STEP Global Congress 2016

Transcription

1 STEP Global Congress 2016 Islamic law and wealth succession Paul Stibbard, Executive Vice Chairman 30 June 2016: Amsterdam

2 Overview Political and economic maelstrom Impact of shari a inheritance laws Conflict of laws Cross-border estate devolution issues Key considerations when structuring trusts

3 Political and economic maelstrom Toxic mixture of slumping oil prices spiralling unemployed male youth and bitter regional rivalries No history of democracy or smooth regime change in region External powers such as Russia and US increasingly being sucked into political quagmire Increased risk to personal safety Greater focus on wealth diversification and political risk planning Trend to more complexity with cross-border investment, education, residence and nationality

4 Conflicts of law Client s connecting factor nationality (Spain, Germany, Saudi Arabia) domicile (UK, US, Canada, Australia) habitual residence (France, Switzerland) Religion and sect material to devolution in split systems e.g. Bahrain, India and Singapore Situs of assets

5 Changing laws governing devolution Change of testator s residence, nationality or domicile may change devolution of estate Even changing religion or sect may change rules Purchasing real estate may also change identity of heirs or their fractions Rights of spouse may change Change of donee s religion may impact inheritance rights Changing donee s residence may impact tax analysis

6 When may Shari a law apply? Nationals of States which apply Islamic law Residents of many common law States who are domiciled in Islamic law States Residents of EU States (except Denmark, Ireland and UK) who elect by will to apply national law of Islamic law States post 17 th August 2015

7 Sources of Islamic law The Quran: Revelation made to Prophet between AD610 to AD632 The Sunna: Precedents based on words and deeds of Prophet Islamic jurisprudence fiqh includes ijtihad (reasoned opinion) qiyas ( analogy) urf (custom) maslaha (public interest) Arabian customary law National codes

8 Evolution of national codes Egyptian Civil Code 1949 Kuwaiti Civil Code 1980 UAE Personal Affairs Law 2005

9 Beware differences between Shari a jurisdictions National codes may vary Shari a inheritance laws age of majority varies national law may alter prescribed inheritance rules as example, position of orphaned grandchildren may vary strict Shari a rules (Egypt)

10 Islamic sects (1) Sunni Hanafis (Middle East, Sudan, Turkey, Pakistan regions) Shafiis (Malaysia, Indonesia, parts of Middle East) Malikis (North and West Africa) Hanbalis (Saudi Arabia and Qatar) Comprise some 85% of Muslims

11 Islamic sects (2) Shia Ithna Asharis (Iran/Iraq) Ismaelis (East Africa/Pakistan) Zaidis (Yemen) Majority in Iran, Iraq, Azerbaijan and Bahrain Schism between Sunni and Shia: AD680 Hussein beheaded after Karbala defeat

12 Split systems Lebanon Sunni India Hindu Singapore Hindu Shia Muslim Muslim Druze Christian Christian Christian Others Others

13 Sunni inheritance rules (1) Verses 4.11, 4.12 and of the Quran Entrenched rights for females half that of males Wife receives 1/8 of estate, or 1/4 if no children Husband receives 1/4 of estate, or 1/2 if no children Father and/or mother receive 1/6 share if children, increased if no children Only one daughter 1/2, two or more daughters share 2/3

14 Sunni inheritance rules (2) 1/3 freely disposable estate No preference to individual forced heirs Claw back of gifts in final illness Non-Muslims cannot inherit as forced heirs

15 Sunni inheritance rules (3) Quranic heirs take their allotted portions first Male agnate relatives then succeed to residue of estate (but not for Shia) Debts paid in priority to distributions Co-ownership of estate assets

16 Sunni inheritance rules (4) Nearest male relative under Arabian customary succession laws Who has priority? sons or their descendants father or his ascendants brothers or their descendants uncles or their descendants great uncles or their descendants

17 Sunni inheritance rules (5) Rule of class e.g. son takes in priority to his descendants Rule of degree: nearer excludes more remote, so brother excludes nephew Rule of strength of blood e.g. half-brother is excluded by full brother

18 Sunni inheritance rules: Inner family v outer family Sons have entitlement under Arabian customary law Quranic heirs: 12 sharers Males: husband, father rights inalienable Females: wife, mother, daughter NB: Full list: husband, wife, father, mother, agnatic grandfather*, agnatic grandmother*, daughter, granddaughter*, full sister, consanguine sister, uterine brother, uterine sister These relatives were not designated in the Quran as legal heirs, but added by Sunni jurisprudence

19 Definitions Agnate: male line Cognate: female line Uterine: half blood from mother Germane: full blood Consanguine: half blood from father

20 Estate division principles: Sunni If shares exceed 100%, shares abate pro rata: doctrine of Aul If less than 100%, reserved fractions grossed up: doctrine of Rudd (not for Malikis)

