Islamic Estate Planning in Malaysia

Introduction

Estate planning is one of the components in personal financial planning. Estate planning is an important plan for the administration and disposition of one’s property during one’s lifetime and at one’s death. Therefore, it involves both handling the property while alive as well as dealing with what happens to that property after death. However, estate planning in Malaysia is not widely practiced. In fact, some of them are lacking awareness about the estate planning as they think it is unnecessary because Islam has its own system of inheritance called as faraid system. Moreover, Malaysian Muslims poor estate planning awareness are reflected also in their awareness regarding hibah as a method to manage their assets. Even though estate planning is very important, lack of research has been done in this area in Malaysia, especially in the empirical study on hibah whereas it is also been highlighted in Islamic inheritance system. Thus, this study attempts to revisit the practice of hibah in Malaysia using primary data on the knowledge and practice of hibah (Inter Vivos Gift) within the contextual form of Islamic estate planning across the control variables.

An Overview of Estate Planning

Estate planning or otherwise known asset redistribution is concerned about how one should distribute his/her wealth after his/her death. For Muslim whatever we do is not only for the benefit in this world but also in the hereafter. This is because, we will be questioned as to how we source our wealth, how and to whom do we spend our wealth and similar importance is how responsible are we in planning to distribute our wealth for the benefits of the surviving family members, non-family members as well as society. At the same time, the acquired wealth must be spent on the right way as stated by Allah in Surah Al-Baqarah, verse 261 and 274 which mean;“The parable of those who spend their substance in the way of Allah is that of a grain of corn: it groweth seven ears, and each ear Hath a hundred grains. Allah giveth manifold increase to whom He pleaseth: And Allah careth for all and He knoweth all things. (2:261)”“Those who (in charity) spend of their goods by night and by day, in secret and in public, have their reward with their Lord: on them shall be no fear, nor shall they grieve. (2:274)” Besides that, in Hadith stated that Malik related to me from Nafi’ from ‘Abdullah ibn ‘Umar that the Messenger of Allah, may Allah bless him and grant him peace, said: “It is the duty of a Muslim who has anything to bequeath not to let two nights pass without writing a will about it.

Based on the understanding of these Allah‟s words, it can be concluded that Muslims need to seek livelihood in this world in order to get blessing from Alllah in the world as well as in the hereafter.

Differences between Faraid, Bequest and Inter Vivos Gift (Hibah)

Malaysia is growing and more players from banking sectors and private companies are coming into this industry as compared to other Muslim countries. Due to this situation, Amanah Raya Berhad (ARB) is well known and has been established as the public authorized agency that offers a range of comprehensive Islamic estate planning since 1995. Islamic inheritance system is comprised of a number of micro institutions: faraid, bequest, and inter vivos gift (hibah). Faraid is defined as an Islamic law to distribute one wealth to his/her family after death that follows the faraid rules. Under faraid rules, the beneficiaries are fixed, the proportion of distribution to beneficiaries is fixed, non-muslim next of kin of the deceased Muslim are not eligible for faraid distribution, adopted and illegitimate relations are not recognized for faraid distribution.

On the other hand, Wasiyyah is another method in the distribution of wealth of the deceased. Wasiyyah is a legal document that outlines how one’s estate is to be distributed in the event of affairs after death and also possible appointment of a trusted guardian for an underage of maturity (18 years). Writing a wassiyah or will is to stipulate the direction and distribution of estate to the relevant beneficiaries. For Muslim, they do not really care about writing a will may be due to the implementation of the faraid law. But, the distribution of property in accordance of faraid is subject to several condition, such as blood relationship. Hence wasiyyah is the best solution in distributing property to the beloved ones no matter if he/she do not have blood relationship with the giver.

Other than that, in Islamic estate planning, hibah is a present that is given to an individual during the lifetime of the giver or in an estate distribution of the deceased such as adopted child or someone who the deceased love to. In Islam, practice of hibah is highly recommend especially among family members first then to the neighbours and so forth. It was narrated that when Saidatina Aisyah, the wife of Prophet, wished to give one of her two neighbor’s a gift and asked his advice. Prophet replied, “Give to the one whose door is nearer to you”.

