Creating an islamic compliant trust a guide for south carolina muslim residents www.scmuslim.com

www.scmuslim.com
Creating an Islamic Compliant
Trust: A Guide for South
Carolina Muslim Residents
In the Name of Allah, Most Gracious, Most Merciful.
CREATING A TRUST:
A trust is a fiduciary relationship with respect to
property where by a trustee holds legal title for the benefit of
another. The Islamic waqf system in many ways resembles a trust
in that it is based on the idea of someone gifting to a third
party specific property to be held for the benefit of others. A
trust is ideal if one does not want to have a conservatorship
proceeding wherein one’s family will have to go to court if they
disagree.
A South Carolina Last Will and Testament can enable one to
create a trust and designate a trustee to handle their estate
(property left after death) on behalf of their children or other

beneficiaries. A trust, particularly a discretionary trust,
enables one to collect, arrange, and manage their assets during
their lifetime. The assets then pass to one’s beneficiaries upon
their death. A trust achieves many of the same ends as a Last
Will and Testament; however, a trust serves as a tax-saving
device which enables one to avoid excessive estate expenses. If
one’s Last Will and Testament is used to transfer property after
their death, there will be a probate. However, trusts are not
required to go through probate, which can save one a small
percentage of the total value of their estate.
Title 62 - South Carolina Probate Code SECTION 62-6-101.
Definitions. (14) mandates: "Trust account" means an account in
the name of one or more parties as trustee for one or more
beneficiaries where the relationship is established by the form
of the account and the deposit agreement with the financial
institution and there is no subject of the trust other than the
sums on deposit in the account; it is not essential that payment
to the beneficiary be mentioned in the deposit agreement. A
trust account does not include a regular trust account under a
testamentary trust or a trust agreement which has significance
apart from the account, or a fiduciary account arising from a
fiduciary relationship such as attorney-client.

It is therefore important to highlight that a trust
account does not include a regular trust account under a
testamentary trust (will trust) or a trust agreement. A
testamentary trust is a trust that is not created until after a
testator's death, and is therefore irrevocable; because, since
the testator has died, it will be physically impossible for them
to have the ability to amend or revoke the testamentary trust. A
testamentary trust can be established under one's Last Will and
Testament, Revocable Living Trust, or Irrevocable Life Insurance
Trust.
There are four parties involved in a testamentary trust:
 The one (grantor or trustor, but is generally referred to
as the settlor) who stipulates that the trust be formed,
generally as a part of their will
 The trustee (or Executor), who is generally named in the
will, is responsible for carrying out the terms of the
testator's Last Will and Testament. If not named in the
will, they will be appointed by the probate court which
handles the will
 The beneficiary(s) who will receive the benefits of the
trust in question
 The actual trust itself

STRUCTURING A TRUST:
It is imperative that a Muslim living in South Carolina
consider the practical Islamic guidelines with regard to how the
trust is actually structured. In theory, there are various ways
one can structure a trust to achieve the underlying objective
while also remaining shariah compliant.
Wali (guardian) of the trust
The Settlor can appoint one they consider an ideal wali,
whose authority should be held in a fiduciary capacity while
acting as the protector of the trust. This individual should
essentially ensure that all activities of the trust are in
compliance with Islamic law. Furthermore, in order to ensure
that the Trustees observe the requirements of both Islamic and
state law while administering the trust, the settlor should
prepare a letter of wishes. However, it is important to note
that as a matter of practicality, where the trust is
administered from an abroad jurisdiction this option may be
inconvenient in practice.

Type of Trust - Discretionary
A Discretionary Trust (Family Trust) is established by a
Deed between the settlor who sets up the trust and a Trustee. In
a discretionary trust, the Trustee has the power use their
judgment when deciding whether any sum is to be paid to
beneficiaries, and if so, how much. The heads of a family are
generally appointed as a trustee company's directors; and in
this way they are able to control the exercise of the trustee's
discretionary powers.
Revocable/Irrevocable Trust structure
An important consideration is the issue of whether the
trust should in essense be revocable or irrevocable. When
electing a revocable trust, careful thought must be given to the
interests of the beneficiaries under the trusts; because, the
parties involved could actually deviate from the rules of
established heirs outlined in the Quran, resulting in an
unsupported couse of action. In summary, there are a variety of
ways in which the framework of the trust can be adapted flexibly
to ensure that one's wishes are carried-out; however, carefull
planning will be required.
Regarding Revocable Living Trust, some Trust advocates
preach against wills, declaring that Trusts are a better

