HOW TO ESTABLISH A FAMILY OFFICE WITH SYARIAH COMPLIANT GOVERNANCE by Tuan Haji Abdul Aziz bin Hassan LL.B(HONS)(BUCKINGHAM), BARRISTER-AT-LAW(LINCOLN’S INN), DSLP (IIUM), IFP, CFP, MSc. MAP(UUM), DOCTOR OF BUSINESS ADMINISTRATION(UUM)-candidate FAMILY OFFICE : Standard Meaning • An organisation set up to look after the family’s business interest including tax and estate planning, wealth management, business issues, philanthropic initiative and family dynamics. It is usually staffed by outside professionals reporting to the founder or the successor. It can be for single family or multi-family. 2 FAMILY OFFICE : Alternative Meaning • An ultimate family holding company with family governance principles in place through a family constitution 3 The Family Governance Document (The Family Constitution) Founder’s goals & objectives • Must be syariah compliant •Family values (islamic based values) Beneficiaries •Preferably muslim (not compulsory) •Family council – the highest family decision making authority. Decisions to be implemented by the family office Benefits •Dividends •ALLOWANCES ( EDUCATION, MARRIAGE, CHILDBIRTH, FAMILY SUSTAINANCE DUE TO DEATH etc) •Employment of family members in family business •Family gatherings/dinners •Resolution of family conflict •Appointment of protectors/ advisers •MEMORANDUM OF wishes 4 Syariah Compliant Governance Acquisition of Asset or the Inherent Characteristic of the Asset Must not infringe the guidelines relating to islamic muamalah: 1.Gharar-uncertainty 2. Maisir- gambling 3. Riba- usury Holding Structure Endowment must not infringe the governing acts:  Labuan trusts act 1996 (amended 2010),  labuan foundations act 2010,  Labuan islamic financial services and securities act 2010 And Comply with guidelines issued by labuan financial services authority (lfsa) Objectives And Goals Of Islamic Trust/ Foundation Undertaken according to islamic rules , principles and code of practices. Appointment of syariah adviser to ensure syariah compliance 5 Islamic Wealth Distribution and Preservation FAMILY PATRIARCH (ASSET OWNER) LEGACY PLANNING (PRESERVATION OF ASSET AND DISTRIBUTION TO MULTIPLE GENERATIONS) ESTATE PLANNING (DISTRIBUTION OF ASSET TO ONE GENERATION) LIFE TIME DISTRIBUTION HIBAH DIRECT GIFT DISTRIBUTION UPON DEATH (AFTER SETTLEMENT OF DEBTS) HARTA SEPENCARIAN TRUST/FOUNDATION WASIYYAH ACCORDING TO FARAID LAW ASSETS ENDOWED BY OWNER DURING LIFETIME/UPON DEATH THROUGH DFA BALANCE OF ESTATE FAMILY CONSTITUTION BY WAY OF DEED OF FAMILY ARRANGEMENT (DFA) SUBJECT TO CONSENT OF FARAID HEIRS MANAGEMENT CONTROL FAMILY OFFICE FAMILY TRUST/FAMILY FOUNDATION DIRECT HOLDING ASSETS BUSINESS ASSETS PASSIVE MANAG E-MENT INCOME PRODUCING ASSETS FAMILY HOLDING COMPANY NONBUSINESS ASSET NON INCOME PRODUCING ASSETS 6 Islamic Wealth Distribution and Preservation FAMILY PATRIARCH (ASSET OWNER) ESTATE PLANNING (DISTRIBUTION OF ASSET TO NEXT GENERATION) LEGACY PLANNING (PRESERVATION OF ASSETS AND DISTRIBUTION OF BENEFITS TO FUTURE GENERATIONS) 7 Estate Planning (Distribution of Asset to the Next Generation) ESTATE PLANNING LIFE TIME DISTRIBUTION OF ASSETS DISTRIBUTION OF ASSETS UPON DEATH (AFTER SETTLEMENT OF DEBTS) 8 Life Time Distribution LIFE TIME DISTRIBUTION HIBAH IMMEDIATE TRANSFER TO RECIPIENT DELAYED TRANSFER ( AFTER DEATH) GIFT DIRECT TO DONEE ENDOWED TO TRUST/ FOUNDATION 9 Distribution During Lifetime • Hibah (lifetime gift) • • • Transferred Not transferred Challenges • • • Fear of loss of control High stamp duty payable (1% of first rm100,000, 2% up to rm500,000, 3% thereafter) Property encumbered 10 Distribution Upon Death (After Settlement of Debts) AFTER DEATH DISTRIBUTION OF ASSETS (AFTER SETTLEMENT OF DEBTS) FIRST, HARTA SEPENCARIAN (MARRIAGE COMMUNITY PROPERTY) THEN, WASSIYAH (GIFTING OF ASSET TO NON FARAID HEIRS LIMITED TO 1/3 OF ESTATE) FINALLY, BALANCE OF ESTATE DISTRIBUTION ACCORDING TO FARAID LAW DISTRIBUTION ACCORDING TO DEED OF FAMILY ARRANGEMENT 11 Deed of Family Arrangement (Dfa) • • Needs-based justice distribution Family Wealth Distribution Master Plan (before and after death) • may include wealth preservation assets for transfer to family wealth holding companies • must be consented by all beneficiaries • before and after death • rights under the faraid waived • if endorsed through a court order under a testamentary document, NO STAMP DUTY IS PAYABLE 12 Legacy Planning (Preservation of Assets and Distribution of Benefits to Future Generations) LEGACY PLANNING (PRESERVATION OF ASSETS AND DISTRIBUTION OF BENEFITS TO FUTURE GENERATIONS) ASSETS ENDOWED BY OWNER DURING LIFETIME/UPON DEATH THROUGH DEED OF FAMILY ARRANGMENT FAMILY TRUST/FAMILY FOUNDATION 13 Family Asset Holding Structure govern FAMILY TRUST/FAMILY FOUNDATION FAMILY CONSTITUTION manage DIRECT HOLDING ASSETS FAMILY HOLDING COMPANY FAMILY OFFICE manage BUSINESS ASSETS MANAGEMENT CONTROL PASSIVE MANAGEMENT NON-BUSINESS ASSETS INCOME PRODUCING ASSETS NON INCOME PRODUCING ASSETS 14 Contact Details Tuan Haji Abdul Aziz bin Hassan Founder, Aziz Hassan & Co, Advocates & Solicitors, Advisor (Islamic), AD Financial Sdn Bhd and Labuan IBFC Specialist Panel member [email protected] +6 012-3035096 15 Thank You Disclaimer This presentation should not be regarded as offering a complete explanation of the matters referred to and is subject to changes in law. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Labuan IBFC cannot accept any responsibility for loss occasional to any person acting or refraining from action as a result of any material in this presentation. LABUAN IBFC INC SDN BHD IS THE OFFICIAL AGENCY ESTABLISHED BY GOVERNMENT OF MALAYSIA TO POSITION LABUAN IBFC AS THE PREFERRED INTERNATIONAL BUSINESS AND FINANCIAL CENTRE IN ASIA PACIFIC