faraid calculation malaysia
Money Management

Wasiat, Hibah, Trust: 3 Tools to Circumvent Faraid / Islamic Inheritance Laws in Malaysia

There are many things I love about Islam. But the default faraid or Islamic inheritance laws is not one of them. Islamic inheritance laws stipulate that male relatives shall receive at least twice the amount of female relatives (of equal standing). The determinant factor is literally… genitals.

For example, this is how my assets will be distributed if I leave it to faraid calculation – my partner gets half, then my dad gets TWICE the amount my mom gets. And *if* my father is not around, my brother gets TWICE the amount my sisters get. (I used this faraid calculator).

faraid

Islamic Inheritance Laws is Fair in Theory But Not in Practice

I would be okay with Islamic inheritance laws, I really would, IF the implementation is just. If Muslim men take care of Muslim women’s financial needs.

But that’s not always the case, is it? Gender =/= money management skills nor ability to care for others. What if you have irresponsible/greedy male family members who you KNOW will not take care of female family members?

This is not an ‘if’ situation, it’s reality. It breaks my heart to hear case after case of mothers, daughters, sisters, grandmothers, nieces who get ruined financially because their male relatives got greedy. There are also people who purposely take advantage of grieving widows and take away their share under Harta Sepencarian!

The sad thing is you probably know someone or have personally heard of cases like this too. Many Syariah lawyers and Islamic estate planners said they handled a lot of cases like this as well.

Unfortunately, Syariah laws are unlikely to change to protect women better, so you have no choice but to be proactive in estate planning. This article is for those of you who:

  • (a) have assets to leave behind, and
  • (b) value your male and female relatives equally, genitals be damned, and/or
  • (c) have people that you want to give assets to, including those who have no claim under the Islamic inheritance laws (like life partners of gay couples, or adopted children/family members, or Muslims with non-Muslim parents/relatives).

Disclaimer: I have done my share of research on this topic. I have talked to Islamic estate planning professionals. I’ve made sure the information is accurate to the best of my ability. However, my knowledge may be limited. I invite you to share what you know in the comments section.

Related: The Comprehensive Personal Finance and Support Guide for LGBT in Malaysia

First – Accept that you CAN’T Opt Out of Islamic Inheritance Laws

You can work AROUND it, but cannot opt OUT of it.

In Malaysia, a Muslim will always be bound by Syariah laws, no exceptions. He or she has no way to opt out of this. The good thing is there are financial tools that can help you distribute your assets more fairly.

Additional benefit: doing one or both options will also make things simpler for your beneficiaries after your passing. Billions of RM are locked because of inheritance disputes/bureaucracy. See how mafan it is for people to get inheritance without any legal docs in place??

faraid
Pic credit to amanahraya.my

Method #1 – Wasiat+Hibah whatever you can

Best for: B40/M40

Wasiat document is important and is the bare minimum in Islamic estate planning but not enough to protect against irresponsible male family members, so you need Hibah as well.

Again: Wasiat alone is not enough. First of all, you can only give up to 1/3 of your wealth to non-faraid (simplistically, non-family) members.

Secondly, even if you define your beneficiaries in your wasiat (and give equally between male/female relatives), your male relatives can challenge and cite faraid laws, and the Syariah courts will consider it.

Hibah circumvents this because it is basically ‘gifting’ – the assets you give away will now no longer be included under assets that need to be distributed under faraid. Here’s an easy-to-read article explaining hibah (Malay language).

Pros:

  • You can give your assets to whoever you want. Not limitations to religious background, family ties, etc
  • You can do Hibah Takaful from just RM50 per month. This is a type of estate planning tool which gifts the sum assured directly to people you name as your beneficiaries, without going through faraid distribution

Cons:

  • Not everything can be hibah-ed out (for example, you can’t hibah EPF/KWSP money)
  • You can only hibah assets that are clear of debt. Therefore property and vehicle that are still under mortgage and hire-purchase loan cannot be hibah-ed

*Edit: This section was updated to add more pros/cons based on feedback received (see comments section)

To do this option, you need to set up legal documents – go approach companies like AmanahRaya and As-Salihin, both of which are reputable Islamic estate planning service providers. Personally, I helped my mom do her document at the latter – it costs RM2,650 in total (2021 price).

