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Taking out a Life Insurance Policy to avoid Estate Duty Taxes

 

 Question:

Assalaamu Alaykum Mufti Saheb, the escalating burden of Estate duty that is being imposed by the South African government once a person passes away has become quite a scary and burdensome scenario for the living dependants. I am told that there is a fatwa that has been passed which allows one to take out insurance on one’s life (normally not allowed in Shariah) for the purposes of paying off the Estate duty cost once one passes away. If there is any further some that is available after paying off the mandatory Estate Duty, then that sum must be given away in full to charity. Is this true and if so, can Respected Mufti please elaborate on this issue with any further advice please? If this is not true, what advice can Respected Mufti give to overcome this burden? I thank you for your time and may Allah bless you in both worlds for your dedication and Khidmat to the Ummah.

 

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

Brother in Islam,

According to the SARS (South African Revenue Service) website, the estate duty is 20% of an estate exceeding R3.5 million.If the estate is R30 million or more, the estate duty will be 25%. Accordingly, if the estate is R3.5 million, the estate duty will be R700 000 and if the estate is R40 million, the estate duty will be R10 million. The exorbitant amount of estate duty deprives the heirs of their share of inheritance from the estate duty.

In principle, all forms of conventional insurances are prohibited. If one takes out an insurance policy only to overcome and avert the estate duty and to safeguard the rights of the heirs, then that will be regarded as adopting a smaller violation to avert a bigger violation.

Conventional insurance is indeed a violation of Shariah. However, depriving heirs of their rightful inheritance is a bigger violation. It violates the laws of inheritance as well as rights of heirs. Therefore, there is a leeway to take out conventional insurance only to pay estate duty to avert the bigger violation of the rights of the heirs. However, it should be noted that any surplus amount must be given in Sadaqah. This must be recorded in the will and all necessary and legal steps must be taken to ensure that the excess money is disposed of in Sadaqah. It should also be noted that the premiums paid in insurance will form part of the estate.

This is also the opinion of Hadhrat Mufti Taqi Usmani Saheb (Madda Dhilluhu) & other senior Muftis.

 

And Allah Ta’āla Knows Best.

 

Checked and Approved by,


Mufti Ebrahim Desai.

Fatwa Department
Jamiatul Ulama (KZN) 

Council of Muslim Theologians
223 Alpine Road, Overport

Durban, South Africa
Tel : +27 (0) 31 2077099

Email: fatwa@jamiat.org.za
Fax : +27(0) 31 2074163
Website : www.jamiat.org.za

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