Primogeniture is the historic European system for inheritance. The system is easy to understand. The eldest son gets everything.
This is also the system in India for feudal lords, including the Muslim ones. Is this is permissible in Islam? Of course not. Leave aside that the wealth of such families was not built through industry and hard work. It was taken by force from people who were being lorded over, not for the benefit of society, but for the benefit of a particular family, or a man, followed by the eldest son of that person. Of course that does not matter. The same rule would apply to a business owner who favors one child as heir of his business empire. Islamic inheritance is mandatory for Muslims.
The Fight in Rampur
Recently, we saw the end of the 49-year court battle between the various other beneficiaries of what was a contest between an inherently unjust to the point of absurdity inheritance tradition known as “primogeniture” and the Islamic rules of inheritance. Fortunately, for the various ancestors of the Nawab, the result was a win for the Islamic rules.
India is of course a majority non-Muslim country and for historical reasons, the Islamic system of inheritance tends to prevail over there for Muslims. There have been exceptions though. Luckily, this is not one of them.
Tendency for Injustice
Our tendency to do an injustice when it comes to inheritance often has to do with how we see our own legacy. It is true that rulers tend to have a more obvious path to injustice, in part because that is probably what they have been doing their entire lives and in part because this legacy of injustice would simply end if they follow the commands of Allah and distribute inheritance based on the rules of Islam.
There are other situations where such injustices can take place within families. The most likely place these days is in family businesses. I’ve seen it in other situations as well, including with real estate and brokerage accounts. Sometimes, one particular beneficiary figures he (it is pretty much always a he) is more deserving and more privilege than anyone else, so much so that there is no cause even feel badly if the other siblings get absolutely nothing.
Your Legacy Is Peace, or Power?
The larger your wealth becomes; it takes on greater meaning then merely sustenance for yourself and your family members. Your wealth may become political power, it may mean that you will have many wives and many children from those wives (which is what happened in Rampur). Those people have rights in Islam.
Your legacy of wealth must dissipate through the generations, not consolidate. This is a necessary part of our own devotion to the command of Allah. Surah Nisah (which contains the verses of inheritance, opens with the following:
Oh humanity! Be mindful of your Lord Who created you from a single soul, and from it He created its mate, and through both He spread countless men and women. And be mindful of Allah- in Whose Name you appeal to one another- and honor family ties. Surely Allah is ever Watchful over you.
Do your own Inheritance Planning
To discuss the process of Islamic Estate Planning, you can schedule a 15-minute mini-consultation over zoom by clicking here.
How to get a big tax deduction for a small donation this year (agree to donate later)
Welcome to the world of Charitable Planning
If you have money, a charity will tell you at the end of the year that this is an excellent time to donate since you will get a tax deduction. That is true, of course. It’s also somewhat inefficient in many cases unless it is a small donation (small means different things to different people).
In general, the value of a tax deduction is the highest marginal tax rate times whatever you are donating. So if you have a 30% tax rate and contribute $100, you saved $30 in taxes. Not bad.
However, charitable planning is significantly more powerful. Charitable planning results in tax savings and benefits for charity, but it can also be a powerful driver of increased wealth over time. I use charitable planning in many situations; the most obvious is when people have a capital asset to sell. Charitable planning can give tax benefits that go well beyond the deduction (that is outside the scope of my post today though).
Here I discuss a scenario where there is no capital asset, just cash. Let me give you two easy-to-understand examples.
Example 1: Abbas
Abbas is a salesman. He normally makes a comfortable living, but he does not have enough for his family’s future. 2021 was a banner year for him. He earned $1,000,000 more than he usually earns. He does not expect to earn anything quite like this for a while. He is looking at a massive tax bill; he figures the marginal tax rate in his high-tax state is 50.3% (both federal and state). He donates $300,000 at the end of the year. He gets a tax-deduction for $300,000.
Example 2: Haroon
Haroon is a computer engineer. Like Abbas, he makes a comfortable living but would like to save more for his family’s future. He had an unusual year where a company he worked for went public. He had a wonderful “liquidity event” (as they say in the Silicon Valley), but it also happened to be $1,000,000 more in income tax liability than he would otherwise get. He donates only $15,000 by the end of the year. He gets a tax-deduction for $285,000. He invests the rest but eventually donates $300,000 over 20 years while the investments grow to be worth several times this in 20 years.
Wait, what just happened?
