Monday, October 13, 2008

Exploring the viability of creating trusts and writing wills for both Muslims and non-Muslims

FATIMAH (not her real name), 65, a widow, wanted to give her house to one of her sons who had provided for her needs in her old age.

Since will writing is not practiced in Islam (inheritance is distributed according to Shariah laws) except if non-family members (including adopted children) are involved, Fatimah decided to give the house to him while she was still alive, as encouraged in Islam. The ownership of the house was then transferred to her son. Fatimah continued to live in the house while her son and his family resided in another state.

Complications arose when her son died. Fatimah began renting out a couple of rooms in her house to support herself since her son's death but her daughter-in-law, who had become the rightful owner of the house, disapproved of her action and asked her to move out. According to Faraid (Islamic law on the distribution of estate), a husband's inheritance goes mostly to his wife and children. Only one-sixth of it goes to his mother.

In another case, Ong (not his real name), bought a house in his son's name with the intention of bequeathing it to him when he dies. Ong was already in his 60s and it was difficult for him to get a bank loan.

Years later, he received a legal letter informing him to move out of the house. His son, who was heavily in debt from gambling, had sold the house without his knowledge. Without a job, the heartbroken Ong feared he might end up in an old folk's home.

Such experiences tell us that the man-in-the-street perceives will writing to be a hassle. The elderly often find themselves caught in difficult situations.

To address setbacks that often arise in the legal process of asset distribution upon the demise of family providers as well as the weakness in direct giving, Bumiputra-Commerce Trustee Berhad (BCT), a subsidiary of Bumiputra-Commerce Bank, has introduced a new concept involving the role of trustees in direct giving.

Called Hibah Harta for Muslims and Hadiah Sulaman Kasih (A Gift of Love) for non-Muslims, BCT will hold in trust and manage the gift, in the form of any assets that can be bought or sold and is legally owned by the giver.

Agreement is made during the lifetime of the giver and recipient.

"The property is given to the beneficiary, but it is parked in the trustee's name. It protects the interests of all parties," says Othman Yaacob, Hibah Harta consultant at BCT.

The recipient is not allowed to transfer the asset or any part of it during the lifetime of the giver. Upon the death of the giver, the trustee will transfer the property to the recipient. If the recipient dies before the giver, the property will be returned to the giver, says Othman.

"The usual procedure requires the giver to go through court proceedings to claim back his gift. He will have to get a Letter of Administration and Order for Distribution from the court," says Othman who formulated BCT's trust schemes.

Since Hibah Harta and A Gift of Love are private contracts done during the lifetime of the two parties, the property will not form part of the giver's estate, which renders it unaffected by the Probate and Administration Act, Will Act 1959 and Faraid. As such, there is no need for probate or Letter of Administration, says Othman.

BCT would immediately proceed with estate distribution in accordance with the Trust Deed, he adds.

"As such, the trust services offer a fast, secure, efficient and trouble-free process of asset transfer and distribution. "The usual estate distribution process may take between six months and 10 years while we will take only between 14 days and three months," says Othman.

The giver, he says, can continue to receive benefits such as rental, dividends and other proceeds from his assets while he is still living.

While the trust plans protect the interests of givers, they also offer protection to recipients. For instance, if parents would like to give gifts to their adopted children who are not entitled to their adoptive parents' inheritance under Faraid, or daughters, who get half the share that a son would get, the giver can hand over gifts according to their children's needs.

Unlike non-Muslims, Muslims do not distribute estate by writing a will, but it is distributed according to Faraid and the main beneficiaries are spouse and children. Only one-third of the estate can be distributed to non-beneficiaries by will writing.

"With Hibah Harta, a benefactor can allocate his assets to any deserving individuals of his choice," says Othman. Hibah Harta has been approved by the Federal Territory Fatwa Council.

Muslim customers entering into a contract under Hibah Harta would participate in the lafaz akad or verbal offer and acceptance of possession of the asset as required by Shariah laws, says Othman.

Hibah Harta given by parents to their children can be withdrawn but Hibah Harta by the children for their parents can't.

Sulaman Kasih does not need any verbal acceptance.

Hibah Harta is based on the Islamic concept of hibah and is encouraged in Islam; Sulaman Kasih is adapted from the Transfer of Property Act 1882 enacted by the British in India, says Othman, who retired from Amanah Raya Bhd (a public trust body) specializing in estate administration a couple of years ago.

Othman says the one-time fee for the services is competitive: the 1% acceptance fee and 1% distribution fee go on a sliding scale as the amount of assets increases.

Possible grey areas

Dr Ismail Mohd, a Syariah lecturer of probate and administration of estate, says the practice of Hibah Harta is subject to further interpretation.

"In Islam, the act of direct giving during one's lifetime has an immediate effect. Once the legal transfer is completed, the gift must be given to the recipient," he says.

"With that in mind, why should the gift be held by a trustee?" says Dr Ismail, one of the panel members appointed by the Islamic Development Department (Jakim) to draft the enactment of Islamic law of succession.

Also, the idea that the gift can be returned to the giver in the event that the recipient dies, does not go with the spirit of giving--that once given, it is not meant to be taken back, he says. "When you give, you just give. Why consider retracting it?"

Although the giving is done in the lifetime of both parties, the full ownership is actually after the giver's death--this is not the true sense of a gift, he says.

"If it is after death, then it is subject to the rule of Faraid," says Dr Ismail.

"Some say the idea is possible and some say not. It is still subject to juristic discourse."

"If a mother would like to give something to her son while still hoping to gain from the asset, and she creates a trust and an agreement, it is a legal device (helah). Then one questions the actual intention or validity of the giving," he says.

The arrangement (Hibah Harta) cannot be defined as a gift but a convenient arrangement between two parties, says Syariah lawyer Syed Ibrahim Syed Abdul Rahman.

"It is understandable that parents fear being kicked out of the house, but if a gift is not completely disposed of when one is alive, it is not a gift. There should not be any residual rights on the part of the giver," says Syed Ibrahim.

Othman disagrees that gifts cannot be given with conditions or revoked. There are three types of gifts in Islam: hibah are gifts that are given out of love and can be taken back (except for gifts from children to parents) unlike hadiah (gifts to honour a person) and sedekah (gifts for those in need).

Moreover, with Hibah Harta, there is offer and acceptance signifying an agreement between two persons. The gift is already given and both parties agree to the condition, says Othman.

Syed Ibrahim points out that there would be added costs to transfer the property to the trustee and re-transfer it back to the giver in the event the objective is not fulfilled.

For non-Muslims, a lawyer in Kuala Lumpur says setting up a trustee is not new in civil law. Often, trusts are set up to manage one's assets for the benefit of future generations.

Therefore, the trust deed is rarely changed, unlike will writing, which is more flexible and encompassing, he notes.

A will is often revised but not a trust, he says, adding that the agreement between the giver and the trustee must be specific; otherwise it defeats its purpose.

"Trusts are usually set up if the benefactor has a lot of assets that need to be managed. For small assets, it is more practical to write a will," he says.

1 comment:

Santosh Swami said...

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