Family Trusts

Answered according to Hanafi Fiqh by

Q: I wish to form a family trust. What are the important aspects that I should keep in mind when forming the trust?

Similarly, can you explain to me the shar’ee ruling in regard to forming a family trust and who will be regarded as the owners of the wealth included in the trust?

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A: We have prepared a detailed article regarding family trusts. Below is the article:

Family Trusts

The forming of family trusts is becoming a fairly common practice among Muslims today. Therefore, it is vitally important for one to acquaint himself with the relevant masaa’il in regard to forming a trust.

After following the necessary procedures to form the trust, properties and other assets, etc., are transferred into the name of the trust. The one who had formed the trust specifies various beneficiaries who will become the eventual owners of all that the trust owns when it is dissolved.

In most cases, these “trusts” are formed as a tax-saving exercise and to avoid exorbitant estate duties. Neither does the one who had formed the trust intend giving away his property, nor does he, in reality, wish to make the specified beneficiaries the immediate owners. If this is the case, there is no problem with what clauses may be written in the trust deed, provided that it does not necessitate the violation of any aspect of the Shari’ah.

The sharee status of a trust

In terms of the Shari’ah, since this “trust” was not formed with the intention of gifting the assets of the “trust” to the people who have been included as beneficiaries of the trust, rather it was done for tax purposes, this trust will be regarded as the complete ownership of the one who had formed the trust. Hence, upon the death of the one who formed the trust,  it will be regarded as part of his estate. However, the trust deed is a valid legal document according to South African law.

Here again, problems could arise among the heirs if any one party intends to take wrongful advantage of this “trust” which is meaningless in terms of the Shari’ah. It is thus imperative that a clear note be addressed to one’s executors informing them of the reality of this “trust”. Likewise, all the eventual heirs of the one who had formed the trust as well as all those who have been specified as beneficiaries in this so called “trust” must be clearly made aware of the true reality of the “trust”.

It will be best if the true position of the “trust” be documented and all the heirs as well as those named as beneficiaries are made to sign that document stating that they have been made aware of the fact that the “trust” is non-existent in terms of the Shari’ah and that the sole owner is the one who had formed the trust.

Making the assets of the trust waqf or gifting them to the beneficiaries

If one truly wishes to make the “trust” valid and binding according to the Shari’ah, it is imperative that the laws of the Shari’ah be fully adhered to.

If it is indeed meant to be made waqf, the laws of waqf must be adhered to.

If it is in reality meant to be an immediate gift to the beneficiaries, the laws of hibah (gifts) will be applicable.

If the conditions of waqf or hibah are not fulfilled, the gifted property or item will not become the property of the beneficiaries. It will remain the property of the one who had formed the trust.

If the one who had formed the trust passes away with the situation remaining unchanged, the “gifted” property will devolve upon the heirs of the one who had formed the trust according to the laws of inheritance. Therefore, if one intends to form a “family trust” which is valid according to the Shari’ah, it is imperative that guidance be taken from Ulamaa who are experienced in this field before any trust deed is finalised.

Nevertheless, whatever the situation may be, the reality of the “trust” must be clearly known and recorded in order to enable the executors to wind-up the estate correctly upon the demise of the one who formed the trust.

And Allah Ta’ala knows best.

الهبة تصح بالإيجاب والقبول وتتم بالقبض (مختصر القدوري صـ 277)

قال العلامة الحدادي رحمه الله قوله (وتتم بالقبض) قال في الهداية القبض لا بد منه لثبوت الملك لأن الهبة عقد تبرع وفي إثبات الملك قبل القبض إلزام المتبرع شيئا لم يتبرع به وهو التسليم فلا يصح (الجوهرة النيرة صـ 325)

كتاب الوقف مناسبته للشركة إدخال غيره معه في ماله، غير أن ملكه باق فيها لا فيه. (هو) لغة الحبس. وشرعا (حبس العين على) حكم (ملك الواقف والتصدق بالمنفعة) ولو في الجملة، والأصح أنه (عنده) جائز غير لازم كالعارية (وعندهما هو حبسها على) حكم (ملك الله تعالى وصرف منفعتها على من أحب) ولو غنيا فيلزم، فلا يجوز له إبطاله ولا يورث عنه وعليه الفتوى ابن الكمال وابن الشحنة (الدر المختار 339-4/337)

فإن شرائط الواقف معتبرة إذا لم تخالف الشرع وهو مالك فله أن يجعل ماله حيث شاء ما لم يكن معصية (رد المحتار 4/343)

Answered by:

Mufti Zakaria Makada

Checked & Approved:

Mufti Ebrahim Salejee (Isipingo Beach)