Ramadan Mubarak; may Allah SWT accept your efforts and intention in this holy month.
I have a question that I need help with; it has to do with allocating my IRA assets during my life time and inheretance. It is easier to write you the details and then call to discuss and get an opinion/answer. Just calling on phone would take too much time and will be hard to explain as well.
We have two unmarried adult children (daughter 33 years old, son, 31 years old), working and living independently. I am 72 years old, retired now but work part-time to keep myself busy and earn some income to supplement retirement income.
– We have a home that we live in. Upon our deaths, it will be sold by the children and proceeds distributed according to Quranic rules (2 shares for son and 1 for daughter), in shaa Allah
– I had an IRA account for a certain value in my name.
– Several years ago, I split that single IRA into 4 separate IRA accounts in my name. Three of them (equal in value) have individual names as sole beneficiaries (my son, my daughter and my wife). The 4th IRA is for my sustenance and has all of the three listed as beneficiaries. The remaining amount will be distributed according to Quranic laws (wife, son and daughter)
– My logic in doing so was to gift each of the 3 of them equal amount during my life time and then also get shares from the one where they are listed as joint beneficiaries.
– To clarify, let me give an example: If my original IRA was $100. I split that into 4 IRAs as follows:
(1) $15 (my daughter is the sole beneficiary)
(2) $15 (my son is the sole beneficiary)
(3) $15 (my wife is the sole beneficiary)
(4) $55 (my son, daughter and wife are the beneficiaries)
– Since I have gifted the first 3 IRAs during my life, I never have (and never will, in shaa Allah), touch or use any amount from these three IRAs. Upon my death, each one of the beneficiaries will claim their own IRA that I had gifted them during my life time. My children and wife know well that each of them have one of my IRA that they own and will get the funds after I die. Children and wife do not need the funds at this stage in their lives but will need them after I die.
– Whatever is left from the 4th IRA (when I die) will be divided among 2 parts 1) One-third that I want to give to charities 2) 2/3rd to be distributed to the 3 beneficiaries. Since I had not gifted this amount during my life time, the distribution of the 2/3rd. will be done according to Islamic inheritance rules.
Is this correct from Islamic perspective?
I feel it is no different than the situation where if I owned a home and gifted them to the three beneficiaries (wife, son and daughter) during my lifetime but continued to live there with the stipulation that they will have the ownership and disposal right after I die.
I will appreciate if you can please respond by email or let me know what will be a good time to speak with someone on the phone about your advice and answer.
Jazak Allah khair,
الجواب وبالله التوفيق
Below are the respective answers to your questions:
- Upon your death, the amount received against the sale of your house will be shared among the shar‘ai beneficiaries (i.e. your wife, son and daughter):
- Wife – Her share in the value of the sold house will be 1/8th, if she survives you. It is not allowed to exclude her from her legal share.
- After giving out the wife’s share, remaining amount shall be divided into three equal shares. The son will receive 2/3rd and the daughter gets 1/3rd share.
- Assigning a certain amount or percentage of money during someone’s lifetime is considered a “Will” according to the shar‘ai Making a will in favor of legal heirs (warithin) is not permissible, since they have their rights established under the Islamic inheritance laws. During your lifetime, assigning three separate accounts in your IRA plan, with equal percentages of money for each of your beneficiaries (wife, son and daughter), and allocating the 4th account to all three beneficiaries combined, is not permissible according to shar‘ai teachings. The correct ruling is that the entire amount available in your IRA account at the time of your death will be distributed as described above i.e. 1/8th of its total value will go to the surviving wife, remaining amount’s 2/3rd will be given to the son and 1/3rd share for the daughter.
Remember; no one knows who will live longer than the other and who will survive whom.
- If you desire to allocate some money for charities after your death, the maximum allowable limit is 1/3rd of the total wealth owned by you at the time of death. However, such will must be properly documented.
- If you want to distribute your wealth during your lifetime, the Islamic Shari‘ah allows that as well but according to the following principles:
- You are allowed to give to your wife as much share of your wealth as you wish. But she must be made a real owner of and must also assume complete possession of that amount. Verbal assurance is not enough.
- The remaining amount shall be divided equally between the son and daughter. Equality must be maintained between the sons and daughters for this type of arrangement. Both must receive equal amounts and must also be made real owners and be given full possession of their shares.
واللہ اعلم بالصواب