Most people would agree that inheritance planning is a process by which an individual (or, in some cases, a whole family) arrange their affairs so that, on a death, there is a sensible transfer of assets to the people who they want to inherit and one which preserves as much of their family wealth as possible, usually by reducing to the minimum the taxes that would have to be paid.
Many people would also agree that a part of inheritance (estate) planning is preserving as much flexibility as possible for the individual up to the time of their death.
A much smaller number of people would add that the process should consider the administrative and practical issues relating to dealing with a death, and to arrange for as many of these tasks as possible to take place where they are simple and inexpensive.
Whichever definition you might adopt, this is most definitely an area where the right solution will depend entirely upon your financial position and other personal circumstances. Something that worked well for your brother or next door neighbour could well prove disastrous for you.
Skilled professional advice is essential. The more complex your circumstances, the more essential it becomes.
Indicators that your situation might be complex are:
- Being in a second marriage
- Having childrenby several relationships
- Having foster childrenand some adopted children: they may not be recognised as children under the Turkish inheritance formula
- Living with someone to whom you are not married
- Having assets in several countries
- Being wealthy
- Family discontent, particularly if you want to ‘cut out’ one or more of your childrenfrom any inheritance
The importance of inheritance planning
Inheritance planning has four huge advantages.
Making sure the right people inherit
If, for example, you are a same sex couple, or an unmarried heterosexual couple, you may find that Turkish law (or the law of your own country) does not gave you the right to inherit from each other in the way you might like. On the contrary, the law might oblige you to pass the ownership of your property to (for example) the children of a previous relationship.
In this case, inheritance planning would focus on how to pass your wealth on the person you wish to inherit.
This could involve (for example) taking a large loan against the assets – so that they have little net value) and making arrangements for that cash to pass, on your death, to the person you wish: perhaps by using some form of Trust.
Sometimes, it might even involve marrying, taking up a new nationality (and renouncing your old) or moving so as to take up residence (and to have property located) in a place with more flexible rules. However, you do not usually need to take such drastic action to solve most problems.
Good inheritance planning can save you huge amounts of money. Do not underestimate the amounts involved. They can be hundreds of thousands of euros.
For example (and it is a very simplified example), if you were thinking of buying a TRY2million (€442,000) property in Turkey (2018):
- If you put the property in just your name, and left it to your wife, they would inherit TRY2million. They would have an allowance of TRY404,556, so they would pay tax on TRY1,595,444. This would amount to a tax bill of TRY58,722 (€ 12,639).
- If you put the property in your name only, but left it to your wife and two children, they would have a tax free allowance of TRY606,462 so they would pay tax on TRY1,393,538. This would amount to a tax bill of TRY48,677 (€10,468).
- If you put the property in the joint names of you and your wife, and left it to your two children, they would inherit only TRY1million on your death and would have a tax free allowance of TRY404,556, so they would pay tax on TRY595,444. This would amount to a tax bill of TRY13,063 (€2,809).
As I have said, this is just a small example of how some minor adjustments to your plan can produce significant tax savings on your death.
You could make an even bigger saving (depending upon where you and the children lived) if you gave away some or all of your assets before you came to Turkey. If, for example, you were British and gave your children the money with which to buy the house in Turkey in their names, then that gift would be a potentially tax-free gift (in the UK), and would be tax free provided that you survived for more than seven years. There are restrictions on your ability to do this, particularly if you are going to live in the house yourself but they (and similar opportunities) deserve investigation.
As the children would always have owned those assets as far as the Turkey Tax department is concerned, there would be no inheritance in Turkey, and so no inheritance tax, when you died.
However, this is not flexible. Once you’ve given the assets away you’ve given them away and, if you later need them, tough luck: unless the recipient will give some of the money back to you. That could, itself, give rise to a tax liability.
It is a much more flexible approach to give away small parts of your assets when you are sure you will not need them and leave the rest to be dealt with on your death.
Most people find that flexibility is very important.
There are many ways of ensuring flexibility. Cash gifts, Wills, Trusts and so on. Which is right for you will depend upon your personal circumstances and that is something upon which you will need proper professional advice.
The fourth objective of inheritance planning, at least under my definition, is to make it as simple as possible to deal with your affairs when you die. It is stressful enough when a loved one dies without you having to make trips half way around the world to deal with mountains of paperwork.
Although the legal responsibility of dealing with a death in Turkey rests with the individuals who inherit, it is sensible – in advance – to make arrangements for a local lawyer to deal with these things on their behalf. You can also take the opportunity to prepare Powers of Attorney authorising (again, in advance) somebody to sign all the necessary paperwork on the heirs’ behalf.
Part of your inheritance planning should be to do this – which means briefing the lawyer as to your circumstances and then keeping them up to date with any changes – and then to tell the people who you want to inherit that you have done so. They’re not bound to use the services of this lawyer if they don’t want to do so, but most will be grateful to you for making the arrangements in advance and so simplifying their lives at a time of great stress.
Part of keeping things simple also involves telling your heirs what you want to happen on your death. Do you want to be buried or cremated? Do you have any special wishes? Is there anything that you particularly do not want to happen? I remember a Turkish client who insisted that his coffin should not be carried in a Mercedes!
Make these decisions and tell all the relevant people so that they do not have to worry about them when the time comes.
Another aspect of keeping things simple is to make sure that you, your heirs and your lawyer all know about your assets and liabilities. Some people are reluctant to tell their heirs about their financial circumstances and, if that is so in your case, there is a simple solution: tell your lawyer.
Of course, your financial circumstances will change all the time and so the best way of dealing with this is simply to have a file (paper or digital, preferably both) in which you keep an updated list of all your possessions and liabilities. Say in the list where the paperwork relating to them all is stored. Put the paper list in the same envelope as your Will – but not physically attach it to the Will.
Tell your lawyer and your heirs where the file is kept.
Most importantly, do keep it up-to-date. Having this list can save large amounts of time (and so cost) but it has precisely the opposite effect if you say that you have (for example) 1,000 Rolls Royce shares and that the certificate is in your filing cabinet when you have actually sold them.
There is no escaping the fact that proper inheritance planning requires professional help. Because of the way in which international legal and tax systems interact it will usually require help from someone familiar with the laws of Turkey and with at least a passing knowledge of the laws in your own country – or at least with a contact over there who does know them.
If your affairs are complicated – particularly if you’ve been married several times and/or have children by multiple relationships – it can be complicated getting such advice. That can make it somewhat expensive, but the savings you are likely to be able to make are likely to be many, many times the cost of the advice.
The good news is that if your affairs are relatively simple, your adviser – usually your lawyer or your financial adviser – will be able to identify this very quickly and so the advice can be very inexpensive.