Updated: Jul 10, 2023
A substantial set of duties and requirements binds executors and trustees of deceased US citizens or individuals. This process entails several crucial steps, including gathering information, creating a comprehensive list of the gross estate, collecting credit details, obtaining information regarding applicable taxes, and adhering to the probate procedures for Islamic Wills and settlements concerning Trust or Waqf agreements. Furthermore, completing the final tax return before meeting any obligations is imperative. In Islamic estate planning, the distribution of inheritance holds great significance, and the examination of tax implications demands the utmost attention. The management of debt, testamentary bequests, and Islamic inheritance distributions carry both Islamic and legal impacts, necessitating that all Muslims understand these aspects to administer estates efficiently. A considerable concern in the United States is the imposition of gift tax, particularly for individuals with substantial wealth surpassing the exclusion threshold. Consequently, wealth, estate, and succession planning are interrelated and must be approached holistically. Executors and Trustees are responsible for navigating the intricate landscape of estate administration, which can be overwhelming without proper knowledge and guidance. By following the prescribed procedures and fulfilling the requisite duties, executors ensure the smooth transfer of assets and settlement of financial matters under legal and Islamic principles. Understanding the tax implications of inheritance distributions is paramount to making informed decisions and minimizing potential liabilities. Additionally, the estate planning process should not be viewed in isolation but as an integral part of a detailed-oriented approach encompassing wealth management and succession planning. Considering these interconnected aspects, individuals can effectively preserve and transfer their assets to future generations while minimizing tax burdens. So, the obligations imposed on executors in the administration of estates are substantial. From gathering information to navigating probate procedures and addressing tax implications, each step plays a crucial role in the smooth transfer of assets.
There is no official religion in United States as per the Constitution of United States. Due to religious freedom, it is illegal to discriminate against any individual or group based on their religious beliefs. Islam is the third-largest religion after Christianity and Judaims in United states. Muslims form close to 4.5 million (1.3%). Many mosques built throughout United States prove the reasonable establishment of Muslims in United States. The USA constitution does not speak of anything related to inheritance rights because all religions and non-religions are free to practice their beliefs. Also, Most states do not have forced heirship (except Louisiana), which is a great feature for USA Muslims to comply with his or her wishes. However, since USA is non-muslim majority secular country, you would need a strong and solid estate plan to meet both Shariah and legal compliance otherwise, estates distribution may not follow Islamic inheritance. Wassiyyah offers the solution that can help you comply with both Shariah and legal laws of USA.
When someone dies without Will, their estate distribution will be according to the Intestacy rule of the state which are secular law differs from Islamic law. Intestacy rules differ from one state to another in the United States. For example, in New York, the rules are too complex to cover here, but the estates will pass to the spouse and children. If they do not survive, it passes to the parents and siblings of the deceased (Ref. Newyork Code, Article 4, Intestate Succession).
USA's laws regarding Wills, Trust, and Succession differ from one state or territory to another. Any mentally capable adult can create an estate plan (i.e., Islamic Wills or Trust) as he or she wishes as long as it is not contrary to the legal laws of the country. For example, in Virginia state, the laws of Wills refer to the "Probate in Virginia - Administration of estates" Similarly, other states and territories have separate laws of Wills, Estates, and Succession. Wassiyyah offers customized Islamic estate planning solutions to meet all legal requirements in USA with meeting Shariah compliance. Also, The inheritance law in the USA is a state matter; each state has its successions laws written differently. All states have a diverse history of inheritance law, and they adopted the English law of inheritance after the Colonial relied upon common systems. There are two types of Property laws in the USA: First, the Community property regime is in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin (Ref. www.irs.gov) according to which all the properties of spouse before marriage treated spouse’s property and the all property acquired during the marriage is treated as community property. The second type is Common law states that couples with common law marriages; do not apply to Muslim marriages. Following are resources where you can find the USA state-specific laws.
There is a big chunk of duties requirements that executors must follow for the deceased US citizen or deceased. Find below the outlined procedure in brief.
GATHERING INFORMATION: As a personal representative or executor of the estates, you are responsible for collecting and gathering lots of information. Some of the tasks will be as follows.