I’m aware the price can be steep for many. One budget-friendly yet convenient option is through Pewarisan.com. For RM330, you will get these legal documents:

  • Surat Wasiat
  • Perisytiharan Harta Sepencarian
  • Perisytiharan Hibah
faraid

Method #2 – Do a Wasiat+Trust combo (+Hibah if you want)

Best for: M40/T20

If Wasiat is for the distribution of assets after death, and Hibah is gifting assets away (which admittedly can sometimes be problematic for some assets, because you don’t own them anymore), then Trust is like a contract document – you can set conditions for distributions to your beneficiaries.

It’s cool because you can add clauses like:

  • ‘to allocate person X money for medical care if you’re in a coma/have permanent disability or cannot make sound judgement’, and
  • ‘to give person Y staggered payments according to agreed schedule after your passing (ie RM2000 per month until the money runs out)’

Pros:

  • Much stronger than Wasiat alone
  • You can add clauses
  • You can use products like Insurance trusts

Cons:

  • I believe you need to lock in a fairly large amount of cash for this option (I believe I heard RM50k min for Trust). So you need to be wealthy enough
  • Wasiat and Trust are two separate services. You will be charged separately. Expect the fees from RM1k onwards each + fees
  • As I understand it, the majority of assets can be Wasiat+Trust-ed, but not all (someone clarify this / correct me if I’m wrong)

Types of assets to give your beneficieries

When I was in the process of setting up my Wasiat+Trust combo, I had to submit lots of documents listing what I own. Here’s what is classified as assets:

  • Properties/Land
  • Bank accounts
  • Stocks and securities in Bursa Malaysia
  • Vehicles
  • Unit trust accounts
  • KWSP/EPF
  • Insurance policies
  • Companies I own / have shares or equity in
  • Safe deposit boxes
  • Club memberships (that can be inherited)
  • Jewellery

Note: I own cryptocurrencies, and asked if I could Hibah / Wasiat+Trust it out. The best way, according to my agent, is to put the keys in a safe deposit box and leave the details in the legal documents.

Invitation to share your views

To Islamic Financial Planners/ Estate Planning Professionals – If any info above is wrong or lacking, please comment and share your knowledge. Leave your contacts if you want, so others interested to set up Hibah, Wasiat and Trust can contact you.

To everyone who has a Hibah, Wasiat and/or Trust system in place. Share your experience – which company you used, how’s the process like, how much was the cost, things like that.

If you’re interested to take up Takaful for the express purpose of leaving behind money for family members, read this article: 9 Things You MUST Know Before You Buy Insurance in Malaysia

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39 Comments

  1. Hi Suraya!

    I think that the article is really great in highlighting the challenges in Islamic inheritance. I do have a few responses that I think your readers could really find useful.

    Firstly, it is important for us to have a mutual understanding of gender roles in Islam especially when it comes to filial duties. In the context of the management of a family estate, a male family member has a responsibility towards the female and minors, a role that is not required to be reciprocated. While the understanding may differ from actual practice, the responsibility is still there and we will all be accountable for these actions at some point.

    Secondly, the tools that you have correctly pointed out are not the only ones available e.g. harta sepencarian, insurance trusts. I urge anybody wanting to know more to contact a licensed Islamic financial planner to know more.

    Thirdly, just having access to a vehicle to express our intentions that may deviate from faraid law distribution is not the end of the story. Consent from legal heirs on top of ensuring the intentions are lawfully recorded and acknowledged is still required (and still subject to legal challenge!) which is why nobody should take this matter lightly.

    However, it is also just as important to ensure that our intentions in doing so are correct and not merely to “avoid” faraid because one disagrees with the math. Everybody is entitled to their share as what has been written and the last thing we want to do is to misappropriate assets in the estate, all the while thinking that it was within our rights to do so. “Niat” is very important and He knows our intentions at all times. Even if our noblest intentions are to ensure that the welfare of our dependents and loved ones are taken care of upon passing away, it should be done in a way that does not deprive those who are entitled to that wealth.

    I welcome more discussion with respect to estate planning.
    I am a Licensed Financial Planner, and also can advise on Islamic Financial Planning matters

    Rozanna Rashid, CFP, IFP
    rozanna.rashid@gmail.com
    +6012-3089060

    1. Hi Rozanna,

      Thanks for commenting here!

      Can you share more about the other tools that are available, and briefly what they are?

    2. I am considering to convert to Muslim and I have to say, this is the biggest hindrance I have from doing so.

      1. Hi Ivy,

        For your information, your assets as Muallaf cannot be claimed by your existing non-Muslim family members. Please check again with any Shariah lawyers on this point. And, becoming a Muslim is all about securing for a better life in the hereafter. Plan properly about your assets according to the decision by Court cases. I’m sure, it should not be any hindrance for you to become a Muslim.