instrument. Nevertheless, even if one has a Revocable Living
Trust, they are required to create a will. However, in many
instances, a will is all that is required. Regardless of the size
of one’s estate, a will should form the foundation of their
estate plan. In instances where one has a Revocable Living
Trust, it is ok if their will is very simple. Nevertheless, a
will is still an important part of one’s estate plan, and it
should not be considered as being unimportant simply because a
Revocable Living Trust has been created. In all fairness,
something is wrong if one has a Revocable Living Trust and does
not possess a will. When one has a Revocable Living Trust, they
create what is referred to as a "Pour-Over Will." A Pour-Over
Will acts as a safety net for one’s Trust. One’s Last Will and
Testament will actually "tie" together the Revocable Living
Trust, tax plan, and other facets of their estate plan.
In instances where one has minor children or an
incompetent family member, the will in question should at least
name a guardian/conservator. The purpose of a Revocable Living
Trust is to allow property to be transferred through the Trust
rather than through the will, thus avoiding probate. It is also
important to note that some attorneys will flat out say that
Revocable Living Trusts do not work and should not be used in
the vast majority of the cases. The reason being, drafting a

will in the manner employed by most lawyers does not make a lot
of money for them up front, but once a will is written, the
testator and their heirs are psychologically "locked" into the
lawyer in question. As a result, a lawyer can benefit
financially because the party in question will probably do other
legal work with them. Unfortunately, there are even instances in
which a lawyer will take advantage of one’s family during the
probate process. Lawyers will also draft a great deal of wills
at inexpensive prices in order to get the probate business;
because, their financial success is guaranteed by the probate
process.
Fundamentally a trust is formed by a token donation; such
as 10,000 USD, and thereafter transferring properties etc., into
the name of said trust. The donor then specifies specific
beneficiaries who will become the eventual owners of the trust
once it is dissolved. In this context, the donor neither intends
on immediately donating their property, nor do they really wish
to make the specified beneficiaries their immediate owners. From
the standpoint of Islamic law, there is no problem with regard
to what clauses may be written into the trust deed, provided
that it does not constitute a violation of any aspect of Islamic
law; i.e., involvement in interest, gambling, intoxicants,
pornography, etc. However, as it pertains to Islamic law, the

trust in question is non-existent, and will be regarded as part
of the donor’s estate upon their death; despite the fact that
the trust deed is a valid legal document according to South
Carolina law.
The trust in question is non-existent because the intended
recipients will not take actual possession until after the donor
has died. The same would apply even if the donor issued the
items in question as he was dying (maradul-maut); because in
this instance, the transaction would be regarded as a will. In
order for the transaction to be valid under Islamic law, the
donor would have to issue a particular item and witness the
intended recipient take actual possession prior to their demise.
Thus, if a house was to be part of an Islamic trust, the owner
would have to donate the house to the intended recipient, move
out, hand over the keys, and sign over the title to the new
owner. The new owner could then allow the former owner to remain
in the house until the time of their demise. However, even
though the former owner will remain in the house, it is
important to note that every detail pertaining to the house will
be at the new owner’s discretion.
If the donor dies with the situation remaining unchanged,
the donated property will transfer upon their heirs according to
the laws of inheritance. The evidence for this view is a hadith

collected by Bukhari, narrated by 'Abida, who reports: "If he
dies and the gift has been set aside while the one who was given
it was alive, then it is for his heirs. If it was not set aside,
it is for the heirs of the one who gave it.' Al-Hasan said, 'No
matter which one dies before, it is for the heirs of the one to
whom it was given if it has been given to the messenger.'" With
this being said, all the donor’s eventual heirs, as well as
those specified as beneficiaries to the trust in question must
be informed of the true reality of the trust. Therefore, it is
best if the true position of the trust be documented and all the
heirs and beneficiaries be required to sign the document in
question, stating that they have been informed about the fact
that the trust is non-existent in terms of Islamic law, and that
the donor is the sole owner. Consequently, if one intends to
form a trust that is valid according to Islamic law, it is
imperative that they seek guidance from a scholar/expert who is
experienced in this field before any trust deed is finalized.
Nonetheless, 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.
Below is a listing of important questions one might have
regarding South Carolina's new Trust code; taken from Answers to
95 Questions You Should Have About the New South Carolina Trust

Code, By Evans, Carter, Kunes & Bennett. According to the
authors, "The new South Carolina Trust Code (SCTC) was passed by
the South Carolina General Assembly and signed into law in 2005.
It takes effect on January 1, 2006, and applies retroactively to
all trusts. Modeled on the Uniform Trust Code (UTC), which was
promulgated by the National Conference of Commissioners on
Uniform State Laws, the SCTC was the result of the efforts of
the SCTC Study Committee of the Probate, Estate Planning and
Trust Section of the South Carolina Bar. For the most part, the
SCTC is a default statute. The absence of case law and the
absence of statutes left practitioners dealing with uncertainty
in many areas of the common law. The SCTC introduces new
concepts and makes significant changes to our laws on trusts.
The SCTC is codified in Article 7 of Title 62 of the South
Carolina Code. There are eleven sections to the Act, and it
includes the official UTC comments as well as South Carolina
comments. Attorneys, judges, corporate and individual trustees,
and trust beneficiaries and their duties and rights will soon be
guided and governed by the SCTC. Herewith are answers to 95
questions we should all have about the new law."
The questions I have included are the following based on
their relevancy to the objective of this book:

INSURANCE AND PENSION:
If one’s insurance or pension policy is written in a trust
of nominated beneficiaries, upon one’s death, these items will
pass outside of one’s Islamic will directly to one’s designated
beneficiaries. All insurance/pension policies will pass outside
of one’s Islamic will; because, these items are not regarded as
one’s wealth due to the fact that they will not be in one’s
possession at the time of their death. However, in the case of a
pension, since this item is accrued from years of service, in
principle, the retirement pension scheme constitutes Mudaraba
(The first party, the rabb al-mal, contributes the capital to
the mudaraba and does not get involved in its management, while
the second party, the mudarib, brings no funds but only his
expertise and entrepreneurial skills to manage the mudaraba.),

so the proceeds from said transaction will become the right of
all the legal heirs. Furthermore, even if one dies before
obtaining their pension, the value of said item must be included
in their estate.
According to a June 30, 2003 article in Arab News Islam,
"Pension plans are generally acceptable. They work on
practically the same basis as life insurance, with some
differences. Pension plans are operated by most, if not all,
Muslim countries. They are also applicable to Al-Azhar and other
Islamic universities. Normally pension plans provide support to
a retired employee, his wife, and children below a certain age.
The idea is that after that age, which is normally 21, children
should be able to support themselves. Pension is a benefit given
to those who are at a stage of life when they cannot support
themselves. This is why it is paid to a retired employee and his
wife, or spouse. It is not part of a person’s savings, unless
the plan specifies that. As such, it is not treated as part of
one’s estate, which is divided according to the law of
inheritance."
It should also be noted that any insurance policy that is
"required" for a South Carolina resident or employee is lawful
according to Islamic law. On the contrary, Life insurance
policies are unlawful if not required by State law or a

workplace agreement. However, for those Muslims who engage in
such policies, upon their death, the funds from said policies
pass directly to the beneficiary named within the document. One
cannot inherit funds from their own Life insurance policy; as a
result, one’s spouse is generally the primary beneficiary of the
policy.
One can also utilize a Letter of Wishes to change the way
that an asset is held so that it pays directly into their
estate; such as, changing one’s pension fund from directly
paying their beneficiaries to paying into their estate.
Basically, one can include a Letter of Wishes for each asset
that passes outside of their will. This Letter will be addressed
to the beneficiary of that asset. It must be signed and dated by
the Testator and can be either written or type. It does not
require witness signatures. Unlike the will, the Letter of
Wishes does not become a publicly available document upon death
and therefore should be kept with one's Last Will and Testament.
The Letter of Wishes can also request that a particular
beneficiary include their share of the asset as part of the
testator’s estate. This ensures that the asset to be distributed
will be done so according to Islamic law. This fact is evident
from SECTION 62-2-512 of South Carolina Code of Laws pertaining
to: Separate writing identifying bequest of tangible property,

which maintains: "A will may refer to a written statement or
list to dispose of items of tangible personal property not
otherwise specifically disposed of by the will, other than
money, evidences of indebtedness, documents of title (as defined
in Section 36-1-201(15); i.e., Document of title" includes bill
of lading, dock warrant, dock receipt, warehouse receipt or
order for the delivery of goods, and also any other document
which in the regular course of business or financing is treated
as adequately evidencing that the person in possession of it is
entitled to receive, hold and dispose of the document and the
goods it covers. To be a document of title, a document must
purport to be issued by or addressed to a bailee and purport to
cover goods in the bailee's possession which are either
identified or are fungible portions of an identified mass.),
securities (as defined in Section 36-8-102(1)(A)), and property
used in trade or business. To be admissible under this section
as evidence of the intended disposition, the writing must either
be in the handwriting of the testator or be signed by him and
must describe the items and the devisees with reasonable
certainty. The writing may be referred to as one to be in
existence at the time of the testator's death; it may be
prepared before or after the execution of the will; it may be
altered by the testator after its preparation; and it may be a
writing which has no significance apart from its effect upon the

dispositions made by the will." However, it is important to note
that a Letter of Wishes is not legally binding on one’s
beneficiaries; i.e., after one’s demise, there is no way to
guarantee that their heirs will comply with the agreement.
Nevertheless, as a backup plan, a testator can have their
executor reiterate to the beneficiaries in question the
importance of fearing Allah and honoring the testator’s final
wishes. With this being said, as detailed on the
ISLAMTOMORROW.com document: Last Will and Testament - Important
Notes - Point #6 - Case of more than one wife, every Muslim male
writing a will should reflect upon the following point of the
document which reads: "Although I believe that the legal ban in
America and other Western countries on marrying more than one
wife is wrong and instead, I call for regulating plural
marriage, in a way that is consistent with Shari’ah, I do not
condone any violation of the law of the land. But since there
are a few Muslim men who have more than one wife without
registering the second marriage or both marriages, I feel a need
to protect the rights of unregistered wives in the estate. In
such a case I suggest personalizing the Last Will and mentioning
the names of the wives, registered or not, along with a
statement that requires the distribution of any share of a wife
in the Schedule of Mawarith equally between the surviving
wives."

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Creating an islamic compliant trust a guide for south carolina muslim residents www.scmuslim.com