The Turkish Civil Code No. 4721 allows heirs, into whose hands the estate passes automatically upon the death of the deceased, to decline that burden — that is, to renounce the inheritance. The purpose for which this power is exercised is not, however, always innocent. Where an heir declares a renunciation in order to keep out of the reach of his own creditors a value that would otherwise fall to them, what is present is a renunciation of inheritance made in bad faith. In such a picture, the legal instrument available to the creditors is the action for annulment of the renunciation of inheritance.
If, at the close of the proceedings, it is established that the declaration of renunciation was made with the intent of causing loss to the creditors, the court will order the annulment of the renunciation. The natural extension of that decision is that the estate is realised in accordance with the provisions on official liquidation.
It is also possible for security to be deposited, while the action is pending, in an amount sufficient to satisfy the claims. Where adequate security is furnished, the action for annulment lapses.
The function of the institution is twofold: on the one hand, the loss that creditors would suffer as a result of a renunciation made in bad faith is forestalled; on the other, the unlawfulness of the heir’s conduct is established by a judicial decision. The provision therefore serves both the protection of creditors’ rights and the maintenance of balance in debt relationships.
Renunciation of Inheritance and the Renunciation Period
At the moment the succession opens, the estate passes as a whole into the assets of the heirs. No separate transaction or declaration of intent is required of the heirs for this acquisition; the transfer occurs automatically by virtue of the fact of death. That principle is not, however, absolute. In order to give the heir the opportunity to shed an estate he does not want, the legislator has separately regulated renunciation of inheritance.
Renunciation takes two basic forms. Renunciation founded on a declaration made by the heir of his own volition is termed actual renunciation, whereas renunciation arising as the consequence of a provision laid down by the law is termed constructive renunciation.
The period allowed for renunciation is three months. When that period begins to run varies according to whether the heir is a statutory heir or an appointed heir. For statutory heirs, the period begins at the moment the heir learns of the death of the deceased and of his own status as an heir, that is, on the date on which both facts are present together.
A twofold distinction is drawn for appointed heirs as well. If the appointment was made by a contract of succession, the starting point is determined by the criterion applicable to statutory heirs. If, by contrast, the appointment was effected by a will, the period is calculated from the date on which the will was opened and notified to the heir.
Where an inventory of the estate has been ordered as a protective measure, a different starting point comes into play: the renunciation period begins to run on the date on which the inventory proceeding is notified to the heirs by the Civil Court of Peace. It is of no significance here whether the heir is a statutory or an appointed heir.
What Is Renunciation in Bad Faith?
Renunciation of inheritance in bad faith arises where the heir makes the declaration of renunciation solely in order to cause loss to his own creditors. Where an heir whose assets do not cover his liabilities — that is, an insolvent heir — renounces the estate purely so that no value should reach his creditors, the renunciation is regarded as having been made in bad faith. Although other motives may also lie behind a declaration of renunciation, the typical purpose encountered in practice is the heir’s attempt to protect his assets by evading his own debts.
Actual renunciation denotes the termination, by the heir’s own volition, of the status of heir acquired upon the death of the deceased. An assessment of bad faith is meaningful only in this situation, where a voluntary declaration exists; no such discussion can be conducted in the case of constructive renunciation.
The legislator has not left creditors defenceless in the face of renunciation made in bad faith, but has laid down a series of protective provisions. By virtue of those provisions, the creditors of the renouncing heir, or the bankruptcy administration, are given the power to seek annulment of the renunciation, the aim being to prevent the heir from casting the estate aside with regard only to his own interest.
Protection of the Personal Creditors of the Heir
Article 617 of the Turkish Civil Code No. 4721 confers on creditors and on the bankruptcy administration the right to seek annulment of the renunciation where an heir whose assets are insufficient to cover his debts makes a declaration of renunciation with the intent of causing loss to the creditors.
Turkish Civil Code No. 4721, Art. 617 — Protection of the creditors of heirs
“Where an heir whose assets do not suffice to cover his debts renounces the inheritance with the aim of causing loss to his creditors, his creditors or the bankruptcy administration may, unless sufficient security has been furnished to them, bring an action for annulment of the renunciation within six months from the date of renunciation.
If annulment of the renunciation is ordered, the inheritance is officially liquidated.
If any value falls to the share of the renouncing heir out of the inheritance thus liquidated, the claims of the creditors who objected are paid first out of it, and thereafter the claims of the other creditors. Any remaining values are given to the heirs who would have benefited from them had the renunciation been valid.”
