Request for Fatwa – Defining the Estate in the Islamic Inheritance Context

Request for Fatwa – Defining the Estate in the Islamic Inheritance Context

Below is the letter we sent to the Australian Fatwa Council seeking guidance on legitimate questions that members of the Australian Muslim community often ask in relation to defining their estate. The context is set out in the letter. We eagerly await the response and will be sure to bring it to you as soon as we hear back.

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Australian Fatwa Council

By Email (info@anic.org.au) & Post

27 September 2021

Assalamualaikum 

Dear Respected Shuyookh,

REQUEST FOR FATWA – DEFINING THE ESTATE 

Wasiyyah – Islamic Wills Made Easy (Wasiyyah, www.wasiyyah.com.au) is a service that has been assisting members of the Australian Muslim community since 2012 to write their Wills in a way that is compliant with both Islamic and Australian legal requirements.

We are writing to you to seek your guidance on properly defining a deceased’s estate as a result of complexities arising in the way property may be owned/controlled in Australia. The guidance we are seeking is reflective of repeated queries that we have received from the community, which we believe are issues requiring fatwa as opposed to purely legal answers.

For context, Islamic Wills are written flexibly to evolve as a person’s circumstances change. This is to allow for the Islamic distribution of an estate which can vary depending on who is alive at the time of a person’s passing. Accordingly in a Will that is written from an Islamic perspective there is in essence an instruction to the executor to distribute the deceased estate in accordance with the Islamic distribution that applies at the point in time the Will-maker passed away. 

The question many people have is what constitutes my ESTATE? With certain asset classes like cash in the bank, jewellery and personal belongings, the ownership is clear and can confidently be said to be part of a deceased’s estate. However complexities arise in relation to the following property ownership/control concepts: Joint Tenancy & Trusts. Each is explained in turn below.

Joint Tenancy

Explanation

Property is owned in Australia in one of two ways; either as a joint tenancy or as tenants in common.

In a joint tenancy, the deceased’s interest in the property passes to the surviving owner pursuant to the right of survivorship. Whereas in a tenancy in common, the deceased’s interest passes to the deceased’s estate.

Applying the above mentioned principle, in the case of a joint tenancy if a husband and wife owned a house and if the husband were to pass away, as per Australian law the ownership in the house vests wholly in the surviving wife.

This principle of joint tenancy creates confusion at the point of administering deceased estate.

Questions Requiring Fatwa

1. Is the property that was owned jointly in a joint tenancy arrangement to form part of the deceased’s estate for the purpose of calculating the Islamic distribution of the estate, or not?

 If the answer to question 1 is ‘YES’:

2. Is it assumed that 50% of the jointly owned assets is the inheritable portion?

3. If the jointly owned asset is the family home and there are no other assets that can be used to meet entitlement of other beneficiaries, is it expected of the surviving tenant to liquidate the property in order to be able to undertake the distribution of the estate?

Trusts

Explanation

A trust is a legal relationship between a trustee who looks after or administers the trust, and a beneficiary, the person who benefits from the trust. The nature of a trust is a legal obligation on the trustee to look after the trust property, and invest it and use it wisely and carefully for the benefit of the beneficiary. The beneficiary has the right to receive benefits from the trust as required by the terms of the trust, and some rights to information about the trust and how the trustee is operating it. Accordingly in a trust context the trustee is considered the ‘legal’ owner of the assets in the trust and the beneficiaries are considered the ‘beneficial’ owners of the assets in the trust.

The terms of the trust are usually set out in a document such as a trust deed. A trust deed may be simple or complex depending on what is needed. It is a legal document which sets out:

• Who is to be a trustee.
• The person or people who are to be the beneficiaries.
• When and how the trustee is to provide benefits to the beneficiary.
• What things the trustee is to take into account.
• What other powers and duties the trustee has.

The property contributed to the trust is often called the capital and the trust earns income on that capital: rent on real estate, dividends on shares, and so on.

There are two main types: discretionary or unit trusts. In a discretionary trust, the trustee has discretion in the distribution of funds to each beneficiary. The trustee must consider all beneficiaries but is under no obligation to distribute to all beneficiaries. In a unit trust, the interest in the trust is divided into units with their distribution determined by the number of units held by each member.

In a purely legal context assets in a trust do not automatically form part of a deceased’s estate once they pass away. Instead the assets in the trust will continue to be managed by the trustee of the trust on behalf of the beneficiaries.  This will continue until such time as all of the assets within the trust have been distributed to the various beneficiaries or the trust comes to an end.  The trust must come to an end on the “vesting date”, at which point the remaining assets within the trust will be distributed by the trustee to the various eligible beneficiaries.

There are many reasons people choose to control assets via trust, including for asset protection or tax planning purposes. It should be considered that given in the legal context assets held in trust sit outside of a deceased’s estate there is potential for trust structures to be utilised to circumvent Islamic inheritance injunctions.

Questions Requiring Fatwa

1. Is it legitimate from an Islamic perspective to treat assets held in a trust outside of a deceased’s estate and thus not be subject to Islamic inheritance requirements?

 If the answer to question 1 is ‘NO’:

2. How is it to be determined which assets held in a trust should form part of a particular deceased’s estate?

We would appreciate it if the Australian Fatwa Council could consider the questions noted above and issue a fatwa providing guidance to the community on how to reconcile between the Australian legal principles around trusts and joint tenancies and the application of the Islamic rules of inheritance.

We remain prepared to assist the Australian Fatwa Council in its deliberations on this issue should it be necessary. We can be contacted at info@wasiyyah.com.au or 0435 147 415.

We would appreciate it if you could keep us informed as to what the Australian Fatwa Council proposes to do about the issues outlined in this letter.

We look forward to hearing from you.

Yours sincerely

Adel Mohamed

Director