Obtain the death certificate before or before the completion of the funeral of the deceased.
Collect information about credits of transfers made by lifetime gift.
Collect the information about the Portability of Deceased Spousal Unused Exclusion.
The executor to pay the estate, and GST taxes are due within 9 (nine) months of the decedent's death.
CREATING GROSS ESTATE LIST: Obtain or create a gross estate list that includes all property in which the decedent had an interest (including real property outside the United States). It also includes Certain transfers made during the decedent's life without adequate and full consideration in money or money's worth, Annuities, The includible portion of joint estates with right of survivorship (see instructions for Schedule E), The includible portion of tenancies by the entirety (see instructions for Schedule E), Certain life insurance proceeds (even though payable to beneficiaries other than the estate and see instructions for Schedule D), Property over which the decedent possessed a general power of appointment, Dower or curtesy (or statutory estate) of the surviving spouse, and Community property to the extent of the decedent's interest as defined by applicable law.
COLLECT INFORMATION: Collect the information about credits of transfers made by lifetime gift and also, the Portability of Deceased Spousal Unused Exclusion.
TAXES: The executor is to pay the estate, and GST taxes are due within 9 (nine) months approximately of the date of the decedent's death.
FINAL TAX RETURN: The executor is to file the final tax return, which will include a certified copy of the Will: If the decedent was a citizen or resident of the United States and died testate (leaving a valid will), attach a certified copy of the will to the return. If you cannot obtain a certified copy, attach a copy of the will and explain why it is not certified. Other supplemental documents may be required, as explained later. If the decedent was a U.S. citizen but not a resident of the United States, then the requirements are different. The relevant forms may include below.
File income tax return Form 709
United States Gift (and Generation-Skipping Transfer) Tax Return Form 709
Federal estate tax return Form 706: The executor of a decedent's estate uses Form 706 to figure the estate tax imposed by Chapter 11 of the Internal Revenue Code. This tax is levied on the entire taxable estate and not just on the share received by a particular beneficiary. Form 706 also is used to figure the generation-skipping transfer (GST) tax imposed by Chapter 13 on direct skips (transfers to skip persons of interests in property included in the decedent's gross estate).
Final tax return Form 1040
Income tax return for Estates and Trusts Form 1041
Form 709 - U.S. Gifts (and Generation-Skipping Transfer) Tax Return
Form 706 - U.S. Estates (and Generation-Skipping Transfer) Tax Return
706-CE - Certificate of Payment of Foreign Death Tax
Form 712 - Life Insurance Statement
Form 1040 - U.S. Individual income tax return information
Form 1041 - U.S. Income tax return for estates and Trust information
Form 2848 - Power of Attorney and Declaration of Representative
Form 4768 - Application for Extension of Time To File a Return and/or Pay
Form 4808 - Computation of Credit for Gift Tax
Form 8821 - Tax Information Authorization
Form 8822 - Change of Address
Form 8971 - Information Regarding Beneficiaries Acquiring Property From a Decedent
Form 8949 - Sales and other dispositions of capital assets
Publication 519 - U.S. Tax Guide for Aliens
Publication 523 - Selling Your Home
Publication 526 - Charitable contributions
Publication 551 - Basis of Assets
Publication 559 - Survivors, Executors, and Administrators
Publication 561 - Determining the Value of Donated Property
Publication 597 - Information on the United States–Canada Income Tax Treaty
Publication 3833 - Tax Exempt Status for Your Organization
Publication 976 - Disaster Relief
Forms and Publications - Estates and Gift tax
FUTURE INTEREST: A gift is considered a future interest if the donee's rights to the property's use, possession, enjoyment, or income from the property will not begin until some future date. Future interests include reversions, remainders, and other similar interests or estates.
PRESENT INTEREST: Contributions to a qualified tuition program (QTP) for a designated beneficiary do not qualify for the educational exclusion. For example, a contribution to a QTP on behalf of a designated beneficiary is considered a gift of a present interest.
Taxable estate = The gross estate - Allowable deductions.
Applicable exclusion amount = Basic exclusion amount + DSUE
YYYY refers to the current publication calendar year.
$$$$ refers to any exclusion amount decided by IRS for the current calendar year changes every year.
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