What are the Beneficiary Deeds?
The Beneficiary Deed is an estate planning instrument (also refers to Transfer-on-death-deed, Transfer-on-death-designation, TOD deed, or, Pay-on-death-designation) to transfer assets from living or dead persons to beneficiaries. For Muslims, one of the restrictions of a Beneficiary deed under Islamic ruling is that the assets cannot be transferred to the Beneficiary who are not legal Islamic heirs. The estate transfers must govern under Islamic Wills, Trust, or Waqf that comply with Shariah. So, you need creative approach of using Beneficiary Deeds to comply with Islamic Inheritance law. However, there is no restriction on using Beneficiary Deeds for transferring the assets of a Living person. It cannot be changed after mental incapacity or death. Similar to other estate plan, Beneficiary deed also come with Pros and Cons. Beneficiary Deeds is popular across North America (United States, Canada), Europe (United Kingdom), Australia, Asia (India, China), and the Middle-east.
What are the types of Beneficiary Deeds?
There are different types of Beneficiary deeds used to transfer not only assets but vehicles, investments, stocks, bonds, and many other things. Every Beneficiary deeds can be subdivided into two types either effective in a life or after death. The type of Beneficiary Deeds that can be used to transfer estates after death which must be drafted along with Islamic Wills or Trust to comply with Shariah in addition to Legal laws.
What are the benefits of Beneficiary Deeds?
There are several benefits, as below.
Transfer can happen immediately after Grantor's death without waiting for any official processing from government body except requiring a Grantor's death certificate along with Beneficiary deed.
Beneficiary Deeds shall become effective after death of owner for properties under Community Property with right of survivorship.
Debts and legal contract (i.e., Mortgage, Loans, Liens, etc.) does not restrict transfer of Property. Although Beneficiary deed could not remove the Liens on the property but at the same time it does not restrict the transfer.
It allows setting up primary or contingent beneficiaries including an individual, a family member(s), relative(s), friend, charities, organization, or association.
It allows quick and seamless transfer of assets, vehicles, lands, or other properties, investments, life insurance policies and payouts, retirement accounts, and bank accounts without court intervention during life.
Avoiding Probate means significant reduction of legal and attorney's cost that is required to handle court processing.
Creating Beneficiary deeds to transfer can avoid probate, but it requires careful drafting of Beneficiary Deeds integrated with Shariah-compliant Wills and Trusts.
Making it revocable so that you can change it anytime you wish. You can change beneficiary and proportions as needed any time in life.
The owner will have full control during a lifetime, and the control can be extended afterlife through proper drafting.
Beneficiary Deeds may offer tax benefits if assets or investments fall under the annual exemption.
Restrict invalid creditors from taking on after death. However, you should not create estate plan to get away from paying debts. Infact, it should be utilize to pay off debts which is important obligation in Islam.
When the Beneficiary Deeds disadvantageous and ineffective?
There are many limitations you should make a note of, as below.
The observance of Shariah principles regarding Inheritance can be compromised if not drafted properly and also, if the beneficiary do not take the accountability of following wishes and promise agreed with Grantor. This is by far the most vulnerable part in Beneficiary deed execution for Muslims.
It negates the potential of continuous charity reward opportunity by allowing Testamentary Bequest (i.e., less than one-third of estates) that can be achieved using Islamic Wills or Trust.
It cannot cover the guardianship for minors.
It may not cover the nursing home or medicare cost. Country can unwind the deed and take the assets back from beneficiary.
It may not cover the special needs support for beneficiary and so, in this cases you should consider creating Trust than TOD deed.
It will be mostly useless for assets and bank accounts that are jointly owned.
It may become impractical if not drafted properly, for example, if you missed specific beneficiaries, or assets declared in the Beneficiary deeds are incorrect.
It will be ineffective if assets that you have declared under Beneficiary Deeds are not in your name or if assets have legal disputes. For example, the Beneficiary Deeds are created, but the property is under legal claims from creditors due to bankruptcy or insolvency.
It may not allow transfer for the assets those are jointly owned (i.e., Joint Tenants, Joint Tenancy, Community property, or any other similar scheme that has right of survivorship component). The laws regarding which type of co-ownerships are allowed to transfer through TOD deed may differ from one country or jurisdiction to another.
The mental incapacity of Grantor would not cover under Beneficiary deeds because it is only effective after death.
TOD deed becomes void when the beneficiary dies prior the Grantor. When a Grantor solely relied on Beneficiary deed and forget to have Last Wills and/or Trust in place, the Grantor's assets can become orphan upon death and may face lengthy court proceedings before the assets can be distributed to heirs or other beneficiaries .
Transfer of Property can be abused by spendthrift or irresponsible beneficiary who is just waiting to get and sell the the transferred assets.
It will be ineffective if the Beneficiary Deeds are drafted contrary to the country's laws or jurisdictions (i.e., state, province, or territory).
What are the crucial things to consider for drafting Beneficiary deeds?
The followings are the crucial things to consider.
Complete the financial assessment before making a decision.
You can draft yourself, but a professional attorney or expert can ensure all legal requirements are met.
Make it revocable to have full control.
Decide and write when effective (i.e., before or after death).
You can apply restrictions, especially if you are creating Deeds for lifetime transfer. For example, you can restrict it to "no sales without consent of the owner."
Follow all legal processes for witnessing, signing, and notarizing.
Record or register in the country, city, or judiciary office as per country law.
Pay applicable stamp duty or another fee for transferring if you want to transfer immediately. The executor/Trustee will have to pay fees (from administration expenses)) if transferring after death.
The actual transfer may take some time (a few weeks). So, monitor and follow ups until it is fully transferred as per the Beneficiary deeds.
