Shariah issues in Islamic trust services

Trust services act to facilitate financial planning and security of individuals and their families, as well as protect family legacies


Trust services refer to a fiduciary relationship in which a trustor gives the right to the trustee to hold the title of a property or asset for the benfit of the beneficiary.

The application of trust services in the Islamic finance sphere can be observed in the role of trustee in sukuk issuance, unit trusts and fund management, where such trusts are established to safeguard the interest of investors in such instruments.

In Malaysia, all trust products and services are governed by the Trust Companies Act 1949 (Revised 1973). This article explores some Shariah issues pertaining to trust services in estate planning in Malaysia and identifies the most appropriate underlying Shariah contract for the services and the ruling of revocability.

Trust services have emerged as an instrument to facilitate financial planning and the financial security of individuals and their families, as well as to protect family estates and legacies. Bad preparation for inheritance may cause significant loss of wealth and family disunity. Shariah, in its overarching objectives, seeks the fair distribution of estates to legal heirs.

However, estate distributions in Malaysia involve several legal processes and this may hamper smooth distribution. In some circumstances, it may even cause the estate to go unclaimed. Thus, trust services offer an alternative tool in ensuring efficient and effective Islamic estate management that aims at preserving the rights of eligible heirs as well as beneficiaries.

Some Shariah issues pertaining to Islamic trust services are explained below.

Fiqh Characterisation

There is ambiguity over the suitable fiqh characterisation (takyif fiqhi) for the structure of Islamic trusts. This is because the concept of Islamic trust services and its application in today’s world are considered new and it does not fall under the category of nominated contracts (uqud musamma), which refer to a class of contracts to which Shariah has assigned specific names and handled in detail their respective rules and stipulations. Thus, fiqh characterisation of the appropriate underlying contract that can be utilised is required for the structuring and execution of Islamic trusts.

Various contracts can be considered in structuring Islamic trusts: These include wakalah (agency), hibah (gift), wasiyyah (bequest), wisayah (trusteeship), and waqaf (Islamic endowment).

A trust may also be constructed through a combination of these contracts. As such, adherence to respective contracts’ inherent natures and specific requirements must be observed if such contracts are utilised for the structure of Islamic trusts. This is to ensure the validity of trust services transaction in the eyes of Shariah.

In Malaysia, hibah is more commonly used in structuring Islamic trusts. However, hibah might not be suitable to be used in meeting certain specific requirements of trust services, in which the transfer of ownership for the trust assets shall only occur upon the death of the trustor.

This is because hibah takes effect immediately upon execution, such that the ownership of the gift shall be immediately transferred from the donor to the recipient during the life-time of the donor. If the execution of hibah is made conditional (hibah muallaqah) to the death of the donor/ trustor, the rulings of wasiyyah shall be implemented, and hibah is thus disregarded.

Hence, thorough Shariah analysis should be done in determining the appropriate underlying financial contract for the structuring of Islamic trust services. This is to ensure the validity of the utilised contracts, while at the same time, preserve the objectives and requirements of the trust services.

Revocability of Trust

Revocability is also one of the contentious issues to be resolved in the establishment of trust. This is due to the demands of certain trustors who like to have this feature in the trust deed, to satisfy their specific requirements and to mitigate uncertainty in the future.

For example, the trustor may stipulate that the beneficiaries can only own and enjoy the trust assets if certain conditions set by the trustor are met. If the conditions are not met, then, transfer of the said asset shall not occur.

In the event that hibah is utilised as the underlying contract, the trust assets cannot be revoked unless they are given by parents to their children, or the contract applies a future condition excluding death.

Apart from hibah, waqaf can also be utilised to structure trust services. If the trust is developed based on the concept of waqaf, the trust would then be irrevocable. Hence, to allow revocability, the application of temporary waqaf permitted by some Maliki scholars may be explored.

Ownership Transfer

Next, ownership transfer with the enjoyment of certain benefits being retained with the trustor. Many trustors subscribe to trust because they want a smooth estate transfer process for their heirs, but they wish to continue enjoying the usufruct of their asset throughout their lifetime.

Such a feature denies the concept of Al-Milk Al-Tamm (complete legal and beneficial ownership) upon the transfer of assets, as this limits the beneficial ownership of the beneficiaries, in such a way that they are required to share the rights to benefit from the assets with the trustor for as long as he lives.

Thus, this structure might trigger Shariah issues, which in turn might affect the validity of trust services from the Shariah perspective.

Nevertheless, in enhancing the structure, the concept of stipulating conditions in contracts (Al-Ishtirat Al-Uqud) deliberated by Ibn Taimiyyah can be explored for the purpose of resolving the issue. This concept allows flexibility in setting conditions for the execution of contracts.

Thus, for the purpose of the establishment of Islamic trusts, the trustor may give the assets to the intended beneficiaries, while setting the condition that the asset will still be enjoyed by the trustor, although the legal ownership of the asset has been given to the beneficiaries. Only upon the demise of either trustor or beneficiary will the asset be fully transferred in the former situation, or be transferred to the heirs of the beneficiary in the latter.

Manipulation of Trust Services

A trust account does not constitute part of the distributable estate under Islamic inheritance law. Thus, the trustor may allocate a portion of the estate to be held in trust for a particular beneficiary for a particular purpose. Trust accounts are also legally constituted and cannot be challenged.

Notwithstanding that trust services may address the needs of the trustor to pass his wealth to those he believes to be more needing of it, this option can also be used to violate the existing Islamic law of inheritance in order to protect the interests of some, but not others.

There is a possibility that a trustor may set up a trust with the intention of preventing certain heirs from receiving their rightful allocations that have been prescribed by Islam. Thus, a trust requires proper governance in its structuring and execution, to ensure that the objectives of trust services are achieved without providing room for manipulation.


It is evident that there is no specific Shariah requirement prescribed for the structuring of Islamic trust services.

Therefore, ijtihad (intellectual reasoning) should be made in determining the appropriate underlying contracts that can be utilised for its structure. Utilising uqud musamma, a combination of them, or even innovative Shariah judgments can be considered in establishing the structure of a trust to cater for the specific requirements that a trust may have, within the boundaries of Shariah.

  • Adapted from the recently released Islamic Commercial Law Report 2018 produced by Malaysian-based International Shariah Research Academy for Islamic Finance (ISRA) and Thomson Reuters, in partnership with the Islamic Research and Training Institute (IRTI). Munawwaruzzaman is the Shariah management head at Maybank Islamic Bhd while Ahmad Firdaus and Nur Fathin are researchers at the bank’s Shariah research unit.