Estate planning for diverse communities

Clients who are Muslim, Jewish or First Nations may have specific estate-planning needs.

Understanding these communities’ specific religious, cultural, historical and legal norms can help practitioners to effectively and respectfully serve clients.

Muslim clients

The Qu’ran and related texts have specific guidelines for how practicing Muslims must structure estate planning. These guidelines vary according to whether a Muslim client is Sunni or Shia, and, further, what school of fiqh, or jurisprudence, he or she follows.

Generally, however, when a Muslim dies, the estate’s first obligations are for the payment of funeral expenses, followed by any of the deceased’s debts.

Then, two-thirds of the estate is divided between the deceased’s legal heirs, according to a complex schedule of inheritance that varies from school to school. Overall, succession laws are patrilineal, with husbands, sons and other male descendants usually receiving larger shares than wives, daughters and other female relatives. Sons, for example, receive double the portions of their sisters. That’s because Islamic law requires men to financially support their wives, daughters, mothers and aunts, while a woman who has wealth is not obligated by God to spend it on anyone, explains Imam Shaykh Yusuf Badat, the Toronto-based vice-president of the Canadian Council of Imams. Adopted or illegitimate children and non-Muslim relatives are not eligible for this portion of the inheritance. (A useful guide is inheritancecalculator.net.)

The remaining third can be used, to some extent, at the testator’s discretion—it can go to charity, or to benefit other family members not eligible for inheritance (there are different schools of thought as to whether legal heirs can also benefit from this portion).

That said, practicing Muslims have many ways to create estate plans that allow for more flexibility and that are consistent with Islam, says Toronto-based lawyer Areesha Raja. “If a client comes in and says, ‘I understand that my daughter is supposed to get half of what my son gets, but I want my children to inherit equally,’ that’s allowed.” Or, the client could ask for his wife to take possession of the matrimonial home following his death. As long as all the legal heirs verbally agree to the new arrangement, it’s acceptable according to Islamic law. Raja has not encountered a case where children have disagreed with their parents’ wishes.

Assets that bypass the will, such as property held in joint tenancy or assets that have designated beneficiaries, are not subject to Islamic law. A house held in joint tenancy by a husband and wife, for example, belongs to the wife if her spouse predeceases her.

Another workaround involves inter vivos gifts. As long as a person is healthy, Islamic law says she is free to do what she’d like with her wealth. Often, says Raja, clients want to create wills that conform to the letter of Islamic law. “And then they will give an adopted child or a daughter $50,000. Or perhaps they have a property that’s paid off, and they will put that in her name or make her a joint tenant. In South Asian communities, mothers often pass their gold jewelry to their daughters while they’re still alive.” While such gifts bypass the estate and probate, they also come with tax and capital gains implications; Raja will often bring in an accountant to manage these implications as efficiently as possible.

For clients who prefer Islamic wills, Raja asks them to provide information about all legal heirs. She uses an online template to create a document outlining the distribution of the estate under Islamic law, and attaches that document to the will as a schedule. Clients are asked to provide information about heirs, and to name a specific institution, mosque or imam who can play a consulting role for any issues that arise.

Jewish clients

Jewish inheritance laws are derived from Judaism’s founding laws, as codified in the Torah (the first five books of the Bible) and the Talmud. A person’s estate is distributed among his closest relatives, who are organized into tiers. The closest tier receives the entire estate and subordinate tiers receive nothing.

In order of priority, the tiers are: husband, sons (if deceased, their sons), and daughters (if deceased, their sons). If none of these heirs exist, the estate rises up to the deceased’s father (if deceased, his sons), and then grandfather. The oldest son receives a double portion of his parent’s estate. Daughters do not inherit if they have brothers. A wife does not inherit her husband’s estate, but is entitled to significant support from it.

Most Canadian Jews are unlikely to execute wills according to biblical laws, says Toronto trust and estates lawyer Rachel Blumenfeld, a partner at Miller Thomson. Nonobservant (also known as secular or cultural) Jews may not know about the rules—or simply choose to disregard them as they do other biblical laws. Practicing members of Reform, Reconstructionist, Secular Humanist, Conservative and other less observant denominations may also disregard these laws if they see them as incongruent with their values. The Jewish legal doctrine of dina d’malkhuta dina—literally, “the law of the kingdom is law”—would deem a will made in accordance with Canadian law valid under Jewish law, even if biblical succession rules are ignored. This “law of the kingdom” practice, says Blumenfeld, has been accepted by some major Orthodox rabbinic authorities and tends to satisfy many observant and Orthodox Jewish clients. Although she deals with many Jewish clients, she says, she’s only had to devise workarounds in two cases over the course of her career.