Concept of Hibah in Islamic Estate Planning

Literally, the term hibah is derived from Arabic root word of ‘habubah’ which means passing or blowing. Technically hibah is defined as giving one’s wealth to others without the expectation of any replacement or exchange with the transferring effect on the ownership. Another definition is to give ownership of the property to another without rewards. Hibah is another alternatives in Islamic estate planning structure; complementing faraid and wasiyyah (will). As we know, Islamic inheritance law or faraid outlines the distribution of assets of the deceased to those who have blood relationship with him/her. Therefore, hibah will help in solving the issue of distributing the assets to some heirs who are not entitled to receive the assets under the faraid. For example, hibah may solve the problems in giving the portion of assets to non-muslims heirs, adopted or illegitimate heirs or even for a particular blocked heirs (heirs who are not entitled to get the inheritance, being blocked by other heirs) before he/she passed away. In addition in the case of father who wants to give his son more than what he supposes to get in estate planning, the only choice he has is to execute hibah.

As hibah is one form of assets distribution besides wasiyyah, it is important for Muslim to know the difference between the two because sometimes we have specific intention when channeling of funds to others but do not meet the features such as the timing and kind of assets. The main differences between the two is that wasiyyah is a gift executed after the death of the giver or donor. Whereas hibah is a gift that can be given during the lifetime of the donor or even after death. Hibah giving must be done willingly without any coercion or undue influence. However, if there are any elements of coercion and undue influence, the contract of hibah giving is void.

Hibah contract comprise of three main elements namely, offer, acceptance and receipt. Without these components a contract of hibah is not valid. Thus, these elements are essential to the contract of hibah hence and its can be characterized as its pillars.

Problem statement

In Malaysia, there were so many issues regarding islamic estate panning and the amount of unclaimed cash and assets left by the deceased has reached billions of ringgit. This is because income levels and asset possession of Malaysian muslims are rising year-on-year. Suhaili (2010) stated that the lack of awareness and knowledge could be the reasons behind these situations and they are interrelated as well. The Star (2016) stated that data compiled by Mohd Khairy & Suhaili (2013) and Fazira et al (2014) show that the value of unclaimed assets in the country is growing annually. According to the data, number of unclaimed asset are keep increasing year by year. Their findings show that in 2006, an estimated one million inheritance claims worth approximately RM38bil were still left frozen. At the year 2009, there was 40 billion of unclaimed assets then keep increasing 1 billion every year until 2011. This can be proved by referred to the fact of Chief Marketing Officer of Amanah Raya Bhd. (ARB), in 2011 stated that there were 42 billion Malaysian Ringgit of assets frozen because of the heirs cannot be traced. Futhermore, in 2012, the statistic had suprisingly increased to 52 billion and followed by 2014 increased to 60 billion.

However, in the another article, The Star (2016) stated that estates of the deceased worth RM60 billion have not been claimed by their heirs since independence. Natural Resources and Environment Deputy Minister Datuk Hamim Samuri at that time blamed this on the heirs’ ignorance and apathy. This problem arise because of the attitude of not wanting to know the procedures or which agency should manage the estate distribution. It is also because most of Malaysians feel estate planning is not too important as Malaysians feel that estate planning is only for the wealthy. As a consequence, a total of RM66 billion outstanding values of the estate owned by the majority of Muslims failed to distribute on to the person entitled in the country.

Based on the data, we can conclude that the islamic estate planning had not widely practised in Malaysia and become a serious matter if we take it simply. Therefore, there is need to conduct the study on the knowlegde and practise of hibah (inter vivos gift) within the context form of Islamic estate planning to know what is the factors that affected the practiced of hibah (inter vivos gift) across the control variables. This alarming statistics has also trigger the importance of delivering the Muslim society with the right tools to solve the problems immediately.