        Huzaifah. My husband is also a revert from Jenism. He has become a Muslim for 26 years.

  2. There are almost 1 million land titles currently being frozen in Malaysia since Merdeka amounting to more than RM66 billion. Some estimates put it at 90% as belonging to the muslims population.

    The reasons are:
    1. Lack of understanding on faraid and the procedural law relating to the process of managing the estate (obtaining the Letter of Administration, transfer of names etc)
    2. Lack of or the total absence of planning on the part of property owners during his/her lifetime
    3. Lack of immediate funds on the part of the beneficiaries to initiate the process of obtaining the LA or probate
    4. Beneficiaries don’t always agree on how the estates are to be distributed
    5. Procrastination on the part of the beneficiaries or in most cases they simply don’t have the knowledge on the steps and actions need to be taken

    The 4 steps anyone who wishes to spare his/her loved ones the agony of having to deal with the often complicated issues are as follows:
    1. Nominate/appoint an Executor/Administrator
    2. Make sure the document is clearly written, dated and witnessed (preferably by 2 independent parties)
    3. The availability of immediate access to cash upon one’s demise (eg named nominee for EPF, Tabung Haji account, Takaful plans etc. This is to facilitate step number 4 below.)
    4. The access to professional advisors/specialists to assist the beneficiaries

    MyPusaka can help you prepare a will and appoint an administrator/executor using a prescribed format. Depending on your needs MyPusaka is able to advise you on other solutions such as will/donation to third party or non-faraid beneficiaries, Hibah, Takaful, Private Trusts including business succession plan for business owners. MyPusaka also acts as an advisor that will assist your beneficiaries on what needs to be prepared and done to ensure the process of dealing with your estates is done expeditiously at a reasonable cost. This process may entail advising all faraid beneficiaries their rights AND responsibilities at the time and location most convenient to all involved.

    For further information/assistance please drop me an email at fazil@mypusaka.info or visithttps://mypusaka.info/mohamad-fazil-bin-ismail/

  3. In islam, the are two parts in managing the inherited wealth. First part on how the wealth was obtain and the second part is how it will be distributed later to the rightful heirs.

    I’ve seen lots of discussions on the second part, but the first part is equally important since how you obtain your wealth will determine on how those wealth will be distributed.

    Take takaful for instance, let say Mr A is taking the investment linked takaful policy. There are 2 portions of fund managed by the takaful operator, the sum assured and the investment portion.

    Based on the takaful policy, the sum assured is a hibah from the operator upon Mr. A’s passing and the total amount can be distributed directly to the beneficiary.

    Although, the investment portion needs to go through faraid process since the fund was accumulated while his is still living.

    I wish to see more discussions on the first part as it is a key to develop a new financial instrument.

  4. So, in the end.. how do you set up your Wasiat+Trust combo? Or, what do you opt for now? Any planner/ lawyer you recommend us using?

  5. Thank You Suraya for this article! Being an earning muslim woman myself, I too wondered abt this. Do update, would love to know what option you ended up taking 😊

    1. Hi JC,

      If I’m smart, I would settle this, but nope, still procastinating on it.

      But hey, most of my savings and insurance already have my mom and sisters as nominees. Hope that’ll work.

      As for you, hibah seems to be the safest option. Wills/Wasiats are still contestable. Ie if your male relatives are not happy with their portion as you dictated, it can be voided. So its best to gift/hibah it out, if you can.

  6. Hibah is only for assets that are clear of debt. So property or vehicle that are still with mortgage or hire-purchased loan can’t be hibah.
    Nomination in conventional insurance can still be challenged by Faraid heir. Only takaful has a advantage of hibab that supersedes Faraid.

  7. Faraid is the last resort of estate planning, and it’s only applicable once we passed away.

    But during our lifetime, we can do:
    1. Wasiat
    2. Hibah
    3. Trust
    4. Sedekah
    5. Wakaf

    I believe many not understand this, even for me and now still learning.

    We have Islamic Estate Planners for that say Amanahraya, As Salihin, Wassiyah Shoppe, Mypusaka.

    Just how they structures their fee is what many people re-think, to do it or leave it to our waris?

    Some company provides flexible charging for example if you passed away, they only take the fee charges in the deceased EPF, or some charge monthly tabarujj contribution during lifetime.