Similar to strategies in the Muslim community, these solutions can involve bypassing the will, and thereby biblical laws of inheritance, through beneficiary designations and joint tenancies. Inter vivos gifts and trusts (e.g., gifts of residual property, or alter ego trusts) are also useful planning tools for those who wish to abide by halakha (Jewish law), because they were made during the deceased’s lifetime and, consequently, are not included in the estate.

Strategies must be considered and implemented carefully in light of their tax implications. Many ideas for legal workarounds, cautions Blumenfeld, comes from U.S.-based sources that may not be applicable—or may have negative tax implications—in Canada.

A religious workaround, says Blumenfeld, involves executing a secular will that, for example, leaves property to a wife and to both sons and daughters, accompanied by a note of indebtedness executed in a rabbinical court, or beit din. The note sets up a debt in favour of the “unlawful” heirs, in an amount that far exceeds the value of the estate. It then tells those who would stand to inherit under Jewish law “that they can either accept what’s done in the will or take what they’re entitled to under halakha, but that they would then be left with that debt.”

This practice, known as shtar hatzi zakhar, says Blumenfeld, is common in Orthodox communities. Because it’s done outside lawyers’ offices, however, advisors are less likely to hear about it or be part of the process.

For Jewish clients who would like to create halakhic estate plans, Blumenfeld recommends that planning professionals address the issue with the clients’ own rabbinic authorities.

First Nations clients

The Indian Act governs the wills and estates of some First Nations people but not all. The first thing planners need to understand is who is an “Indian” under the Indian Act. Inuit are not considered Indians for purposes of the Indian Act, explains Nadir André, regional leader of Borden Ladner Gervais’s Aboriginal Law Group in Montreal and a member of the Matimekush-Lac John First Nation. Neither are Métis, except in certain provinces; even then, their estates are not governed by the Act. Members of bands governed by modern treaties are still considered Indians, but their land is not considered a reserve after treaty signing, with a transitional period that lasts anywhere up to 10 years. So, federal laws cease and, instead, provincial or territorial laws about wills and estates take over until the band’s own legislation comes into effect. The 1994 Yukon First Nations Self-Government Act, which addresses inheritance, wills, intestacy and estate administration, is one example.

That leaves First Nations people governed by historical treaties, who are registered band members and “ordinarily resident” on reserve or Crown land as legal “Indians,” explains André. If a band member lives off reserve, the Indian Act has no jurisdiction over her will or estate—unless the estate itself is on reserve. If that’s the case, the Act and the Indian Estates Regulations apply.

The Act differs from provincial legislation in key ways. For example:

• Any document signed by an Indian stating his wishes regarding the disposition of property on death is considered a valid will. The usual formalities (e.g., two witnesses signing after the testator in the testator’s presence) don’t apply.
• Under the Indian Act, people not entitled to live on reserve (i.e., non-members) are not entitled to inherit land on reserve. If such a person is bequeathed right of possession or occupation on reserve, the share must be sold (or voluntarily relinquished) and the proceeds paid to him or her.
• The surviving spouse or common-law partner of an Indian who dies without a will receives the first $75,000 of the net value of the estate, as opposed to, say, $200,000 in Ontario or $300,000 in British Columbia. As well, children adopted under customary Indian law as opposed to provincial adoption rules can inherit on an intestacy.

These distinctions, say André, can lead to confusion: “What happens if an Indian creates [an informal] will inside a hospital or old age home not on reserve? Then the issue arises: What’s the validity of the will outside of the reserve? What happens if an Indian resides on reserve, but his or her bank account is located off-reserve?” There’s no real property on reserve land, he points out; rather, residents hold certificates of possession, which act much like permanent leases, for the land they use: “How do you value a certificate of possession when there’s no ownership? Is it over or under $75,000? What about taxes?”

It’s a case-by-case scenario, says André, with the standard being the connections to the reserve: where the deceased and the survivors live, the location of the estate, where the will was signed, et cetera.

Further, says André, the Indian Act gives Indigenous and Northern Affairs Canada broad powers—powers that would usually reside with the courts—over the estates of First Nations people under its jurisdiction. For example, the legislation authorizes the department to administer property of Indians who die intestate, to declare a will void under certain circumstances, and to appoint and remove executors, even if the deceased has already appointed them. INAC currently manages more than $5.3 million in estates.

All these factors can make it difficult to provide general guidelines regarding estate plans for First Nations people under the Indian Act. That could be why the majority, in André’s experience, do not have wills.

At a minimum, advisors should determine whether a client’s estate is governed under the Indian Act or a modern treaty. Most estate lawyers are not well-versed in aboriginal law, and vice versa. André strongly recommends that, wherever possible, estate lawyers or notaries call in the expertise of a colleague with grounding in First Nations legal issues. There’s a clear need for training, he says, so that more practitioners are confident in creating effective wills and estate plans for First Nations clients.

Susan Goldberg is a financial journalist based in Thunder Bay, Ont.