One of the questions asked by not just Muslims, but really everybody, is “what is the difference between a last will and a living trust?” Another way to ask this question is what is better, with the implication that these are two things in a menu of choices and that you can select one to the exclusion of the other.
The Last Will is Essential
In general, all modern estate plans done by estate planning attorneys in California and I should say nationwide include a last will. There is virtually no way of doing an estate plan without one. An estate plan should be understood as a general term for organizing an individual’s affairs for death and incapacity. While a broader view of estate planning can include contemplation of other things, for example, lawsuits (in the case of asset protection planning) or divorce (in the case of prenuptial or postnuptial agreements), we can leave those aside for now.
Saying the last will is essential is not the same thing as saying it is sufficient. It is also not the same thing as saying that it will be used. However, in California and various other states, the last will is the only way to have a say in the distribution of your “probate property.” A “probate” is a legal proceeding that happens, to put it simply when you needed that person’s signature to transfer property from one person to another. Because a dead person is not available to sign things, a court process must exist.
Probate is Not Essential
So a Probate, the court process that occurs when you need a dead person’s signature to transfer property, does not have to happen. This is because there are several classes of property that are excluded from probate proceedings. I can list several types of assets. However, the most simple way of explaining it is that anything that passes by a contract does not go through probate. The property is transferred to new owners based on what that contract says.
Why Avoid Probate?
Despite that fact that everyone gets a will, just in case, they would rather avoid the probate process. As you may imagine, this is not just a Muslim thing. In a state like California, the cost and time involved in administering probate can be expensive. The state legislature sets rates for various players in the system as a percentage of the overall gross estate. By gross estate, I mean that we do not provide any discount for debt. So as you might imagine, it is expensive. So when families plan, they typically do it with a “Living Trust” as a foundation for the planning.
Another reason why I prefer a living trust as the core of an estate plan is that there are a series of administrative rules in state law that might invalidate an Islamic inheritance plan. Say, for example, an individual has a last will to make distributions based on the Islamic rules of inheritance. A judge reviews them and changes them so that they are no longer Islamic. Can that happen? Yes. In fact, it may happen not because of any maliciousness, lack of respect for the decedent or lack of respect for Islam as a faith tradition, but because the statute may require it. Any Islamic estate plan should have no judicial supervision if at all possible.
Lastly, another reason to avoid probate is privacy. Courtrooms are public venues. The hearings that take place in courtrooms are open to the public. A wide range of people, some of them because it is their job, some because they are curious and others because they are malicious and exploitative.
What is a Living Trust?
Trust, as you may well be aware, is a relationship. You agree with somebody, trust that person to carry your agreement. You let somebody borrow your car, you just created a trust. A “trust” as we understand it, however, is a form of a contract. The parties include a “grantor” who creates the trust and owns all the property to start with. The grantor gives this property to a “trustee” who manages the property based on the instructions provided. This is all done for the benefit of the third person in this arrangement, the “beneficiary.” Now the beneficiary is the entire reason this arrangement exists in the first place.
In typical “revocable living trusts” all three individuals are the same person, or in the case of a married couple, both husband and wife together. They continue to manage their property the way they did before, though there would be some changes and how assets are titled, no major change would take place in their lives immediately.
In the event of death or incapacity, the trustee would change. After the grantor dies, you have distribution to the living. For Muslims, that would mean the beneficiaries would be the same people who would be entitled to inherit under the Islamic rules of inheritance. Charities may also benefit.
There is a process to this; it is not magic. However, if everything is organized right, courts do not supervise the process. Doing it right makes the process faster, more private, less expensive, and in keeping with the Islamic Rules of Inheritance.
Putting it all together
In estate planning, there are “Will-based plans” and “trust-based plans.” It is common for trust-based plans to include the last will, known as a “pour over will.” At the same time, it is common for “Will-based plans” to include trusts inside the document. They are not mutually exclusive. I tend to recommend Trust-based plans, and this is common in a jurisdiction like California. In other states, it is relatively common for will-based plans to be dominant.
When approaching the issue of Islamic Estate Planning for your family, focus on what benefits your family can get and what might go wrong if you don’t do it. For Muslims, the fact that Islamic Inheritance is fard should be enough of an incentive to do something.