Protection of the Creditors of the Deceased
Article 618 of the Turkish Civil Code No. 4721, for its part, establishes a different mechanism of protection. Heirs who renounce the inheritance of a deceased whose estate does not suffice to cover his debts are held liable towards the creditors of the deceased in respect of dispositions subject to equalisation that they received from the deceased within the last five years before the death. Ordinary expenditure on education and the costs of a trousseau given in accordance with custom and usage are excluded from that liability.
The extent of the liability varies according to whether the heir acted in good faith. An heir in bad faith is liable for the whole of the value subject to the duty of restitution. The liability of an heir in good faith, by contrast, is determined according to the rules on unjust enrichment; such a person is liable only to the extent of the amount still in his hands.
In this scenario there is no need for the renunciation to be separately annulled. The declaration of renunciation retains its validity; the heir’s liability towards the creditors of the deceased nevertheless arises automatically. This is also the most conspicuous distinction between Art. 617 and Art. 618. Our observations below concern the protection of the heir’s own creditors, which forms the subject matter of Art. 617.
Conditions Required for the Action for Annulment
The action for annulment of a renunciation made in bad faith serves the purpose of establishing the unlawfulness of the declaration of renunciation made by the heir in bad faith and of having the inheritance treated as accepted.
As noted above, where an heir whose assets do not cover his debts renounces the estate with the aim of causing loss to creditors, the creditors or the bankruptcy estate may apply to the court seeking annulment. Whether that application can produce a result depends on a series of conditions being satisfied together.
The Inheritance Must Have Passed to the Heir
For a declaration of renunciation to be possible, the estate must have devolved upon the heir. Since no devolution can be spoken of while the deceased is still alive, at that stage there is likewise no inheritance that the heir could renounce.
Compliance with the Six-Month Preclusive Period
The action for annulment is subject to a six-month period. The period begins to run on the date on which the heir made the declaration of renunciation; the action must be brought within six months of the moment of renunciation.
That period is preclusive in nature. If it is missed, the action brought will be dismissed on procedural grounds without an examination of the merits.
The Renouncing Heir Must Be Insolvent
A further essential condition of the action is that the assets of the heir making the declaration of renunciation are inadequate to cover his debts. If the heir’s assets do not suffice to discharge the obligations upon them, recourse may be had to annulment of a renunciation made in bad faith.
The thinking behind this condition is that creditors face a genuine risk only where there is insolvency. Since it makes no difference to the position of creditors whether an heir well able to meet his debts accepts the estate or not, there is in such a case no legal interest in bringing an action for annulment.
In short, this action affords creditors protection only where the heir’s assets do not suffice to cover his debts.
The Existence of Intent to Cause Loss
For a request for annulment to be entertained, the declaration of renunciation must have been made with the direct intent of causing loss to the creditors. It is not possible to bring this action against an heir who renounces the inheritance for other reasons, without carrying such a motive.
The provision is envisaged as an instrument of protection for situations in which the heir’s true objective is to prevent the creditors from reaching what is due to them and an unjust result arises for that reason. If only a personal interest or an interest of some other nature lies behind the declaration of renunciation, and there is no aim of causing loss to the creditors, no action for annulment may be brought.
A precedent concerning how bad faith is assessed is set out below. The Court of Cassation did not regard the heir’s stated ground for renunciation as reasonable and, concluding that an intent to cause loss to the creditors was present, held that annulment of the renunciation ought to have been ordered.
Decision of the 2nd Civil Chamber of the Court of Cassation, File No. 2012/23145, Decision No. 2013/15700, dated 05.06.2013:
“Since the immorality of the ground on which the deceased acquired the assets, put forward by the respondent debtor as his reason for renouncing the inheritance, produces no effect as regards his creditor, it must be accepted that he renounced the inheritance with the intent of causing loss to his creditor and that the conditions for bringing an action for annulment of the renunciation under Article 617 of the Turkish Civil Code are thereby satisfied. That being so, whereas it was necessary to allow the action and to order the annulment of the respondent’s renunciation of the inheritance, the decision given in the terms set out was incorrect and has required reversal.”
No Sufficient Security Must Have Been Furnished
Whether the action may be brought also depends on no sufficient security having been furnished to the creditors. The security offered must be at a level that covers the creditors’ claims in full. If complete security has not been provided, an action for annulment may be brought, provided the other conditions are also present. Security may, by contrast, also be furnished after the proceedings have begun, at any stage until judgment is given; in that event the action lapses.
There is a difference of scope between the two stages. Whereas security given before the action is brought can prevent the action only if it covers the claims of all the heir’s creditors, security furnished after the action has been brought is sufficient to cause the action to lapse if it covers the claims of the creditors in the position of claimant.
Parties to the Action
Claimant: The action for annulment is brought by the creditors of the heir who made the declaration of renunciation. If a bankruptcy order has been made in respect of the heir, the status of claimant passes to the bankruptcy estate.
