Financial Thoughts
As A Muslim, How Does Faraidh Division Work?
Let’s begin by shedding some light on what Faraidh is. Faraidh is the division of assets to one’s legal beneficiaries in accordance with certain fixed calculations i.e. Muslim Inheritance Law. In Singapore, this is governed under the Administration of Muslim Law Act (AMLA).
Everyone has heard about Faraidh. Common knowledge is that the male beneficiary receives twice as much as a female beneficiary. Beyond that, it may get complicated. Hence we will be providing you with insights and perspectives that are important after the passing of your loved ones. And by the end of this article, we will be answering whether a will is permissible in Islam.
Distribution
The starting point of any estate distribution is any division of assets has to be made to its legal beneficiaries according to the specified proportions. In short, legal beneficiaries include spouse, children, parents, and siblings.
Some people might want to distribute their estate to a foundation, their company or even a local Mosque – all of which fall under the category of non-legal beneficiaries. The distribution of an estate can be made to non-legal beneficiaries however it has certain limitations.
Only a third of a Muslim’s estate can be distributed to a non-legal beneficiary and the rest has to be distributed to the legal beneficiaries under Faraidh. Here is a diagram to give you a visual understanding.
How can I ensure that a part of my estate will go to my favorite foundation upon my death? That request has to be made by way of a will.
Not everything has to be distributed via Faraidh
In hindsight, not all assets have to be distributed via Faraidh. There are 3 types of assets that you do have control over in whom you want to give it to when you pass on.
Those 3 Estates are:
#1 Joint-owned property.
In the case of a property owned under a joint tenancy, if you pass on, the other named owner will own the property as a sole owner. This property will not fall under your estate and cannot be distributed under Faraidh law to your legal beneficiaries. In most cases, the joint-owner is your spouse. Hence the property is still the possession of your immediate family. But that doesn’t necessarily mean that the mortgage payment stops.
If there is still an outstanding mortgage, your spouse has to continue paying for it. Therefore it is important to take note of your Home Protection Scheme (HPS) coverage or any mortgage decreasing term insurance that you have. That will certainly help your spouse and children to sustain their living.
#2 CPF monies that have been nominated
Your CPF monies can be nominated to whomever you want during your lifetime. And there are 3 types of nomination that you can choose from.
- Cash Nomination
CPF distributed in cash via Cheque or GIRO.
- Enhanced Nomination Scheme Nomination
CPF distributed to your nominee’s CPF Account.
- Special Needs Nomination Scheme Nomination
CPF distributed to your special needs children where they will receive money monthly.
#3 Life Insurance payouts that have been nominated.
One reason why you buy insurance is for you to ensure that your dependents are taken care of when you pass on. However, if you do not nominate a nominee in your lifetime, it will be distributed via Faraidh. Therefore after purchasing life insurance, do make a decision to whom you want to nominate to.
Therefore, the act of nomination is very important to help your loved ones get those necessary funds as soon as possible and for them to continue a sustainable life beyond your passing.
For families whose children are all daughters, nominating will certainly help in protecting their interests where it might be reduced under Faraidh distribution.
Appointing the Executor
Whether a Muslim dies with or without a will, estate distribution has to follow the rule of Faraidh. Then an individual might question, “Why should I even draft out a will in the first place when I am not able to choose who gets what portion of my estate?”
Apart from nominating that one-third of your estate to non-legal beneficiaries, you would want to appoint someone reliable and trustworthy to distribute your estate. Therefore, electing your executor is another reason for you to draft a will.
The executor will be responsible for distributing your estate. Anyone can be your executor; it does not have to be a family member or legal beneficiary. In certain situations, getting a third party to be your executor does avoid any conflict of interest. Any such appointment would have to be agreed and mutually consented by all the legal beneficiaries.
By having a will, appointing an executor does speed up the process of distributing the estate. One reason is that there is there is clear authorization on whom can distribute your estate.
By appointing the executor, he or she is able to retrieve any necessary documents and approvals from the court in order to distribute the money as soon as possible.
When someone dies without a will, it will take time for the Administrator to be appointed. The Administrator has to be willing to take up the responsibility and all legal beneficiaries must agree upon the appointment of the Administrator.
From then on, the appointed Administrator is able to retrieve the necessary documents and approvals from the courts in order to distribute the estate.
Keep in mind; the documents required for distribution are different. An Executor requires the Grant of Probate and an Administrator requires the Letter of Administration.
Remembering the 2 reasons for a will
To conclude, it is permissible to draft a will if you are a Muslim. Main two reasons to do so are:
(i) To distribute 1/3 of one’s assets to non-legal beneficiaries and
(ii) To appoint an Executor to ensure the proper division of the assets upon one’s demise.
Additionally, setting out a will especially in respect of who should be authorized to administer the assets could avoid unnecessary conflicts in the future.
Well, that’s the end of this article. Do share it if you think this is beneficial to your friends and family.
Disclaimer:
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
