Religion and Estate Planning

 Introduction

Showing sensitivity to a client’s religious concerns should be an integral component of estate planning. Religious goals can be achieved by integrating a client’s religious concerns into the drafting of many common legal documents. Addressing the myriad religious, philosophical, cultural, and related issues in practice is not only beneficial to those clients for whom this is important, but can be intellectually rewarding and may lead to a deeper relationship with the client.

This topic, and  many others, will be discussed at the 42nd Annual Notre Dame Tax & Estate Planning Institute will be held October 27 and 28, 2016 in South Bend, Indiana. For more information: http://law.nd.edu/alumni/tax-estate.

Selecting Fiduciaries

One of the most important decisions for a client seeking to imbue estate planning documents with religious values, or to transmit a particular religious heritage to a child or other heir, is the selection of fiduciaries that have some of the following characteristics:

• Knowledge of the particular faith.
• Affiliation or observance of that faith themselves.
• Sensitivity to the specific needs of the heirs in light of the client’s religious goals and objectives.

In many instances, the person who best fits these criteria will not be the person best suited to handle investment and other fiduciary responsibilities, so that a combination of an individual fiduciary sensitive to religious concerns and an institutional co-fiduciary may be called for. It might be possible to name the person with the religious sensitivities a trust protector and name someone who can fulfill general trustee duties as trustee.

Distributions

Agents and fiduciaries might be given guidance, and granted legal authority, to disburse funds for religious education (for example, supplemental religious education or private school), religious travel (pilgrimages to holy sites), charitable giving (to inculcate core religious values in heirs), and other purposes consistent with the client’s religious goals.

Charitable Giving

Many religions advocate the virtues of charity, and charitable giving can be tailored to reflect the unique nuances of a particular faith. Although many religions mandate tithing a certain percentage of income or assets to charity, others provide more specific standards.  Yet others, such as the Mormon faith, while providing guidance leave much to personal discretion.  For example, charitable giving is an essential part of the Baha’i Faith as it demonstrates devotion to Baha’u’llah and represents the ideal of charity. Baha’is are expected to give a certain percentage of their incomes and assets to Baha’i charitable organizations through a mandatory donation referred to as “Huququ’llah” (The Right of God).

It is common for clients who are religious to make bequests in their wills to charity, permit agents under financial powers of attorney to make charitable gifts, and perhaps  include charitable beneficiaries in trusts.

Heroic Measures

The provision in a living will that no “heroic measures” be taken is fraught with religious implications. Apart from the definitional issues of the phrase, clients with religious sensitivities should be queried for appropriate modifications. Although some religious clients may assume that they cannot ever withdraw life support without violating their religious standards, this is not always correct. The answer is often more complex and so infused with religious nuance that practitioners should adopt the standard language provided by the client’s faith. For example, the Catholic Church does not mandate that a person be kept alive no matter what. A Catholic can decide to avoid overly but not ordinary means of care. “Ordinary means” could include feeding someone, assuring they have air to breathe, and so on. The Church believes that a patient must continue to receive ordinary care; otherwise the health-care provider effectively acts to cause the patient’s death. Extraordinary means go beyond this and seek to reverse a process that is already underway.  Extraordinary means can be antibiotics or surgery, among others.  For a Hindu, the perspective may be that one lives as long as one naturally can and then accepts the end as and when it happens. If a person has suffered severe brain damage and there is no hope of recovery, there is no basis for prolonging life by artificial means under Hindu principles.

Pregnancy and Medical Decisions

A pregnant woman should carefully address the issue of pregnancy in her living will because medical decision making concerning a mother and her fetus varies greatly among different religions. Generally, Catholicism proscribes taking direct action that would cause the death of the unborn child, or the mother. The life of the mother cannot be chosen over the life of the unborn child, or vice versa, because all life is sacred and the right to choose is in God’s hands alone. Unless this matter is expressly addressed in a living will, no one may know the degree of the client’s devotion. Health-care providers cannot be expected to have the knowledge necessary to carry out the client’s wishes without clear guidance from the client. In contrast, under Jewish and Islamic law, saving the mother’s life is generally given preference to that of the fetus.