The right to make the claim is conferred on creditors who suffer loss by reason of the renunciation or who are at high risk of suffering loss. What is decisive here is the moment at which the claim arose: the action may be brought by creditors whose claim arose before the declaration of renunciation. Persons who acquire the status of creditor after the renunciation have no power to seek annulment.
Respondent: The action must be directed against the heir who renounced the inheritance.
Who bears the status of respondent is a matter of dispute in the doctrine. One view maintains that the action should be brought against the heir who made the declaration of renunciation, a second view proposes that standing should be directed against the person who takes the place of the renouncing heir, while a third approach argues for an action brought against both together.
What is decisive in practice are the practical difficulties. It is often hard, and in some cases impossible, for the creditor to identify who the persons taking the place of the heir are; this gives rise to the risk that the action cannot be brought within the six-month preclusive period. Moreover, proof of whether the heir who made the declaration of renunciation acted in bad faith cannot be conducted through the heirs who take his place. For these reasons, directing the action against the renouncing heir directly is regarded as the most appropriate solution.
Consequences of the Decision and the Order of Liquidation
Where the court orders the annulment of the renunciation pursuant to Art. 617 of the Turkish Civil Code No. 4721, the estate of the deceased enters official liquidation.
If, at the end of the liquidation, a value falls to the share of the heir who made the declaration of renunciation, priority belongs to the creditors who objected and their claims are met first. If the action was brought by more than one creditor and the heir’s share does not suffice for all of those claims, the share is distributed among the creditors in proportion to their claims, that is, pro rata.
If a balance remains from the inheritance share after the claims of the claimant creditors have been met, the claims of the other creditors, who did not bring the action, are then paid.
If, after all these payments, a value still remains, it is given to the heirs who would have benefited from it had the renunciation been treated as valid.
Courts with Subject-Matter and Territorial Jurisdiction
Court with subject-matter jurisdiction: Since the law lays down no special rule of subject-matter jurisdiction for this action, the Civil Court of First Instance, as the court of general subject-matter jurisdiction, is competent.
Court with territorial jurisdiction: As regards territorial jurisdiction, the court of the last place of residence of the deceased is decisive.
Taking these two criteria together, the action for annulment must be heard before the Civil Court of First Instance at the last place of residence of the deceased.
Frequently Asked Questions
Is a separate request required for liquidation?
No. The commencement of official liquidation requires no additional request; the court that orders the annulment of the renunciation conducts the liquidation of its own motion.
What happens if security is furnished while the action is pending?
Where security is furnished after the proceedings have begun, at any stage until judgment is given, the action for annulment lapses.
By reference to what moment is insolvency assessed?
The moment to be taken as the basis for the assessment is the moment at which the heir made the declaration of renunciation.
Which action is brought against an invalid declaration of renunciation?
If the renunciation was made without compliance with the formal requirements, or if the heir, before the renunciation period expired, involved himself in the affairs of the estate in the capacity of heir, carried out transactions falling outside the ordinary administration of the estate or not necessary for the conduct of the deceased’s affairs, or concealed or appropriated assets of the estate, the renunciation becomes ineffective. In these scenarios the course to be taken is not an action for annulment of the renunciation but an action for a declaration that the renunciation is ineffective. This is because, there being no valid declaration of renunciation, there is likewise no transaction to be annulled.
The Independent Legal Assessment
Two points stand out as determining the fate of the dispute in an action for annulment of a renunciation: correct calculation of the six-month preclusive period and the ability to establish the intent to cause loss by concrete evidence. Because the period begins to run from the date of renunciation and not from the date on which the creditor became aware of the declaration of renunciation, early monitoring of the renunciation entry at the Civil Court of Peace is decisive in practice.
As regards proof of intent, what is examined is whether the heir’s stated ground for renunciation is reasonable. The practice of the Court of Cassation shows that grounds producing no legal effect as regards the creditor do not suffice to conceal bad faith. It is therefore important that the file be supported by documents demonstrating the connection between the heir’s financial position and the declaration of renunciation.
In a concrete dispute, we recommend that the following matters be addressed as a priority:
- Documenting from the records that the claim arose before the declaration of renunciation
- Establishing the date of renunciation from the official records and calendaring the six-month period
- Comparing the heir’s assets and liabilities in order to demonstrate insolvency
- Gathering from the outset the evidence as to the motive with which the declaration of renunciation was made
- Anticipating the possibility that the opposing party will furnish security and the scope in which this would cause the action to lapse
- Assessing, where the validity of the declaration is in dispute, whether recourse should be had to an action for a declaration of ineffectiveness rather than to annulment
Independent Legal provides advisory services and conducts litigation in disputes arising from the renunciation of inheritance, without distinction between the creditor side and the heir side.