Grantor Charitable Lead Annuity Trust (GCLAT)
Charitable trusts come in a variety of flavors. I am only going to discuss this specific one since it applies to many people who have those once in a while years, where people do well but are concerned about income taxes, but not estate taxes (married couples need $23.4 million in 2021 before they need to worry about that). They are also charitable. However, they are not so charitable that they will give away hundreds of thousands of dollars for a tax benefit that they can get for a more spread-out donation.
How a GCLAT Works
Haroon creates a grantor trust, which means he is the taxpayer- this is critical because he wants the tax deduction from his income taxes. Most charitable lead trusts are non-grantor trusts designed to save on gift and estate taxes.
Haroon, in his trust, decides to donate 5% of the trust corpus every year for 20 years. These numbers can be less or more, depending on his goals. If he earns income on it, he pays taxes. Because he already got his charitable deduction in year one, he won’t get a charitable deductions again for the same donation. His year one charitable deduction is based on calculating the “present value” of the gift he did not give yet.
A GCLAT is known as a “split-interest trust”- a present and a future interest. We calculate the deduction through what is known as the “7520 rate” (after the tax code section). In October, the rate was only 1%. In November, it is 1.4, which is still low (though it has been as low as .6% this year). The lower the rate, the more the potential charitable deduction. Some Muslims get a little concerned when they see an interest rate. There is no loan; we use the “interest rate” to calculate the value of the gift.
The trust can last five years, or, as I noted in the example, 20 years. It can, in the right situation, be a great way to give a lot in charity, save a bundle in taxes in the year it’s needed most, and build long-term wealth. It’s not for everyone. But for the right person, it’s worth considering.
To discuss charitable planning (or just your Islamic Estate Planning) you can schedule an appointment here.
New: Estate Tax Planning Guide for American Muslims
I have been an Islamic Estate Planning Attorney for 15 years now (and a lawyer for 21), and for a decade a certified specialist in Estate Planning, Trust and Probate. One of the most important parts of Estate Planning is protecting legacies from the Federal Estate Tax. Because of law changes this is less a big deal now than it was when I started. Even so, the idea that you can take millions of dollars in tax liability and make it disappear may seem like magic to some, a little shady to others. I want to demystify it.
My website has several articles on Islamic Inheritance, Islamic Estate Planning, Charitable Planning and other areas of planning. I wrote a whole lot about the federal estate tax and how to plan for it in my American Bar Association Book, “Estate Planning for the Muslim Client.”
I have created a new guide for people who are concerned their estates may be subject to the Federal Estate Tax. There are several different strategies that I use. The goal of this guide is in simple terms, and without the use of needless jargon, and show how it is possible to save many millions of dollars in the estate tax (for people who have millions of dollars to save). This money can be used for families, charity and for (hopefully) doing good and beneficial things.
You can read the Estate Tax Planning Guide for Muslims here. Of course, most people reading this just need to make sure they are doing right by their loved ones and planning according to Islam. You may want to discuss this too.
If you want to schedule a 15-minute mini-consultation to discuss your Islamic Inheritance planning, click here.
Fixing Estrangement Among Muslims
As an Islamic Estate Planning Attorney, I have become a student of family estrangement. I have seen much of it. In my past litigation work, my cases tended to be inheritance disputes between siblings. These disputes would frequently cause ruptures in families that are likely to last for generations.
In Islam, shares of inheritance are ordained. Many of the complaints inherent in family disputes that arise from inheritance do not exist when individuals plan correctly in a manner consistent with the Islamic inheritance rules. It is a wondrous and beautiful thing.
Fault Lines- my latest favorite book
Occasionally, I may come across a book and think to myself, “what a remarkable contribution to humanity.” The book by Karl Pillemer, Ph.D., “Fault Lines“-really is that. It is about mending fractured families. When brothers and sisters, cousins, nephews and uncles, parents and children, and other relatives cut each other off (“I’m done”), the effect is more than a momentary catharsis. It is a wrecking ball for your family.
Pillemer, among other reasons, discusses a lack of “legacy thinking.” When a brother decides, in a huff, that he is not going to speak to his brother anymore, he is not only cutting off that relationship. He is cutting off everything that comes after it. He denies the ability of cousins to grow up together. Family is social capital. That includes leaning on a broad group of people for advice, contacts, and a myriad of resources. If you have a large family where people get along and love each other, that is wealth. Robbing people of that wealth is a moral crime.
In the Quran (obviously, Pillemer does not cover this), Allah has condemned those who have severed family ties.
In a hadith, it was reported Muhammad (sws) said
“No sin deserves quicker punishment from Allah Almighty for its doer in the world, along with what is prepared for him in the Hereafter, than transgression and severing family ties” (Tirmidhī).
