|Anyone (Muslims and non-Muslims)
|Legal and eligible heirs of a deceased only
|Limit of assets/ inheritance
|Must not exceed 1/3 of the total inheritance amount
|Based on faraid calculations depending on the scenario and the number of heirs.
|Granting of assets/ inheritance
|When the settlor is still alive
|After the death of a settlor
|After the death of a property owner
|Consent from heirs
|Consent from heirs must be obtained the amount nominated to a beneficiary exceeds the ⅓ limit
There are still many among us that take property planning lightly. However, preparing a will or hibah may smooth the way for a lot of future conflicts.
This article was translated from Apakah perbezaan antara wasiat, hibah dan faraid? by Damia Norwin.
There are three main instruments when it comes to property planning, namely; will, hibah, and faraid. This time around, we will briefly discuss the differences between these three instruments to better your understanding of the pros and cons of each of them.
What is inheritance
Inheritance is property, wealth, or prised possession of the deceased person. It is usually categorised as movable and immovable property. Moveable properties are cash, shares, Employees’ Provident Fund (EPF) contributions, insurance compensation, vehicles, furniture, clothing, etc. Immovable property, on the other hand, is a land and its purposes, houses, mines, rice fields, wells, and lakes.
Due to the owner’s failure to manage wealth and property when he or she was still alive, a lot of conflicts happened after his or her death. In fact, according to reports, a total of RM66 billion of Muslims inheritance went unclaimed, while inheritance like houses and lands were abandoned for years.
What is a will
According to the Muslim Wills (Selangor) Enactment 1999, a will is an admission (iqrar) made by a person made during his lifetime with respect to his property or benefit thereof, to be carried out for charity or any other purpose permissible by the Islamic Law, after his death.
Distribution of assets or property
A will beneficiaries are non-heirs only. Assets bequeathed to beneficiaries must not exceed ⅓ of the total inheritance. Consent from heirs must be obtained if it exceeds the ⅓ limit. The consent of the heirs is not required if inheritance bequeathed is less than that amount. A will only require consent (ijab) and transfer of property can only be done after the death of the owner. However, EPF savings or insurance policies cannot be bequeathed. The money will be given to the nominees, subject to respective acts.
Settlement of inheritance may take more than five years for a complicated case. Death will be classified as ‘intestate’ if you pass away without a will. This is because you do not that spells out your wishes on who will inherit your wealth, including their amount and value. These assets include all your bank savings, properties, other prised possessions belonging to you.
In Malaysia, Muslims and non-Muslims are subject to different inheritance laws. For Muslims, the inheritance that is not bequeathed will be distributed according to the law of faraid. Unclaimed inheritance will be given to Baitulmal. If the beneficiary has not reached the age of 18, disabled or mentally handicapped, their shares will be deposited into the Trust Account at AmanahRaya. It can be claimed when the beneficiary is 18 years old or the age agreed in the Trust Deed.
For non -Muslims, priority will be given to those who made funeral arrangements and payment of the deceased’s outstanding debts. Then, balance from the inheritance or non-bequeathed monies will be given to beneficiaries following the provisions of the Distribution Act 1958 (as amended in 1997) for Peninsular Malaysia and Sarawak while the Intestate Succession Ordinance 1968 applies to Sabah.
For beneficiaries under the age of 18, a guardian will be appointed by the court, however, this does not mean that the guardian has absolute right or authority over the inheritance. Permission from the court is necessary if the guardian wishes to withdraw or use the bequest to cover education costs as well as other costs involving beneficiaries under the age of 18.
What is hibah
Hibah is the act of voluntarily granting ownership of property from one person to another when the settlor is still alive without asking for reprisal (‘Iwad). It requires ijab and qabul and transfer of wealth can be done while the settlor is still alive or after his or her death.
What hibah means
Hibah means ‘gift’ and it can be the movable or immovable property that occurs during the life of the settlor.