Pain Relief

Many patients and health-care providers view the alleviation of all pain to be an essential and ideal objective. There are exceptions.  For an Orthodox Christian, the act of suffering can be an experience providing for purification, redemption, and salvation. Although suffering is clearly not encouraged, pain relief to the point of making someone unconscious during their last days may prevent them from addressing profound and moving observances essential to their religious beliefs. The customs of the Orthodox Christian Church encourage adherents to be lucid during their last days so that they may be free to confess their sins and receive Holy Communion. If the attending physicians are not aware of this, they cannot be assumed to respect and foster this type of care. Similarly, according to Buddhist tradition, consciousness near death directly correlates to the level of rebirth. Excess pain relief could undermine this. Buddhists believe, however, that suffering is the converse of the optimal state of being. A sensitive balancing of important goals is thus required.

Funeral and Other Post-death Arrangements

Most religions provide for post-death customs. Under Jewish law, autopsies and embalming are generally prohibited. In the Buddhist tradition, it is a common belief that incense should be burned near death to help provide symbolism of the path upward toward enlightenment and to guide the believer’s last thoughts upward. Many Buddhists believe that for a period following death, often for a minimum of at least one week, the spirit may remain with the body and, therefore, the body should not be moved. These traditions may be impossible to carry out in a medical or health-care facility, so it could be quite important to make advance arrangements to spend one’s last days at home or in a hospice sensitive to these religious beliefs. Some religions prohibit cremation; other religions or cultures favor it. Again, these issues can be addressed in a living will, health proxy, or in some instances the client’s will (for example, if burial is in a particular foreign country or under other circumstances that will create considerable cost) authorizing and directing that in the Will permits the personal representative to pay for.

Disposition of Assets on Death

A secular will may have to be modified to reflect the Baha’i, Jewish, Islamic, or other religious laws of inheritance.  Both the Quran and Old Testament include detailed provisions on how inheritance must be handled. Although similar, they are typically applied in quite different manners in will drafting.  These provisions need to be coordinated with tax, estate, financial and succession planning, and ethical issues. For the Orthodox Christian, if the believer does not provide for his or her family and relatives, it is as if he or she has disowned the faith and

is worse than a nonbeliever.  For Catholics, general guidelines of charity and justice should be respected.

Dispute Resolution

For all faiths, issues of a religious or spiritual nature are perhaps best resolved through mandatory arbitration before a designated religious body, not a secular court. Both Buddhism and the Baha’i Faith incorporate principles that affect how disputes should be addressed. The disinheritance of an heir, the use of interrorem clauses, and perhaps the use of arbitration provisions need to be evaluated. The Buddhist theory of karma provides that everything done in a particular life, as well as in past lives, influences and affects future lives. Undertaking to disinherit an heir out of anger can be viewed as cremating a negative influence that may be carried on through rebirth to the next life. Buddhism advocates that believers take action out of compassion and not anger.

Investment Standards

The Prudent Investor Act and the investment provisions of the governing document should be tailored to permit a religious or socially oriented investment strategy, if that is appropriate for the client.

General Directions to Adhere to Religious Considerations

If the client is involved in a particular business desires to tailor the operations of that business to certain religious precepts, then the governing documents for that entity should include a general directive that operations should conform to those religious principles. A threshold step to address a client’s religious concerns is to add a recital clause to each relevant legal document stating the client’s desire that the operation of that entity and business endeavor shall be conducted with consideration to the specific religious requirements.

Agreement for Family Vacation Property

When drafting a trust that will hold a family cottage, or a tenants-in-common or similar agreement governing the use and ownership of a vacation property (for example, for children of one family or for a home shared by several families), religious sensitivities may be important to address.

Case Study: Three families purchase a beach house for shared use. An agreement governing the use of the vacation home is prepared. In addition to the usual issues concerning repair and maintenance, financing, religious sensibilities can be incorporated into such an agreement.

• Dates of use can be rotated to consider religious holidays.

Sample Clause: Each Child’s family shall have the use of the vacation home for the Christmas holiday season (which shall be deemed December 20 through and including January 4 of each year) every other year on a rotational basis.

