Blog

 

A recent presentation on avoiding fitna at the Islamic Center of Claremont.  Please check it out and share it with your friends and family if you feel it is beneficial.

 

Some Reflections on Halal Rizq and Islamic Estate Planning

Jabir ibn Abdullah reported: The Messenger of Allah, peace and blessings be upon him, said, “O people, fear Allah and be graceful in seeking provision, for a soul will never die until it finishes its provision. If it is slow coming, fear Allah and be graceful in seeking provision. Take what is lawful and leave what is unlawful.” (source)

Early in my now decades old legal career I remember vividly a case I had of psychological injury.  You see, I was a lawyer for a company that slaughtered pigs.  They had an employee who did the actual slaughtering.  After years of doing this work, this man was haunted, day and night, by all the pigs he killed.  The long dead pigs would approach him at all hours, speak to him and confront him about the violence he perpetuated against them.

Now at this point, you may be wondering, what on earth does this have to do with Islamic Estate Planning, and why is a Muslim lawyer representing a pig slaughterer anyway?  Well, it does.  Lawyers must often think about ethics, and Muslim lawyers often must consider Islam in the work they do and how they earn their pay.  But lawyers, as a general matter do not think of themselves as much different than a plumber or an electrician in several important ways.  We usually don’t really care what clients do for a living unless it affects our work.  A plumber does not usually concern himself with how a customer earns his money, unless he is helping a customer do something illegal.

Please note, as a disclaimer, this is about how I drew my lines.  I think everyone else can draw their own lines on the way they earn a living and consult with knowledgeable and learned people they respect.  It’s not my intent to lay out principles that would be applicable to everyone, but I think they should be helpful as the perspective of an Islamic Estate Planning Attorney.

Why I turn down clients

Over the course of many years, here are a few reasons I have had to turn down clients (not an exhaustive list by any means, and not all because it’s haram to help):

1. Muslim parents want to disinherit their Muslim daughter because she married a black man (who is Muslim).
2. Man wants to use asset protection to launder bags of cash to hide it from ex-wife and men he evidently cheated to obtain said bags of cash, who are soon getting out of prison and may come after him.
3. The client turns out to be a very public white nationalist media figure.

It’s Haram to Help Someone Do Something Haram

ۘ وَتَعَاوَنُوا۟ عَلَى ٱلْبِرِّ وَٱلتَّقْوَىٰ ۖ وَلَا تَعَاوَنُوا۟ عَلَى ٱلْإِثْمِ وَٱلْعُدْوَٰنِ ۚ وَٱتَّقُوا۟ ٱللَّهَ ۖ إِنَّ ٱللَّهَ شَدِيدُ ٱلْعِقَابِ

“[…]cooperate with one another in goodness and righteousness, and do not cooperate in sin and transgression. And be mindful of Allah. Surely Allah is severe in punishment.”

-Quran 5:2

I do a lot of asset protection work, both for Muslims and non-Muslims. Asset protection is one of those areas of law that can attract  people who want to both protect their family and wealth from lawsuits that they don’t know about yet.  Alternatively, shady characters may contemplate asset protection, and helping such people can implicate the lawyer in cheating and theft.  While clients often rely on Attorney-Client Privilege, so attorneys keep their clients’ secrets even to the point that they cannot testify, there is a “crime-fraud” exception.  Lawyers can and do get in trouble for helping their clients cheat and steal. They can go to jail.

For a lawyer, that’s an easy line to draw.  Don’t help someone steal. Stealing is haram.  Stealing is against the law.  Great we are clear.

What about Inheritance?

Where I won’t get in any legal trouble, is when a client asks me to do an estate plan that gives everything to a son and excludes a daughter for an unjust reason or gives equally to a daughter and son (which is pretty banal).  People have testamentary freedom and lawyers do these kinds of plans all day.

I will turn away Muslims who want to exclude or diminish the rights of heirs for the exact same reason I would turn down a client who wants my help laundering money: It’s haram to help someone so something haram.

Inheritance is ordained in Islam.  It is literally a God-given right.  In the context of the rules of Inheritance, the Quran is quite clear

وَمَن يَعْصِ ٱللَّهَ وَرَسُولَهُۥ وَيَتَعَدَّ حُدُودَهُۥ يُدْخِلْهُ نَارًا خَـٰلِدًۭا فِيهَا وَلَهُۥ عَذَابٌۭ مُّهِينٌۭ

But whoever disobeys Allah and His Messenger and exceeds their limits will be cast into Hell, to stay there forever. And they will suffer a humiliating punishment.

–Quran 4:14

It’s not a right for non-Muslims who have their own values that I am happy to put into a plan.  But if I help a Muslim deny a right Allah gave to a child, I am helping in that theft.  I don’t think helping steal future inheritance from a future orphan is any better than helping a criminal launder money.  Yes, one is perfectly legal and the other is not, but that is not my sole inquiry when it comes to my comfort about how I earn my rizq.

 

But Muslims Keep Asking Me to Do Haram things Anyway

I write and speak about Islamic Inheritance frequently.  It’s important to me,  Still I do get Muslims to call me because they don’t want to do Inheritance Islamically.  Some Muslims, even those that you might consider conventionally religious, go to the Masjid, fast in Ramadan and so forth, are offended by what the Quran says about Inheritance.

.   As the years have gone on and there is more education about Islamic Estate Planning, I have grown more offended by this over time.  It’s like a Muslim demanding another Muslim serve him whiskey.  If you want whiskey, have the decency to not demand it be served to you by another Muslim.

