Islamic banking gif
portance. Additions to be considered for an Islamic client may include naming creditors and necessary debt settlements, guardian- ship of minors, healthcare instructions in case of incapacitation, instructions for fu- neral rights, and naming a trusted person to act as the estate administrator (wasiy).
Estate planning can also become more complex if the estate is domiciled in various countries and thereby subject to different es- tate and tax laws, which the banking advisor will need to be aware of in order to manage the process efficiently and prevent deviation from Islamic requirements. Furthermore, in countries that do not have Sharia-based inheritance laws, it is necessary to advise clients to include distribution to heirs ac- cording to Sharia-assigned proportions in order to comply with the mandatory religious allocation of their faith. Even though these inheritance proportions are fixed, it remains necessary for each Muslim to write a will, leaving his worldly affairs in good order.
Managing the crucial issue of succes-
with death must be put in place in order to manage and preserve any assets.
To summarise, Islamic estate planning has two major instruments:
1. A will, allowing for a maximum of one third of the estate to be passed on to any desig- nated charitable entity or person. 2. An irrevocable gift during a lifetime which can be personal or in the form of Waqf, (en- dowment of a public or private cause).
Preparing a will During his lifetime, a Muslim may decide to give away his wealth to a charity or to others, including family members, without violat- ing the principles of Sharia, since he is still the guardian. However, as death occurs, the distribution of assets is ordained by Allah in accordance with the Qu’ranic inheritance rules to the heirs within the family although one may assign, by virtue of a last will, up to one-third of the net estate to others, such as grandchildren or friends. This Qur’anic assignment cannot be changed although it is very common to add more issues of im-
sion Since a family business is typically the source of wealth, estate planning must ad- dress long term succession issues. Family businesses present a special challenge on how they should be managed, continued and passed on to the heirs. Wealth preser- vation in this regard faces numerous family dynamics that need to be considered.
According to the ethics of Islam, a family must be governed in accordance with the writings of the Qu’ran and many families are satisfied with the guidance given by their lawyers with respect to wealth preservation. However, much can still be done to improve performance within the Sharia principles. We believe that the first step towards successful long-term wealth preservation requires the creation and maintenance of a system of decision-making that assures broad consen- sus over a period of at least 100 years.
The initial step in this process for a banking advisor is to help the client define a fam- ily’s purpose and goals in order to create a Sharia-compliant mission statement to de-
termine the family’s approach to preserving its wealth. The general purpose of a Muslim family is to enhance the pursuit of happi- ness in the worldly life and in the hereafter for its individual members, and thereby to preserve its human, intellectual and finan- cial capital. Nonetheless, it is important that each family must determine and define its own specific philosophy.
A family’s values need to be discussed open- ly and honestly, both confronting issues and celebrating the family history in order to establish common bonds. A shared vision is crucial and the family must look ahead to the future and form a consensus around a collective goal. A key question is how the family plans to achieve its current goals, while looking ahead 25, 50 and even 100 years. A form of governance or Trustee must also be chosen and the family mission state- ment should indicate the decision selected by the family and how it will assist in long- term wealth preservation.
Finally, each person needs to assess and understand his or her role in the family. In this way, a family mission statement affords each individual family member the opportu- nity to consider his duty as a member of the family and as an individual.
Once this mission statement is clarified, only then is an ethical, goal-oriented day-to-day operation possible. This is what classical authors of Islamic administrative ethics call “Tadbir” - if the mission and roles are not defined, administration cannot act respon- sibly.
Assess current financial and spiritual health The second step in measuring the health of any wealth preservation strategy is to evalu- ate the family assets.
Beside the tangible and financial assets that a family possesses and the monetary income it enjoys, the family also possesses human, social and intellectual assets or capital aiding it to preserve and generate financial wealth. These aspects have to be evaluated and observed to ensure long term family wealth creation and preservation and all this information is best presented as a
2010 October Global Islamic Finance 29
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