ZAKAT

‘You shall observe the Salah and give the obligatory charity (Zakat) and bow down with those who bow down.’ (Qur’an 2:43)

Zakat is the third pillar of Islam after Solat (Prayers) and a means of wealth distribution for Islamic faithful. Zakat is an obligatory act of charity amounting to 2.5% of a Muslim’s annual savings. It is intended to purify your wealth, not only physically, but also spiritually. It purifies your heart against selfishness as well as ensuring that society’s poorest are protected against hunger and destitution. You are only required to pay Zakat if, firstly, you are an adult Muslim of sound mind, and secondly, you have possessed the minimum amount of wealth (known as Nisab) for one lunar year. To know about how nisab is calculated, who to give zakat to and the importance of Zakat as an Islamic faithful, read more here.

SADAQAH

Sadaqah is a voluntary form of charity in Islam that can be given at any time. It can be given in the form of money, food, clothing, or any other form of assistance that can benefit others. Sadaqah can be given directly to individuals in need or through charitable organizations. The money collected through Sadaqah is typically used to provide assistance to those in need, such as supporting education, healthcare, or providing basic necessities. To rightly fulfill Sadaqah, Muslims must give it with sincerity and humility, seeking the pleasure of Allah rather than seeking recognition or praise from others. It is rewarding to give Sadaqah regularly as it is believed to be a means of seeking forgiveness and blessings from Allah.

WAQF

Another tool for wealth distribution is through the establishment of a Waqf. Waqf, is a model of Islamic philanthropy that is instituted to endure in perpetuity. It is used by Islamic faithfuls to donate to family or mostly charity even after their lifetime. The key components of Waqf are waqif (donor), mawquf (waqf properties), mawquf Alaih (beneficiaires), waqfiyyah (waqf deed) and mutawaali (manager). Find out about the conditions for a valid waqf, benefits of waqf and acceptable objects of waqf here.

HIBAH

Hibah is a gift given during the lifetime of the donor (owner). This is a means of wealth distribution used mostly to distribute wealth (transfer property) to non-family members or adopted children.

Hibah can be revoked at any time subject to the fulfilment of some conditions by the donor. Read more about hibah here.

FARAID

Faraid is a method for dividing inheritance among family members after a Muslim faithful passes away. First, the heirs must separate certain assets that do not belong to the deceased. Assets that have been gifted (hibah), trusted (amanah), endowed (waqf) or included in a will (wasiyah). Then, they use the remaining assets to cover funeral expenses and debts owed. The first category is debt to Allah which includes zakat (obligatory charity), nazar (vows), fidyah and hajj (pilgrimage to Mecca). While the second category is debt to mankind which includes loans from financial institutions and debt to friends.

After that, if the deceased left a will, up to one-third of the remaining assets can go to non-family members or be used for matrimonial property. The rest is divided among the rightful heirs according to Islamic rules.

In the operation of Faraid, it is important to note the following rules in the distribution of estate.

• A surviving husband receives one-half of the assets involved.
• A surviving husband receives one-fourth of the assets if he has children.
• A surviving wife receives one-fourth of the assets involved.
• A surviving wife receives one-eighth of the assets if she has children.
• The deceased person’s mother and father will receive one-sixth of a share each.
• If the deceased person has children, the remaining shares will go to the children in a 2:1 ratio for sons and daughters.

These rules ensure that the deceased person’s belongings are shared fairly among their family, including children, parents, spouses, siblings, and other relatives.

Read more about Faraid here.

WASIYAH

Wasiyah is a will. It is the statement of a Muslim in which he details the way his wealth should be disposed of after his death. So just like the Common Will, you are familiar with, Muslims who wish to structure their estate in line with Shariah are enjoined to make a wasiyah.

Allah (SWT) decreed that a man’s property be divided into 3 parts. The distribution of two-thirds (2/3) of the property has been fixed by Allah and distributed through Faraid Rules of Distribution as mentioned above while the remaining one-third (1/3) of the property can be distributed per the free will of the owner of such property through the Wasiyah (Will).

Making a wasiyah enables you to fully identify everything that you own so that no asset is forgotten or lost upon your demise. This way, you can avoid losing something you have worked for because you failed to document it before your demise. Read more about wasiyah here.

Thank you for being a part of this series on Islamic Wealth Planning. We look forward to sharing more valuable content in our subsequent newsletters. 

At Fiduciary Services Limited, we offer tailored Islamic Estate Planning Services that assist Muslims in the drafting of their Wasiyah and preparation of their Estate Plan during their lifetime and upon death under Shariah Law and its principles. Our Shariah Estate Planning Team will advise and assist you with planning to achieve effective outcomes.