Other Muslims may have worked out difficult ethical issues about how they earn their rizq in ways that may not sit well with everyone.  Yet to them, it’s still vital to make sure inheritance is distributed the way ordained by Allah.  They don’t want their last act in this world, their parting shot, to be one of injustice against the orphans and others they leave behind.

To talk about Islamic Estate Planning in a 15-Minute mini-consultation with Ahmed Shaikh, click here.

 

Despite the poor stock market, some readers have had a good enough year where they are looking at year-end giving to charity. While this is a blog post, you should investigate more before deciding if a strategy will work for you. Here are some ideas you may consider:

1. Income from an IRA you don’t need and don’t want to be taxed on can go to charity

This helpful reminder comes from the IRS. You can make tax-free distributions of up to $100,000 per person from your IRA if you are more than 70 ½ years old. This kind of distribution is not an option for reducing people’s tax burden now for income already received, but it is a great planning tool for future years. For example:

Bilal is 73 years old and retired with a high income from his pension, rental income, and IRA. His IRA income comes from a “mandatory minimum distribution” he does not need, but the government forces him to withdraw some of it yearly because that’s how IRAs work.

Bilal can give up to $100,000 of this IRA income to charity. He cannot deduct the donations from his taxes, but it does count against the mandatory minimum distributions, so he has that much less income. The government does not force Bilal to take the distribution, pay taxes, and give it to charity. I am describing a Qualified Charitable Distribution (QCD), and you can read about it here.

2. Cash gifts tend to be inefficient.

The value of your deduction is your donation times your highest marginal tax rate. So, if Bilal donates $100 to charity and has a marginal tax rate of 35%, he saves $35. However, suppose Bilal donated $100 in appreciated stock purchased for $10. In that case, that is a savings of having to pay income tax on the $90 appreciation, plus he gets the deduction for the complete donation. That is just the start. It would help if you generally planned charitable gifting, the who, why, and how.

3. Huge income years may have a charitable solution.

Many people have years where they receive a significant income they usually don’t expect yearly. For example, on the sale of a business, or a building, certain kinds of lawsuit judgments and a big bonus can result in a rather extreme uptick in income for a specific year and, thus, a more significant than the ordinary income tax bill. It’s possible to get a tax deduction for giving to a charity that year for an amount substantially more significant than the charitable gift for that year; this is through a charitable lead trust.

Example:  Bilquis owns restricted stock in a startup she works at. Someone purchased the company, and her HR tells her she will receive a taxable income of 2.3 million dollars. Bilquis knows payments like this are unusual, and she would like to keep as much money as possible for her family, retirement, and other priorities.

She creates a “charitable lead trust” (CLT) that allows her to give a percentage of the $2.3 million while investing it every year for the next 20 years. She can spread her deduction for the next five years.

Bilquis could get a deduction with a CLT trust, like an outright donation. With a CLT, Bilquis gets to keep nearly all the money. Twenty years later, she may have much more if she invests wisely while donating.

4. Some charitable-tax planning increases income.

One of the more common charitable planning techniques, a “charitable remainder trust,” is a kind of “split-interest trust” where the person who creates a trust gets several tax benefits. The result may still be more taxation overall, but because there is more to tax.

For example:

Hamza sells an office building owned by his charitable remainder trust for a profit of $4 million.

He is not immediately taxed on the capital gain of nearly $4,000,000 and can reinvest whatever he wants, supercharging his returns.

Hamza also gets an immediate tax deduction. It’s for the value of the future interest in charity.

Income from the trust that goes to Hamza is taxed but on more favorable terms than other investments. When setting up the trust, Hamza has various options regarding when he starts to take distributions and under what terms (there are a detailed set of rules, however). He can decide to take a “unitrust” – say 6% of the account value, an annuity trust, which is fixed income (but it’s not interest), net income, or a variety of other options.

The entire trust ends up going to charity eventually. That’s the bargain with this kind of trust. An illustration can show people who invest through charitable remainder trusts can do substantially better financially than those not having such plans.

5. A Charitable Gift Annuity is a horrible idea.

Many nonprofits will try to sell donors, especially the elderly, something called a “Charitable Gift Annuity.”  It works like this:

 

Khadija is 80 years old. A local nonprofit offers her a charitable gift annuity. It’s a way to earn a fixed income, guaranteed by an organization’s assets for the rest of her life. She decides to donate $3 million, which will generate a guaranteed $120,000 per year for the rest of her life. Khadija figures she can retire and not worry about the stock market. She will get a tax deduction for the value of the charitable contribution.

Annuities are often a bad deal and are often exploitative to the elderly. They are not as safe as you might think. This device likely violates rules on Islamic Inheritance as well as interest. As we are dealing with nonprofits, consumer protections in the law often melt away, but they are the same product.

Please stay away from them and discourage Muslim organizations from marketing them.

6. Always Research Charities

The charitable sector has many organizations that do good work. The industry is lightly (if at all) regulated by state and federal governments and has tended to attract more than its fair share of corrupt operators. Religious nonprofits are the least regulated by design and tend to have almost no accountability.

Having social ties to an organization, hearing a good speech at a fundraiser, or being subjected to brand advertising is not a substitute for due diligence. Organizations often figure you would be less careful about the money you give than what you invest for your family. They may be correct, but why should that be?

You should care about the money you spend for the benefit of your brother just as much as you care about the money you keep for yourself. As Muhammad (sws) is reported to have said, “none of you will believe until you love for your brother what you love for yourself.”

Charity is more than just a tax benefit. It’s an act of love.

You can read my Muslim guide to charitable planning here. To discuss the process for charitable trust planning or Islamic Estate Planning, you can schedule a 15-minute zoom consultation here.