What are Fraudulent Conveyance and Concealment of Assets from Inheritance?
Fraudulent conveyance is an agreement between parties to enter into a contract that does not reflect their true intentions, which appears valid but has no legal effect between them, with the aim of deceiving third parties. For example, an heir who transfers real estate to third parties through a sale registered in the land registry in order to evade inheritance has committed a fraudulent transaction. This is because the purpose of the sale transaction ostensibly carried out by the parties is to conceal the evasion of inheritance. Therefore, both the ostensible sale transaction and the contract secretly made between the parties (verbally or in writing) are invalid.
For the conditions of collusion to be met, the following three conditions must be present simultaneously:
There must be a deliberate and intentional discrepancy between the parties’ real intentions and the transactions they have carried out.
There must be an intention to deceive third parties.
The parties must have agreed among themselves to engage in collusive transactions.
The subject of our article, ‘fraudulent conveyance’ (concealing property from inheritance), is legally referred to as qualified (relative) fraudulent conveyance. There are two transactions in qualified fraudulent conveyance: the apparent transaction and the secret transaction. The parties intend to deceive third parties through these two transactions. The apparent transaction does not reflect the true intention of the parties and is intended to deceive third parties. For example, the property to be donated is transferred through a sale transaction in order to deceive third parties. In fraudulent transactions, it is not the apparent transactions but the secret transactions that reflect the true intention of the parties. In the example given above, the donation transaction is the secret transaction.
Fraudulent Conveyance (Avoiding Inheritance)
Fraudulent conveyance (avoiding inheritance) is when a person makes gratuitous transfers, such as a sale or a contract to provide care until death, with the aim of depriving their heirs of their inheritance rights. The main purpose here is to prevent heirs with a reserved share from filing a reduction lawsuit in the future to claim their inheritance shares. In other words, the testator wants to prevent their heirs from filing a lawsuit in the future by pretending to transfer the assets they actually want to donate in exchange for a sale. A lawsuit for evading inheritance investigates whether the four elements of fraud exist:
The apparent transaction (contract),
The collusive agreement,
The intent to deceive third parties (heirs),
The secret agreement.
Apparent Transaction
The apparent transaction appears in practice as a sale, donation, or life-long care contract. These transactions are carried out in a manner that does not reflect the true intentions of the testator and does not produce any legal effect, with the aim of depriving the heirs of their inheritance. For example, the testator’s intention in transferring a house to someone else in the land registry as if it were a gift, in order to deprive the heirs of their inheritance, is to prevent the beneficiaries of the reserved share from filing a lawsuit in the future.
Fraudulent Agreement
A fraudulent agreement is an agreement between the testator and a third party that the apparent contract is made solely to deceive the heirs. The parties agree that the apparent transaction made for the purpose of concealing assets from the estate will not have any legal effect or consequences between them. This agreement may be verbal or written.
Intent to Deceive Heirs
Another element of fraudulent conveyance is that the transaction, i.e., the apparent sale or other contract created by the parties, is made with the intent to deceive the heirs. If the parties (the testator and the third party) do not have the intent to deceive the heirs, no lawsuit can be filed to recover property from the estate in relation to the transaction.
Secret Agreement
This is an agreement that reflects the true will of the testator and is hidden behind the apparent transaction. For example, the testator wants to donate his property but hides this behind a sales contract with the intention of deceiving the heirs. The secret agreement (donation) is actually valid as a rule because it is in accordance with the true will of the parties. Here, it is important whether the secret agreement is subject to formal requirements. Secret transactions are not subject to formal requirements for unregistered immovable property and movable property. However, since they are subject to formal requirements for registered immovable property and the ‘secret agreement’ does not comply with these formal requirements, they are invalid.