How did the Prophet Muhammad distribute his wealth after his death?

It was not difficult to divide the property of the Prophet s.a.w because he did not have so much in assets. When he passed away, nothing more than some blocks of land and the house in which he resided, in terms of assets, existed.

Ibn Sa’d names the slaves and concubines belonging to the Prophet s.a.w – either donated or gained through war – and narrates that they were all manumitted prior to his illness.
As for the way in which the Prophet’s s.a.w inheritance was managed, his livestock and some of his personal belongings were bequeathed to Ali’s RA family. His mantle, sword and ring remained state property.

Following the Prophet’s s.a.w demise, his heirs – first and foremost his daughter Fatima RA– appealed to Abu Bakr RA to divide his belongings and land. They were reminded of Allah’s Messenger s.a.w saying to them,

“Our (Apostles') property should not be inherited, and whatever we leave, is to be spent in charity."

Accordingly, all the land belonging to him was given to the State. Fatima RA, evidently unaware of such a command, insisted on receiving her share of the Fadak.

Another saying of the Prophet s.a.w regarding his inheritance is as follows, as narrated by Abu Huraira RA:

Allah’s Messenger s.a.w said, "Not even a single Dinar of my property should be distributed (after my death to my inheritors, but whatever I leave excluding the provision for my wives and my servants, should be spent in charity." [Bukhari, “Laws of Inheritance,” 33; “Jihad,” 202.]

As such, the Prophet’s s.a.w wives would be entitled to receive the allowance he determined for them during his life, for the rest of their lives. Intended by his ‘servants’ is without doubt those looking after his property and managing its income and the employees and workers working on his lands which were not given to others to manage.

As for the rooms in which the Prophet’s s.a.w wives resided, he bequeathed these to them. They were to live in these rooms and once his wives passed away, the rooms, like the Prophet’s land, were to be included among his charity.

In this way the Prophet s.a.w, who had prohibited the appropriation of all kinds of income obtained from the Muslims to both himself and his relatives, left behind the property either donated to him or acquired as war spoils to the State, as charity for the Muslim community. In so doing, the Prophet s.a.w used his spiritual and material authority not in the way of hoarding wealth for himself and his family, but purely and solely for the purpose of bringing all Muslims a happiness which encompassed their lives in both this world and the next.

A Day Before His Death

On Sunday, a day before he died, the Prophet sallallahu 'alayhi wa sallam set his slaves free, paid as a charity the seven dinars he owned and gave his weapons as a present to the Muslims. So when night fell 'A'ishah had to borrow some oil from her neighbour to light her oil-lantern.

Even his armour was mortgaged as a security with a Jew for thirty sa' (a cubic measure) of barley.

http://sunnahonline.com/library/hist...r-of-allah-the