There are two completely different issues. Who has the legal right to inherit your property is one thing, how much tax has to be paid is another. Forward planning can remove any problems about who can inherit your property (either ‘back home’ or in Turkey) and greatly reduce the taxes due in both places.
The system of dealing with an inheritance in Turkey is fairly simple but still has a few tricks to catch out the unwary.
Is a foreigner treated differently from a Turkish person in matters of inheritance?
Yes. You are treated more favourably!
In Turkey, foreigners (whether resident in Turkey or not) are only subject to Turkish inheritance taxes on the assets that they hold in Turkey. Turkish law does not tax any assets that you leave in any other country: for example, the country of your birth. However, and it’s an important however, you may well find that those assets are taxed in that country. As a result, this concession may not be quite as beneficial as it first appears.
Inheritance is one of the most important areas of law where you really need to understand the interaction between what is happening in Turkey and what is happening in your own country.
It is worth repeating that the two most important aspects of this are the questions of who has the right to inherit in Turkey (and how those rights interact with the rights they or others may have in other countries) and the rules concerning taxation of inheritances in Turkey (and how they interact with the rules concerning taxation of inheritances in other countries).
What happens to your property in Turkey when you die?
A Turkish person is not free to dispose of all the assets they own when they die (“their entire estate”) as they see fit. Certain relatives have certain fixed rights to inherit a part of those assets. This concept – the ‘reserved portion’ – is commonplace in continental European legal systems but comes as a bit of a surprise to people accustomed to the freedom of Anglo-American law.
As few of our readers are likely to be Turkish citizens, we will only deal with the Turkish system briefly.
The reserved portion is a specific percentage of the total value of the estate. The percentage depends upon the number of people entitled to a share of the portion and the closeness of their relationship to the person who has died.
Any amount in excess of the reserve portions may be disposed of in whichever way you see fit, either by giving more to some or all of the people entitled to a share in the reserve portion or by giving things to other people altogether.
The people who have a possible entitlement to a reserved portion are:
The children must inherit a minimum of 50% of the amount that they would have inherited under the Turkish rules about intestacy – in other words, what happens if the person had died without making a Will. You can provide for them to inherit more than this, but they may not inherit less. See below.
The reserved portion of your parents is one quarter each of what they would have received if you died without making a Will.
The reserved portion of your spouse is either three quarters or the full amount of what they would have inherited if you had not made a Will, depending upon whether you left any children or parents alive at the time of your death.
Inheritance on intestacy
If any Turkish citizen dies without making a Will (“dies intestate”), their property is distributed to their next of kin following a set of rules laid down by Turkish law.
If they have any descendants, only their descendants will become their next of kin, and so inherit any property. If they don’t have any descendants, their parents and (through the parents) the rest of their wider family will be entitled to benefit.
The position of the spouse is weak under this system.
A foreigner who dies owning assets in Turkey, whether it’s a home or a bank account or any other kind of asset, is dealt with totally differently.
Turkish law states that, when a foreigner dies, the rules that should apply to who should inherit what are the rules of that foreigner’s own nationality, even if the foreigner is a resident in Turkey.
So, if a US citizen dies in Turkey then his assets in Turkey will be disposed of in accordance with the law of the United States and if a French citizen dies leaving assets in Turkey, those assets will be disposed of in accordance with the law of France.
In some cases (for example, in the case of a British citizen), this will mean that the assets may be disposed of in whichever way the person who has died stated in their Will. In other cases (for example, in the case of a French person or many other continental Europeans) the Turkish Court will apply the reserved portions and other rules that apply in that person’s country.
All of this relates only to the question of who inherits what.
Whatever the law in your country says about who may inherit and what they should inherit, there is the completely separate question of what inheritance (and other) taxes are going to be payable in Turkey. Just because Turkish law accepts that foreigners should be free to dispose of their assets in Turkey in the same way that they could ‘back home’, does not mean that they don’t want to get their fair share of tax out of the inheritance!
Why do these rules matter?
Let’s take an example.
Let us imagine that a person owns a house in Turkey, a car in Turkey and a bank account in Turkey. Let’s say the house is worth €500,000; the car €10,000 and (at the time of his death) the bank account contained €1,500. Let us also imagine that at the time of his death, he had debts of €1,500 in Turkey.
This means that the total value of his estate was €511,500 but that the net value, after deducting the debt, was €510,000.
He had no assets outside Turkey.
He had three children and a wife.
He would like to leave as much as possible to his wife.
If he had Turkish citizenship
The distribution of his assets will be treated under the laws of Turkey.
If he made no Will
In this case, the wife will inherit 25% (€127,500). The children will share 75% of the assets, and so receive 25% (€127,500) each.
If he made a Will
The children would have the right to inherit, between them, a minimum of half of the legal portion (so 37.5% of the net assets). The surviving wife legal share (25%) will be reserved in full since she is an heir with children. The rest of the assets (35.5%) could be disposed of as he pleased. He could, for example, give it all to his wife, to his eldest son or to his mistress.
So, even for a Turkish citizen, making a Will makes a big difference to the outcome.
If he was a foreigner
In essence, the foreigners own law will apply.
If he was Euroslavian
Turkish law would apply the law of the fictional country of Euroslavia when deciding who should inherit his assets.
Euroslavian law says (let’s say) that the assets should be divided amongst the children in equal shares but that the wife should have the lifetime right to use the assets.
The children would each inherit €170,000 and the wife would inherit nothing: though she would have the right to use the assets for her lifetime.
If he was a British citizen
If he made no Will
His wife would inherit the car and the bank account plus the first £250,000 (say, €270,000) of the estate and half of the balance of the estate: a total of €390,000. The children would share the rest (€40,000 each).
If he made a Will
He could leave the full €510,000 to his wife, so she would be better off by €120,000. Alternatively, he could leave to full amount to any person of his choice or divide the assets between any number of people in whatever proportion she saw fit.
All these calculations ignore the issue of tax but, as we will see later, they would each be responsible for paying their own tax on their inheritance.
Conclusion to the example:
Making a Will can, almost always and even in a simple case, get you a lot closer to achieving your wishes than reliance upon the law of intestacy.
However, in many common cases, it is essential in order to avoid major disaster.
The elephant in the room is any second wife and family.
It is increasingly common for a man in his 50s, with a wife and adult children, to divorce and either live with or marry somebody 20 years his junior and to have a new family.
The children of the first marriage will, in many countries, have rights greater than the rights of the second wife. There may well be no love lost between them, and so the position of the second wife can become very difficult.
If the couple were not legally married, her position can become impossible as she would, in many countries, have no inheritance rights at all.
The moral of this story is that if your personal life is in any way complicated – if you are remarried with a second family, if you have disabled parents, if you’re in a same-sex relationship etc. – it is really important to get good legal advice about how to deal with the inheritance issue and how to make a suitable Will.
It is also important if you are lucky enough to be rich.