Shariée status of a trust deed
Question:-
I purchased a few properties in the name of a trust. This trust was formed to save on taxes. What is the Shariée or Islamic position of a trust deed? How will the trust be dissolved after my demise?
Answer:-
The trust deed holds no weight in terms of Shariah. It is simply a legal document that is commonly used to circumvent exorbitant taxes. If the owner of the properties retains ownership of his properties until his demise, then he will be considered as the owner, and the Shari’ee law of succession will be applicable to all his assets after his demise.
However, if he had gifted his properties to the beneficiaries of the trust in his lifetime (according to the Shari’ee requirements of gifting), or sold it to them, then they qualify as the rightful owners of the properties. For example, if he has 4 individuals listed as beneficiaries in his trust deed. He sells 25% of all his properties to each of them in his lifetime, then each of the 4 beneficiaries are considered as 25% owners of these properties. They are entitled to the income derived from these properties and the risk of these properties devolve upon them as well. In this case, the properties listed on the trust deed does not form part of one’s estate after demise.
Your query states that you purchased some property in the name of a trust, which indicates to us that you are still the owner of the properties and your sole intention of creating the trust was to circumvent taxes. In this case, the properties registered on the trust deed will form part of your estate on your demise. The heirs will inherit according to their shares of inheritance as stipulated in Shariah, and not according to the percentages stipulated on the trust deed. You should therefore state in your Will that the Shari’ee law of succession is applicable to the properties listed on the trust deed, so that the executor/s are able to distribute them correctly.