    Though still an alienate to many Muslims..

    1. My view:
      1. Wasiat – Create it for other things other than not covered under Hibah, Trust and sedeqah
      2. Hibah – Give it during lifetime
      3. Trust – Create Conditional Trust
      4. Sedekah – Give it during lifetime
      5. Wakaf – Give it during lifetime. Takaful companies also provide such products.

      On creation of trust, you may get specific form on creation of trust at land office for your fixed assets which are free from encumbrances. Advisable to create conditional trust so that you are still secured during lifetime and transfer of title will only be done upon your death.

  8. Hi Suraya , it’s good article..

    if talks about inheritance, it always not fair to women or men whether islamic or other religious however i found one of the solution my father (the most wise man) teach me.
    this remind me about my family story. My grandma passed way 2 years ago, my father and his 6 siblings(3 men and 4 women) got inheritance from my grandma. As Islamic laws states ,men will get most inheritance however before any procedure happen. my father talks to all his siblings and get their consent to give inheritance fairly to 4 his younger sister. so, they decide to give inheritance equally. My father make a good decision and no argument happen.

    1. Hi Nuraini,

      I’m aware that’s being done informally. In some cases, it works. But when it doesn’t, it doesn’t. I’ve heard enough stories. We can’t be at the mercy of greedy men, we can’t. Not at our future’s expense.

    2. I wish this method of distribution, which is through consensus, is normalised in our society because as what has been pointed out in other comment, faraid is indeed the last resort. So the point “trying to avoid faraid” does not make sense when we have many other ways of doing it.

      But sometimes it’s the outsiders and the system who are more kepoh to ensure faraid is implemented as if it is carved in stones, making it hard for family members to reach consensus among themselves.

    3. In land office, you may ask for a form whereby all heirs may waive their rights against all assets and consented to the distribution of inheritance according to the agreed method. This form normally to be completed during application of distribution and appointment of administrator.

      Same template may be adopted and signed by all heirs respectively and copies to be kept by each heir for future reference during actual event when the time comes.

  9. Hi Suraya,

    Thanks for the article – it’s really enlightening. I do have some questions for you or anyone who knows…

    1) about conventional investment linked insurance. A commentor said only the sum assured is not subject to faraid but the investment earned is?
    2) EPF and ASB nominees – I understand that the nominees are supposed to act as wasi only (true?) but what stops them from taking the money for themselves? Also, will the accounts be frozen first upon death, like bank accounts, or can the nominees just go claim like insurance with death certificate?

    Appreciate any sharing. Thank you.

    1. Hi Airis,
      Yes, for EPF savings for Muslims, there is a fatwa that says the nominees are supposed to act as wasi and have responsibility to distribute the savings according to faraid. As the heir, you can challenge the nominees in court if he/she does not want to act rightfully. If not, then you are right that nothing is stopping them from taking the money for themselves. To avoid this, you can name Amanahraya Berhad as your nominee and they will take care of the distribution process (still according to faraid, alas)

      However for non-muslims, the nominees will be the rightful recipients of the EPF savings.

      For ASB, their nomination will be in form of Hibah, with a charge to cover the legal matters. Without the hibah, the ASB savings will be part of your inheritance which will be distributed through faraid.

      1. This Hibah form by PNB is meant to immediately separate the ASB saving from other types of assets fall under inheritance (subjected to faraid). It’s considered as gift made during lifetime. The release of the amount in the account is deferred after death of the donor.

      2. Hibah form by PNB is meant to immediately separate the ASB saving from other types of assets fall under inheritance (subjected to faraid). It’s considered as gift made during lifetime. The release of the amount in the account is deferred after death of the donor.

  10. Bitcoin is how I avoid Islamic inheritance laws. I’m in a precarious position because I’m unmarried and I have no male sibling, and my male relatives have demonstrated themselves to be predatory vultures. Ancestral assets have had to be divided according to faraid because they want more, their sisters be damned. So I keep most of my money in bitcoin so that I can choose whom to leave my satoshis to. I think Malaysians are complacent from being used to centralized banking and can’t fathom why they’ll ever need a decentralized asset. Personally I’m just not fine with my money falling into the wrong hands when I die.

  11. Question on this area: Hibah is only for assets that are clear of debt. So property or vehicle that are still with mortgage or hire-purchased loan can’t be hibah.

    What happens to the properties that still has a mortgage?
    What can we do for properties that still has a mortgage?

