Succession planning is a vital component of wealth management to maximise the transfer of wealth through generations, regardless of your faith or country of domicile. However the location of your assets, country of domicile, your faith and wishes all play a determining factor in how your wealth is transferred after you pass away. Adequate succession planning with a qualified professional is crucial to ensure that you understand how your wealth can legally be transferred and what measures you can take now to ensure that this is done in line with your wishes.
Within the Islamic faith, succession principles are generally based on Sharia Law, the principles of which are explained below.
Basic Islamic succession planning principles
Simply put, these are similar across the GCC region with some variation in certain jurisdictions. There is a system of forced heirship with males assuming a more favourable position under Sharia Inheritance principles. The most obvious example being that sons inherit twice the share of daughters and there is a diminished share for female spouses. Although there is limited testamentary freedom, one third of an estate can be given away in a written Will although there are rules around who this can be bequeathed without permission from other heirs.
Within Sharia Law, results vary depending on family structure, regional and religious adaptations.
Lifetime gifts (hiba) are permitted, while these gifts could be within your values and Sharia Law, however, if you are from the UK and you are used to common law, it could be useful to set up an appropriate structure. Here is why:
Mohamed dies with assets in the UAE. He has no will. He is survived by his lifelong sweetheart – his wife, two sons and two lovely daughters. He also has a surviving brother. How would this play out according to Sharia Law? His wife would receive ⅛ of his estate (12.5%). His children; sons would receive 7/12 (58.33%) and his daughters would receive 7/24 or 29.17%. His brother would receive nothing.
This may or may not be the result Mohamed would most likely have wished for.
When considering succession planning, where should you begin?
Understanding how your assets will be distributed and reviewing whether this is in line with your wishes.
A Will is always the basic necessity of succession planning. In the UAE there has been recent media reporting that Wills from your home country are set to be recognised for expatriates or non-Emiratis, but this is not, as yet, considered standard practice.
Therefore our advice if you are a non-muslim is that you should still review your need for either a DIFC Will or ADJD Will (Abu Dhabi Judicial Department) and if you have children to include the necessary guardianship arrangements.
Gifting during lifetime is also a great solution for obtaining your wishes in regards to succession planning. The use of a Foundation, or Trust, offers a way to structure your assets whilst still retaining control during your lifetime.
Another key consideration which is often overlooked with regards to succession planning is ensuring the right level of life insurance coverage. A life insurance policy can be paid offshore on death to provide liquidity outside of the Will and before probate is granted.
You live in the UAE; do you need to worry about tax?
You should take into account tax planning, for example if you are domiciled in the UK, your worldwide estate would be subject to UK inheritance tax. Other jurisdictions have other tax issues that need to be reviewed. We strongly advise sitting with a qualified professional to ensure that you understand your current inheritance tax position and understand what if any measures can be taken to help structure this more effectively.
How can advice help for succession planning?
Estate planning can be complex. Drafting a Will is not an easy feat – you may have assets in different locations and multiple jurisdictions. Perhaps your wife is a different nationality to you, or you may have been married previously and not to mention that division of assets can often cause family feuds. All this, before you even approach tax, religious or domicile, residence and/or citizenship considerations.
Finsbury Wealth remains at your disposal. We are well placed to discuss your personal situation and provide guidance in formulating the best and most advantageous succession plan for you. Please get in touch if you would like a free review of your current circumstances.