Review and Update as required specially for major life events such as assets changes, marital, divorce, accidents, pandemic, disaster, or birth/death of child/beneficiary, etc.
What is the difference between Testamentary Bequest and Beneficiary Deeds in Islamic and Secular law?
The Beneficiary Deed is an estate planning instrument to transfer assets from living or dead persons to beneficiaries. One of the restrictions of a Beneficiary deed under Islamic ruling is that the assets cannot be transferred to the Beneficiary who are not legal Islamic heirs. The estate transfers must govern under Islamic Wills or trust that comply with Shariah. However, there is no restriction on using Beneficiary Deeds for transferring the assets of a Living person. On the other hand, the "Testamentary bequest." under traditional Islamic law restricts Testamentary Bequest to one-third for the poor, needy, charity, etc. The remaining two-thirds of a total estate (tarikah) is distributed among Islamic legal heirs per Muslim succession law. Generally, under secular law, there are no restrictions in making a testamentary bequest; you can make part of your Will except for tax consequences, and also, testamentary freedom may be restricted to some extent due to forced heirship requirements which may be applicable in a handful of countries. The other notable difference in Secular law is, anyone including legal heirs can receive Testamentary Bequest generally, but under the Islamic religion, the Islamic heirs (who are beneficiaries) cannot receive a Testamentary bequest based on Hadith (Sunan Ibn Majah 2714, Book 22, Hadith 20 that states: "Allah (Subhanahu Wa Ta alla) has given each person who has rights his rights, but there is no bequest for an heir." This means you cannot bequeath to your spouse, children, parents, and grandparents; those are Islamic heirs (warith). Islamically, You can bequeath up to one-third as a part of your Islamic Will or Trust to any relatives or non-relatives who are not your Islamic heirs, needy people, Muslim registered charitable organizations or associations, mosques, the Muslim community, or world community at large, etc.
What is the similarities and differences between Islamic Wills and Beneficiary deeds?
Both are similar as used to transfer upon death but have major differences lie in the principles it self. Beneficiary deeds does not pass through time consuming and expensive Probate while estates must go through Probate in Islamic Wills. Islamic Wills can be used to fulfill debt obligations, allowing testamentary bequest, distributing inheritance and looking after provisions for minors as per your Wishes inline with Shariah and Legal principles. While Beneficiary deed on the other hand cannot be used for this purpose instead, it designates the specific beneficiary straight without considering debts, testamentary bequest, estates, and guardianship for minors.
What is the similarities and differences between Islamic Trust (or Waqf) and Beneficiary deeds?
Both are similar as used to transfer upon death and does not require Probate. So, you get total control of estate distribution after death. Trust or Waqf can be used to fulfill debt obligations, allowing testamentary bequest, distributing inheritance as per your Wishes inline with Shariah and Legal principles. Trust allows managing wealth while alive and after death. While Beneficiary deed on the other hand cannot be used for this purpose instead, it designates the specific beneficiary straight without considering debts, testamentary bequest, and estates.
How do Beneficiary Deeds differ from Deed of Gifts or Hibha?
The Beneficiary Deeds can be used as a transfer mechanism but cannot be used for Gift transfer. Hiba or Hibah on the other hand is a lifetime gift you can give away to your spouse, children, parents, or relatives. In Islam, giving away gifts is one of a Muslim's most meritorious acts. If we refer to large gifts given to family members, it is one of the best estate planning strategies a Muslim follows for reducing estates going to Probate. There is a religious implication of giving away Hibah and differences of opinion among Madhab (i.e., Hanafi, Shafii, Maliki, Hanbali) regarding Hibah those do matter. If you plan to give away gifts to children, treat them equally, as stated in the Hadith Book, Bulugh al-Maram, Book 7, Hadith 928.
What are the requirements for drafting Beneficiary deeds?
The laws for Beneficiary deeds differ from one country and jurisdiction (for USA, Canada, Australia, and Part of Europe) to another. The minimum requirements are as follows.
Must be in Writing.
Grantor must be an adult and mentally capable.
Grantor must own the assets on his or her name (i.e., legally titled).
Must specify the accurate information about assets.
Must include accurate Grantor's information including name, birthdate, and address.
Must include accurate information about beneficiaries including name, birthdate, and address.
Must include Grantor's terms in the most comprehensive way.
Must have a legal framework in your Country regarding Beneficiary deed.
Must not contradict with Country and Jurisdiction (i.e., state, province, territory) laws.
Must be signed by Grantor in the presence of witnesses and a Public Notary.
Must be registered or recorded with register.
How can Wassiyyah help to optimize my estate plan?
Wassiyyah can help you in many ways, as below.
Wassiyyah provides exclusive blogs and articles for premium members on gifts, bequests, and inheritance, making you knowledgeable about these terms. Also, you will learn about the requirements for choosing executors, trustees, agents, and witnesses.
Wassiyyah will provide an instructions guide when you purchase an estate plan with specific information about optimizing.
Wassiyyah's estate plan has the default protections to utilize your assets towards testamentary bequests in scenarios like the absence of heirs or others. Wassiyyah's estate plan will ensure your estates will go to the right heirs with all in-built protections through legal clauses.
Wassyyah's Islamic inheritance course is an intensive learning course that includes sources (i.e., Holy Quran, Sunnah, Ijma, Qiyas), Al-Faraidh (i.e., Fixed or prescribed shares), Al-Asabat (i.e., Residuary), Dhawu Al-arham (i.e., Distant Kindred or kins), Blocking or Exclusing rules, Radd and Awwal calculations, and practice examples. The course suits students, individuals, professionals, lawyers, attorneys, scholars, or researchers. The course is available at the lowest cost of US$10 with lifetime access, including many benefits.
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