• Religious dietary restrictions can be mandated for observance in the kitchen. For a Hindu client, this might be a prohibition on any non-vegetarian foods. For Jewish clients, Kosher religious restrictions can be mandated, along with the specification of the standard for those restrictions (Reform, Conservative, or Orthodox). For a Muslim client, Islamic dietary restrictions, such as Hallal meats only, can be mandated.

Sample Clause: The Parties acknowledge that the kitchen in the Property shall at all times be maintained  as a vegetarian kitchen, and no non-vegetarian food products containing eggs, fish, meat, or any derivatives of them shall be brought  into the kitchen.

• Property financing can be required to be structured to comply with religious restrictions against charging interest (Islamic law restrictions on riba, for example).
• In the event that a majority in interests of the Parties determines that financing shall be necessary or advisable, any such financing shall comport in all respects with Islamic law governing the charging of interest, Riba. In the event of any dispute or disagreement concerning how said laws shall be applied, the Parties agree that a determination shall be made by [Islamic Religious Authority].
• A dispute resolution  mechanism can be included  that respects religious sensibilities (for example, a provision reflective of the Baha’i faith’s views on striving for consensus and  harmony  and a mandatory mediation clause consistent with Baha’i principles, perhaps  supervised by a local or regional counsel, mandated if a consensus  decision is not achieved).
• For some clients, activities antagonistic to their religious beliefs may be prohibited in private agreements (even if comparable provisions included in documentation for an apartment building rented to the general public would violate the law).

Sample Clause: No activities shall be permitted within the Property by any of the Cotenants or their guests or families that violate the precepts and principles of the Church of Jesus Christ of Latter Day Saints. Prohibitive activities shall include by way of example and possession or use of alcoholic beverages, or illicit drugs.

Governing Documents  and Religious Law

In addition to a general statement or recital clause, practitioners should endeavor to modify provisions in the governing documents to incorporate religious requirements.  The following illustrates a sample clause that can be included in an operating agreement for a limited liability company engaged in property management and other related real estate activities for which the Muslim members are concerned that Islamic religious principles be respected.

Sample Clause: The Manager is authorized and directed to conduct activities and investments of the Limited Liability Company (“Company”), to the extent feasible, in accordance with Islamic religious principles. Such standard may include by way of example and not limitation, a prohibition against paying or earning interest based on a prohibition of making a guaranteed profit on capital. In the event of any dispute as to the application of Islamic investment standards the Manager shall consult [name organization or Imam] for further clarification. If such action is not feasible, or not determinative, the Manager may consult any Islamic scholar or Imam of the Manager’s choice and rely on the determination of same.

Depending on the client and circumstances, the above clause may be expanded to expressly prohibit the leasing of property to certain specified types of tenants such as a bar, liquor store, adult bookstore, or other tenants that would violate the owner’s faith. Addressing these concerns on the formation of the entity can avoid significant conflict at a later operational stage.

Dispute Resolution Adhering to Religious Law

If a religious provision is included in any legal document give considering to having any dispute or interpretation of that clause resolved by a religious body rather than a secular court. A number of faiths raise issues with dispute resolution and may require (or prefer) all disputes be brought before an appropriate religious body. This issue may be of concern for clients who are Buddhist or Baha’i. Also, for some faiths, the client may have a preference for a clause that calls for arbitration before a private religious body, a Beth Din or Jewish court for an Orthodox Jewish client, than to leave the parties to resort to suit in a secular court. The provision may be in the form of a mandatory arbitration clause in accordance with religious standards, or before a religious body, or for some clients, a mandatory, non-­ appealable religious arbitration. How this is handled can vary considerably, even within the same faith. The following provision is illustrative for a client of the Baha’i Faith:

Sample Clause: With respect to the resolution of any disputes that arise under this Operating Agreement the Members shall endeavor to resolve any such dispute in a manner consistent with the B’ahai’ values of honesty, trustworthiness, compassion and justice, and in a non-adversarial manner. Any dispute shall be submitted to binding, non-appealable arbitration in [CITY NAME, STATE NAME], in accordance with the decisions or recommendations to be designated by the Local Spiritual Assembly, or its successors. The Members agree that the holding of any such Local Spiritual Assembly be non-appealable. Each clause in this provision is intended to be severable.  lf any term or provision of this clause is held to be illegal or invalid for any reason whatsoever,  such illegality or invalidity  shall not affect the validity  of the remainder  of this clause. This provision shall be construed in all respects as if such invalid or unenforceable clause or portion thereof  were omitted, or if feasible reformed in a manner  that were enforceable with  alternative terms  or provisions to effectuate as closely as possible my original intention  to the extent lawful and practical. This clause shall be governed by and construed in accordance with the laws of the State of [STATE NAME] and each Member hereunder agrees to personal juris­ diction in the State of [STATE NAME] and before the Local Spiritual Assembly hereinabove specified.