21 Example of AUL abatement Reserved share Aggregated fraction Abatement Husband 1/4 3/12 3/13 Father 1/6 2/12 2/13 2 daughters 2/3 8/12 8/13 Total 13/12 13/13

22 Example Sunni / Shia compared Sunni Shia Son s son 1/2 - Daughter 1/2 All ( Succession in the Muslim Family by N. J. Coulson) Agnates have no privileged position for Shia Particularly relevant e.g. where family are all daughters

23 Shia inheritance rules Agnates have no privileged position Particularly relevant e.g. where family are all daughters All blood relatives divided into three classes Class 1: parents and lineal descendants Class 2: grandparents, brothers and sisters and their issues Class 3: uncles, aunts and their issue followed by great uncles and great aunts and their issue

24 Problems with joint property ownership: Talib v Talib Joint ownership of Singapore real estate held by Yemeni Muslim national and wife both resident in Singapore Deceased survived by widow, 2 Christian children, his sister, nephews and nieces Muslim Court ( MUIS ) determined joint ownership passing by survivorship to widow should be clawed back in favour of Muslim heirs Singapore Court of Appeal determined that common law right of survivorship for widow overrode Islamic law

25 Conflicts of law: public policy concerns Swiss Court in Jura: Should Talaq divorce be recognised? French Court: Should discriminatory law be enforced against rights of heirs who are French residents or French nationals? English Court: Should Islamic law be enforced which discriminates on basis of religion, birth or gender? When will Islamic marriage ceremony be treated as ineffective: El Gamal v Al Maktoum (2011) EWHC B27?

26 Problems of English Law Society: English law v Shari a law Law Society guidance given on Shari a compliant wills Challenged as Shari a law allegedly breaches equality / diversity legislation:- Discrimination against females who may get half share of males Adopted and illegitimate children may receive nothing Non-Muslim relatives may receive nothing No concept of per stirpes may cause hardship for orphaned grandchildren

27 Problem of non-muslim wife No faraid heirship entitlement Non-Muslim spouse may receive nothing in absence of will Freely disposable one-third share potentially available Compare rights of UK resident non-muslim wife of nondomiciled Muslim on death and divorce in UK Guardianship rights for minor children generally vested in father under Islamic law Shari a fractions also apply to Christian families in Egypt and Jordan

28 Final illness / incapacity Gifts made in premonition of death or impending execution Transactions in final illness (mard al maut) Risk of claw-back up to one year Maliki school may encompass marriage / divorce in final illness rule Transactions at undervalue subject to impeachment Onus of proof on donee

29 Requirements for effective gifts (Hiba) No retention of benefit over gifted property Acceptance of gift by donee Limit of 1/3 can be bequeathed on death or in final illness Risk of claw back may be up to one year (nature of final illness) Onus of proof

30 Problem issues for family business succession Inflexible nature of Islamic inheritance laws Desire for patriarch to retain lifetime control Rivalry between siblings / half-siblings Fragmentation of assets in co-ownership Use of trusts for business succession

31 Key considerations when structuring trusts (1) Are Shari a inheritance rules relevant? Are Shari a investment principles relevant? Nature of interest conferred on beneficiaries Should trust be revocable?

32 Key considerations when structuring trusts (2) Is political risk material? Control and governance Duration of trust Should different types of assets be segregated in different trusts? Flee clauses/emergency events

33 Flee clauses Objective to protect trust assets if problems in tax haven Focus on trigger for flee clause Protector confirming operation Problems of inadvertent flight Trustees are replaced No exculpatory clauses No trustee fees due to former trustees Breach of trust for unauthorised payments Consider personal liability of trustees

34 Emergency event Aim to cover unexpected developments disabling settlor s powers e.g. in event of war kidnapping hostile government action

35 Political risk planning Trusts as defensive vehicle Avoid exposure in vulnerable jurisdictions: inversions Importance of bilateral investment treaties Disabling settlor s powers

36 Mitigation of risk in vulnerable jurisdictions Residence of trustees Place of administration of trust Proper law of trust Residence or nationality of vulnerable person Situs of assets Migrate underlying companies from vulnerable to safer jurisdictions

37 Potential conflict of law issues identifying beneficiaries Recognition issues re marriage/divorce Will home jurisdiction seek collation adjustment re differing offshore devolution of assets? Differing definitions of children Position of illegitimate and adopted children Potential problems with orphan grandchildren

38 Shari a investment principles Haram v Hallal Riba (interest) Gharar (risk) Maysir (gambling) Examples of prohibited investments gambling/casinos alcohol and pork connected investments banks, insurance companies, finance companies pornography/brothels

39 Conclusion Focus on client s objectives Relevance of nationality, residence and religion List assets in all relevant jurisdictions Identify cross-border issues Use of fiduciary structures to achieve succession objectives Implement structuring and administration in light of Shari a law

40 Any questions?