Short answer
Money the person owned at death, such as savings, a 401k or IRA balance and unpaid salary, is part of the estate and divided by the Islamic shares, whatever beneficiary is named. Benefits an employer or government pays after death to named dependants are seen by many Hanafi scholars as a gift to those people. Life insurance is more contested.
Whatever the deceased owned at death is estate (tarikah). Many contemporary Hanafi scholars, including those of Darul Uloom Karachi, hold that sums granted after death by an employer or state under its own rules, such as a family pension, belong to whom the rules name and are not estate. For conventional life insurance, many Deobandi muftis treat the premiums paid as estate and advise caution with the excess.
The four schools agree on this.
Explanation
Modern estates include things the classical books never knew: pensions, retirement accounts, death-in-service benefits and life insurance. Many come with a "beneficiary" form. Islamically, the question is simple to state: did the person own it when they died?
Part of the estate, divided by the Quranic shares even if one person is named as beneficiary:
- Bank savings, investments, shares and crypto.
- 401k, IRA and personal pension pots the person owned and could draw from.
- Unpaid salary, holiday pay and refunds owed to them at death.
The named beneficiary receives it legally, but holds the other heirs' shares and should pass them on.
Often not part of the estate, in the view of many contemporary Hanafi scholars:
- A survivor's or family pension paid by an employer or government to a widow or children under its rules.
- A lump sum the employer chooses to grant after death. Because the person never owned it, it is a gift to whomever the scheme names.
Whether a particular scheme is a gift or something the person had already earned depends on its rules, so read them or show them to a mufti.
Life insurance. Most scholars hold conventional life insurance to be impermissible; see life insurance. Many muftis say the premiums the person paid are part of the estate, while the excess should be given to charity; others differ. A takaful payout follows its own terms. Because this is contested and the amounts are often large, please ask a mufti before dividing. See also pensions and 401k and the inheritance calculator.
Ask a mufti about your own case. This answer explains the general ruling. When the details of your situation matter, as they do here, ask a qualified mufti and give them the full facts. Where to ask a scholar.
The evidence
Quran, Surah An-Nisaa 4:7
لِّلرِّجَالِ نَصِيبٌۭ مِّمَّا تَرَكَ ٱلْوَٰلِدَانِ وَٱلْأَقْرَبُونَ وَلِلنِّسَآءِ نَصِيبٌۭ مِّمَّا تَرَكَ ٱلْوَٰلِدَانِ وَٱلْأَقْرَبُونَ مِمَّا قَلَّ مِنْهُ أَوْ كَثُرَ ۚ نَصِيبًۭا مَّفْرُوضًۭا ﴿٧﴾
For men is a share of what the parents and close relatives leave, and for women is a share of what the parents and close relatives leave, be it little or much - an obligatory share.
The estate is what the person left, that is, what they owned at death.
Where the ruling is recorded
- Radd al-Muhtar (Ibn Abidin), Kitab al-Fara'id, the definition of tarikah. The estate is what the deceased owned at death.
- Fiqhi Maqalat (Mufti Taqi Usmani), Article on pension and provident fund. Payments granted after death as a gift go to whom the rules name.
- Fatawa Mahmudiyya, Kitab al-Fara'id, questions on provident fund and insurance. Treatment of provident fund and insurance money after death.
Checked by our team. For a more accurate answer to your own situation, consult a scholar. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.