Interest

Judea-Christian tradition raises prohibitions and restrictions on the charging of interest. Although these have generally been ignored in modem commerce, they have not been entirely ignored, and for a meaningful number clients these issues are of importance. Thus, in structuring a real estate transaction for a Muslim or Jewish client, issues of how the transaction can be structured to recharacterize or avoid interest charges should be addressed when the client desires.

Under Shari’ah (Islamic legal doctrines derived from the Quran, the teachings of the Prophet Mohammed, and interpretations by Islamic scholars), Muslims are prohibited from paying or receiving interest, called “riba,” for the use of money. Although the term “riba” may be translated as “usury,” tradition interprets the restriction to apply to all interest. This restriction does not prevent a modem commercial transaction; rather it will affect the documentation and structure of the transaction.  Riba means unearned profits that are not reflective of business risk.

• Instead of charging interest on a financing transaction, the transaction could be structured with a sale to a middleman, who then resells the real estate to the ultimate purchaser. The price the middleman sells at would be inclusive of a profit that would be in lieu of an interest charge. This structure is referred to as “murabaha.”
• Another approach is to structure a partnership arrangement, called “musharaka.” The lender contributes funds to the partnership, and the partnership agreement provides that the lender will participate in the profits of this partnership in accordance with a pre-arranged formula.
• Another method by which a transaction can be structured is similar to a leasing arrangement. The lender can purchase the property and lease it to the intended owner. At the end of the lease term, the intended owner can purchase the property for the intended purchase price. The economics are identical to a financed purchase, but structurally the transaction transforms what otherwise would have been a prohibited interest payment into rent. This technique is referred to as “ijara.”
• Inherent in each of the above modified transactions is an element of risk of ownership, so that the return to the lender is not a pure or guaranteed return equivalent to interest under Shari’ah.

Jewish law similarly restricts the charging of interest in certain transactions.  In a real estate loan transaction for a Jewish client, a side agreement called a “heter iska” can be used to recharacterize what would be deemed interest under religious law, called “ribis,” as a return on a “partnership” with the borrower.  This document is intended to represent a mechanism to convert, under Jewish law but not secular law, the “interest” component to a non-­ interest component. Jewish religious law strictly prohibits the paying or receiving of interest on certain loans. But, when monies are advanced in the course of a business transaction, an agreement may be entered into where­ by the provider and receiver of these funds are considered partners, rather than lender and borrower. This “partnership” is based on the stipulation that, on request every loss must be proven by two trustworthy witnesses and all profits verified by oath. All consequent profits or losses are to be shared. To avoid these stringent requirements, however, the provider of the funds, under the legal document, agrees to waive his or her share of the “profits” in favor of receiving the fixed percentage of the money advanced. This percentage is then deemed for Jewish legal purposes to be profits, rather than interest on a loan. This agreement becomes effective when the receiver of the funds executes a form as set forth below.

Both Islamic and Jewish law include prohibitions on the charging of interest. These concepts can be incorporated into powers of attorney, wills, and trusts. Under Islamic law scholars view what constitutes interest or “riba” differently, so that for different clients, different provisions may be warranted depending on the views of their advisers. 

Conclusion

Estate planning strategies and documents can be tailored in myriad ways to reflect a client’s religious sensitivities. Planning steps encountered in common estate plans may warrant modification to address a client’s religious concerns. Many advanced estate planning techniques (for example, note sale to a defective grantor trust) require consideration of the prohibition on interest charges discussed in above. Other modifications are highlighted below. Bear in mind that this discussion is only a sampling of considerations to alert practitioners to the need and context for raising these issues with clients. It is not a comprehensive listing.

This article has provided a brief overview of some of these concepts to help practitioners identify areas for further discussion with appropriate clients.