Estrangement is super-common
According to the author’s survey, about 27% of Americans admitted to estrangement from a relative. About 10% of parents and children were estranged. About 85% of those estranged had been for a year or more.
Estrangement is a massive problem. I know from my clients that estrangement is a chronic problem in the Muslim community. It is also a more solvable problem than you might think.
Pillemer based his book on the author’s study on fractured families and how they reconciled. It provides concrete strategies that many people have used to develop better relationships among their family members. Some of the author’s stories include reconcilers where family members have acted in toxic, abusive and even criminal ways. There is a whole lot I can say about this book, and I expect to go back to it several times. But I want to focus this post on how they happen.
According to Pillemer (and this would be maybe obvious to you after reading it), estrangements happen a few different ways:
The Long Arm of the Past
This category includes trauma that is occurred because of challenging circumstances during childhood and adolescence, parental favoritism, or other factors. One of the things to appreciate about this “long arm” is that it is pretty long. Folks can maintain estrangements in ways that seem to transcend time and space.
For example, it is difficult for some families to identify close relatives (heirs in Islam) because of an estrangement that resulted from partition in the Indian subcontinent. Partition is a distant historical event that took place over seven decades ago halfway around the world. Yet, the trauma from this still reverberates and is a cause of estrangement.
The legacy of divorce
Many will identify with this one. Divorce sometimes brings out the worst in people. It is common for children to take sides and to cut off the offending parent. The hostility that continues between the former spouses and other family members may make reconciliation difficult.
The Legacy of Marriage
Pillemer calls this “the problematic in law.” I would, however, tie this not to either a daughter-in-law or mother-in-law acting in problematic ways. Instead, it was a marriage that failed add increasing love, kinship, and harmony, for whatever reason. It treats relationships as a “zero-sum game” where there are winners and losers. There is an ongoing struggle between the “family of origin” and the “family of marriage”- something must give.
I often tell people during my talks on inheritance that the best advice I could ever give about estate planning is not “go to an Islamic Estate Planning lawyer,” “get an Islamic living trust, or “follow the Islamic Rules of Inheritance.” Those are good things you should do. But the most important decision is who you marry. If you make a mistake here, no lawyer on earth can save you.
Money and inheritance
Since I am an estate planning attorney, I am intimately familiar with this reason for estrangement, which may be the most common. In some ways, a dispute about money or inheritance is not really about those things. They tend to connect with the “long arm of the past” and every other category here. Money and inheritance disputes tend to be little more than a trigger to a loaded gun.
Unmet Expectations
Sometimes, family members don’t show up to things they were supposed to, say a wedding or funeral. A younger brother may not speak to his older brother for many years because he had a lame excuse for not showing up at his niece’s wedding.
Sometimes, people get stubborn about family politics that people not immediately in that situation would have trouble understanding. Sometimes, we need to let things go.
Values and Lifestyle Differences
Some who grew up in the same family might have dramatically different values. What’s more, there may now be unmet expectations that those differences need to be affirmed and accepted. The person who does not swallow those values for those expectations becomes “toxic”- a frequent justification for breaking family ties. This dynamic often happens when family members end up becoming lesbian, gay, bisexual, or trans. The child may have left Islam, become an evangelical atheist who cannot stop talking about how idiotic it is to believe in angels, or a Christian who keeps telling his Muslim parents they are going to hell.
Implications for Inheritance
I have long maintained a policy of turning away clients who want to disinherit their Muslim children. Children often grow up to be a disappointment to their parents. That does not give them the right to commit an injustice, either estrangement or disinheritance. Yes, there is a hadith about non-Muslims not inheriting from Muslims. This rule of inheritance is part of our fiqh, but that is different from cutting off relations. I have clients who, despite this rule, do whatever they can to include and be merciful to their non-Muslim children. Sometimes, they do come back to Islam.
Short of a relative leaving Islam, you cannot “disinherit” a child. Inheritance is not a tool you can use to persuade your child of a correct course of action or impose on your child views and values they no longer share. If your child married the wrong person, talks to you in a disrespectful tone or has a tattoo of Harry Potter on her arm, well sometimes those are the breaks. Inheritance is a right, literally a right ordained by Allah. It’s not a weapon you can deploy. At least not in Islam.
What you should do
If you know anyone afflicted by the scourge of family estrangement, you should check out Pillemer’s book. It’s worth the read. You can also forward this post if you found it beneficial!
To discuss getting an Islamic Estate Plan for your family, you can schedule a 15-minute mini-consultation with me by clicking here.