We talk about this all the time in Islamic Estate Planning: What to do with the family home?
About more than Inheritance
Estate Planning is about far more than the shares of inheritance when someone passes away. My goal is to create a simple process, though the thought that goes into it is quite complicated. One of the reasons it has to be complex and becomes more so as we age is because there are numerous competing interests inside families that you need to balance. A lot of these are competing interests that may reside in your mind simultaneously.
In the broader sense, the idea of Islamic inheritance itself is simple. You cannot take your worldly possessions with you. Shares get distributed from what you leave behind. That is almost the easy part, though of course, most people mess that up.
The harder parts include elemental things like what is your property in the first place since that is less than obvious. The other part has to do with dealing with sometimes conflicting and competing interests around your wealth and family.
There are several such areas. However, let’s focus on the house since that is what I promised to discuss.
Abdulrahman and Fatima and their family home
Abdulrahman is married to Fatima. They have three children together, Aisha, Hafsa, and Alam. His parents are deceased. So under the Islamic Rules of Inheritance, since Alam is a boy, he gets 7/16. The daughters, Aisha and Hafsa, get 7/32 each. His wife, Fatima, gets ⅛. Rahim’s biggest asset is his house, which he purchased before he married Fatima and is his alone. Abdulrahman and Fatima have about $50,000 in savings between them, and the house itself is worth $600,000.00.
Abdulrahman wants his wife to have the house, then have it go to his children based on the Islamic Rules of inheritance after he dies. Can he do this?
Well, the short answer is that his wife cannot just take the whole house herself as inheritance and have it still be an “Islamic” plan. She is entitled to ⅛ of the estate, and the value of the home is worth more. The idea that it will eventually pass to the children is flat out not good enough. Fatima may live for decades after Abdulrahman passes away. She may outlive one or more of her children. Fatima may get remarried; adding to additional complications, she can also get sued or go bankrupt. The main reason she cannot have the entire house is that the children are entitled to shares in the Sharia.
Owning the family home together
So this brings us to another possible solution. Fatima can own a house together with Alam, Hafsa, and Aisha after Abdul Rahman dies. So, in this scenario, the house is split apart by deed, with all four people owning the family home as “tenants in common.” If the shares are correct in Islam, the form of ownership is not a problem. The problem though is that it is not really a secure home that Fatima can reliably live in through her old age.
Owning a home with children is, as you might imagine, dangerous. Children age. Their lives get increasingly complicated. We are not just concerned about Fatima getting married or bankrupt or sued; we have similar concerns for all three children as well since any of these things happening can result in Fatima potentially losing her ability to continue to live in the house. So we don’t divide up the house.
One additional solution and I emphasize this is only a solution for some people and may be inappropriate for others, is to split apart the ownership and “equity” in the house. We do this through a combination of trusts and other arrangements. This formulation contemplates inheritance not just as cash, but as beneficial ownership in the property. The goal is to protect the inheritance of the heirs, while at the same time, it allows for the surviving spouse to continue to live in the home.
Like a Business
This type of arrangement is similar to creating a business partnership or other business entity, which is another way we can distribute inheritance. However, we do this for the family home.
Such an arrangement can be flexible, allowing for families to fulfill their If one of the children wants inheritance in the form of cash and that cash is available, the Trustee of the Trust can write a check. There is also the possibility the surviving spouse sells the house before he or she passes away, resulting in a cash distribution. The most likely situations where this happens is if the surviving spouse gets remarried (and thus moves to another home) or leaves the geographic area.
Different features in Estate Planning come with both opportunities and risks. How we develop them is about balancing different interests and goals. Unless everything is getting sold off and distributed after death, you have some level of complication. Family businesses, real estate, and other assets can cause problems. The family home is a common concern.
Control is always an issue. Control leads to the possibility of oppression. We worry about abuse in some families more than others, though we never know what the future goes. That is knowledge of the unseen.
This process, estate planning, is more about people and relationships than it is about lawyers and documents. Those things are, and you really cannot do the half-way decent plan without them. We always try to focus on relationships, the planning follows. This is for the family home and everything else.
Before you leave, get our free resource guide on Islamic Inheritance by clicking here.