Updated: Jun 22, 2023
If your country imposes taxes on inheritance and you own substantial assets (locally or overseas), you should consider following strategies in general to optimize assets.
No other topic is more important than discussing tax implications, and we need your full attention here. Muslims oblige to create a Last Will that is compliant with shariah, and that’s what Wassiyyah ensures that your Last Will, be compliant Islamically. You can learn more about Islamic Inheritance law by visiting HERE. As per Islamic law, fractions of shares shall be owned by one or more inheritors, posing a potential tax issue upon death in some countries. Depending on your residence and domicile status in the country or jurisdiction, different taxes can be imposed on your estates, such as death tax, estate tax, wealth tax, probate tax, inheritance tax, succession tax, gift tax, or capital gain tax on any outstanding income. These taxes are legal liabilities and must be paid within such a time frame (typically six months to a year after the death of the Testator) without exception. Any delays in paying taxes may be subject to fines and interest. Tax impact is essential to consider; otherwise, your inheritors may suffer from imposed tax. It's not only the type and content of Islamic Will you create that can minimize taxes but many other things you should do to minimize taxes. Not all countries have the same rules for taxation upon death. For example, many Asian countries do not have inheritance taxes currently. On the other hand, some countries in America and Europe may have enormous potential tax consequences. So, you should not take as a grain of salt that your estates shall be subject to taxes always; instead, consider optimizing your estate planning strategy based on the geographical location of your assets and your domicile status. Before we go further, visit these BLOGS to determine if your country has any tax implications! Alternatively, you can also find out by visiting your country's tax or revenue office website.
Most people create their Wills or Trust without visualizing the outcome, leaving the issues for family and inheritors. Due to the legal complexity specially non-Muslim majority countries where the legal laws differ from Islamic law, it may not be easy to do estate planning. You can learn more about Islamic Inheritance, and the course offered at Wassiyyh academy. It's free for Premium and Premium members.
Consider contributing to lifetime charity (to Muslim charitable organizations and the needy) as much as possible to minimize the estates ensuring you do not leave your inheritors at risk.
Consider making gifts (i.e., Inter-Vivos) in favor of your loved ones (Spouse, Children, Grandchildren, Parents, etc.) as much as you can to minimize the estates ensuring you do not put your other inheritors a risk. Wassiyyah offers an exclusive solution for a Deed of Gift that you may consider.
Testamentary Bequest is restricted to one-third upon death, which you can maximize in your Will to reduce the inheritance portion, ensuring you do not put your inheritors at risk. Consult a Tax or an accounting firm if you have large assets and want to optimize Testamentary Bequest to minimize the risk of unforeseen tax consequences.
If you hold assets in multiple countries, create separate Wills for each country where your estates are located (i.e., Multiple jurisdictional Wills). Moving assets from one country to another can exceed tax-free allowances for a country where you are consolidating assets. Consolidating all assets in one country can increase your overall estates, which may leave less or no room for tax-free allowances.