    1. Property with financing, no bank will agree to creation of Hibah since it may affect their rights on the charge property if it requires to be auctioned.

      However, there exist now a product know as Conditional Hibah (Hibah Bersyarat) which it’s effectiveness are yet to be seen.

  12. Another solution is via insurance trust. Why can consider this option? Instead of hibah via takaful, insurance trust we let a third party (usually banks) to take care of the process and distribution so that we wont have headache who will arrange it when we passed. Most recommended for someone who want to leave big figures so that the money is well managed. Definitely can bypass faraid law and unable to be contested by family members.

    Email me at
    adamdzarif@gmail.com
    To know more

    I am an insurance consultant for Allianz Life Insurance Malaysia Berhad

  13. Hello, you need to mention the threshold for pejabat pusaka kecil is RM2million and below of the total estate value. If more than RM2million the process will go through Amanahraya or syariah court via syariah lawyer. Also you can explore using power of attorney, consult a civil lawyer.
    Often the charges ie % by Amanahraya and syariah court is the hindrance.
    By experience going through pejabat pusaka kecil takes a few months to complete.

  14. Hi Suraya,

    Practically, I always advise anyone asking about gift to children/loved ones relating to property free from encumbrances to just create trust and register it at land office. At least:
    1. The title has the record on the creation of the trust
    2. The title will state that the land owner hold it as trustee for the beneficiaries
    3. Beneficiaries will entitle to transfer immediately after the death of trustee at the land office
    4. If the trust is conditional, then trustee may terminate the trust and everything (ownership) will go back to the trustee
    5. Better to make it conditional to avoid beneficiaries taking advantage during lifetime of the trustee.

    There is specific form at land office which you can ask from their officers.

    For assets like cars, motorcycles, jewellery, cash in accounts simply do the transfer or give it to the loved ones during lifetime. Don’t wait after your death.

    Cash in accounts like EPF and ASB, make sure to fill up the nomination or gift forms during lifetime.

    Assets relating shares, unit trust and other type of investments, you will need to appoint administrator during lifetime but to be effective after your death.

    For fixed assets like property which are still under financing, you may create conditional gift (Hibah bersyarat) but your cannot register it at land office due to no bank will not provide you with any written consent until full settlement of your financing with the bank. It will be triggered upon death of the registered owners.

    1. Thank you so much Huzaifah for your insightful comments. Really appreciate you taking the time to answer everyone else too. May Allah swt reward you for this knowledge sharing

  15. Hello, I am a convert with an only daughter. I understand that Baitul Mal has a right to up to 50% of my property etc based on faraid ( i.e if both me and my wife “go” together …)

    In my will , I have specified that 100% should go to my daughter.
    I have prepared my will on my own , witnessed and signed by 2 Muslim friends.

    Does anyone know historically; does Baitul Mal tend to contest and insist on their faraid portion or will respect my wishes and leave it to my daughter ..?

    1. Hi Nopeaceofmind,

      I don’t know the answer to the question, and I hate to say it, but for peace of mind and for your daughter’s sake, please engage a financial advisor specialising in Islamic estate planning. You can find at smartfinance.my

    2. Hi Nopeaceofmind,

      From my experience, the Will will be valid for 1/3 of the properties only, and the remaining 2/3 will be invalidated and to be distributed through Faraidh. This is because under Islamic law, it only allows 1/3 of our assets to be given away through Will (charity to people in general), while the rest 2/3 should be distributed by way of Faraidh (prioritising immediate family members).

      And yes, there is high possibility of Baitulmal to be listed as your waris if you are a convert and your immediate family members (dad/mom/etc) are non muslim, since non muslim cannot inherit the assets of a muslim under the Islamic law, hence will be excluded from the inheritance list.

      Usually in this circumstances, one of the avenues that you can consider is to sign hibah instrument and to have it indorsed by the syariah court; indorsing that you have given all/part of your assets to your daughter… FYI, through Hibah, you can give away your entire assets to your daughter (unlike Will, restricted to 1/3 only). And when it is indorsed by the syariah court, its a conclusive evidence that is hardly to be contested by your other waris (Baitulmal in this case).

      Well to me, whether or not Baitulmal will contest/respect your Will is a second issue to be dealt with, but most importantly is on the validity of the Will itself – ie the 100% provision to your daughter is not Shariah compliant (only 1/3 is allowed through Will – unless if you opt other viable instrument like Hibah) and so the Will can be potentially quashed/not recognised by the court as invalid instrument.

      Hope it helps!

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