What is hibah in estate planning
Hibah in estate planning means an asset owner bequeathed his wealth to you. That means you become the beneficiary of assets. For example, if the rightful owner of an asset, such as a piece of land or a house bequeaths his or her properties to you, you then become the beneficial owner of the property or estate.
Types of hibah
Hibah falls into two categories, absolute hibah and conditional hibah (Umra and Ruqba).
Absolute hibah (Absolute assignment)
It is also known as Al-Hibah Al-Munjizah. It is given as a gift (free) when the settlor is still alive.
Conditional hibah (Umra and Ruqba)
A conditional hibah is a contractual hibah where the settlor places certain conditions together with the hibah contract (akad) for the transfer of ownership to happen. There are a few types of conditional hibah, but the main ones are Umra and Ruqba.
Advantages of hibah
The Takaful industry in Malaysia adopts the Ruqba hibah concept. This is due to several advantages as follows:
- Transfer of ownership is done after the settlor pass away
- Ownership belongs to the settlor
- The cost for documentation is cheaper
- Secured assets like houses can be gifted as hibah, provided there is Mortgage Reducing Term Assurance (MRTA)/ Mortgage Reducing Term Takaful (MRTT)
Unlike a will, the beneficiary of a hibah can be anyone. If the beneficiary is non-mukalaf (hasn’t reached full adult maturity (puberty) or is disabled), the hibah can be given to his representative. There is also no limit to the assets that can be endowed as hibah and it does not require the consent of the settlor’s heirs. In addition, hibah can also be bequeathed to non-Muslims as a token of friendship.
Difference between hibah and will
There are a few glaring differences between hibah and will. These are the things that you may want to consider when choosing your wealth management instrument.
A will is only for non-heirs. Assets bequeathed to recipients cannot exceed ⅓ of the total inheritance amount.
However, hibah can be given to anyone desired by the settlor, be it an heir or non-heir. Not just that:
- Hibah can be nominated to non-Muslim as a token of friendship, and not for prohibited (haram) activities.
- There is no limit as to the number or amount of assets that you wish to endow as hibah and it is totally up to you.
What is faraid
According to faraid, only heirs of a deceased are eligible to receive the inheritance. Legal and eligible heirs include wife, children, mother, father as well as a certain number of relatives.
The distribution of inheritance according to faraid is based on the provisions and rulings according to Islamic law. There are different calculation formulas in faraid law. It depends on the scenario and the number of heirs.
The inheritance that will be distributed to heirs (according to faraid) is the balance left after deducting the cost of the funeral and settling the debts of the deceased. There are a few types of assets that can be put under faraid.
- Land (farm)
According to Sharia Law, relatives of different religions cannot receive the inheritance of a deceased Muslim person. The same goes for a person who causes the death of the deceased either intentionally or unintentionally.
Which property planning instrument is the best
For faraid, only heirs are eligible to receive an inheritance. As for a will, it can only be bequeathed to non-heirs. But, hibah can be nominated to anyone desired by the settlors, whether that person is an heir or non -heir.
Apart from that, hibah can also be given to hibah can be nominated to non-Muslim as a token of friendship, and not for prohibited (haram) activities.
There is also no limit as to the amount of wealth you endowed as hibah, and it is totally up to you. This is different from a will where the wealth bequeathed cannot exceed the 1/3 rate of the total inheritance amount.
On the other hand, the distribution of inheritance according to faraid is based on the Islamic rules and provisions. If a person did not write a will and let his wealth be distributed by faraid after his death, then it might take some time due to several factors like administration (bureaucracy) in managing the settlement due to disputes among heirs, the legality of the will and other reasons that in the end cause the inheritance to be left abandoned.
As it turns out, property planning using the hibah method is the best. However, there are situations where a will is encouraged, such as:
- Single individuals
- People who have no adopted children
- People who have no heirs
- Mualaf (a Muslim convert)
Whatever instrument you choose, make sure you plan your property and assets now. Don’t wait until it’s too late.
Summary: Differences of hibah, will, and faraid
Here’s a clearer view of what hibah vs will vs faraid is all about:
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Edited by Rebecca Hani Romeli