Lindemann Law

Impact of revision of Swiss inheritance law on real estate?

In 2020 Swiss parliament passed the revision of the inheritance law, which is more than 100 years old. On January 1 of 2023, the new inheritance law has come into force. The new inheritance law gives you, as the testator, additional options for your estate planning. Below we answer the 6 most frequent questions of our clients.

1. What are the most important changes in the succession of real estate?

With the revision, the statutory entitlement for direct descendants (issue) has been reduced to half of the estate, while the statutory entitlement  for parents has been eliminated altogether. Furthermore, the succession and statutory entitlement of a still spouse now already lapses in the case of pending divorce proceedings and not, as previously, only with the final divorce decree, provided that a corresponding regulation exists by testamentary disposition. These changes to inheritance law are aimed at increasing the testator’s freedom of disposal.

The testator’s increased freedom of disposal gives him the opportunity to freely dispose of a larger portion of his assets. This is particularly relevant in the case of real estate, as the sharp rise in real estate prices often means that a property is the largest asset in terms of value when the testator dies. Since the heirs should all receive equal shares, their legal succession shares may not differ by more than 10% in terms of value. The increased real estate prices pose a challenge in particular if the decedent has not made any estate planning, the value of the property exceeds the value of the legal succession share by more than 10% and the heirs are not in agreement as to whom the property should go to. This is because the property must then be sold and the proceeds of the sale divided between the heirs.

Furthermore, as of January 1, 2023, a gift prohibition applies in principle after the conclusion of a contract of succession. This also applies to contracts of succession concluded before the aforementioned date. Previously, a contract of succession did not prevent the testator from making gifts during his or her lifetime. Gifts were only contestable if they were expressly prohibited in the contract of succession or if the testator deliberately intended to disadvantage the heirs. Today, however, gifts, with the exception of occasional gifts, may only be made if the contract of succession expressly provides for this. Anyone who wishes to continue making gifts despite the new regulation should make provision for this in the  contract of succession and adapt the existing  contract of succession accordingly. Such an adjustment requires the consent of all contracting parties as well as a public notarization.

Due to this new regulation, a testator may not be able to make a gift of real estate without further ado. This also applies if the testator makes a gift of real estate but grants himself a right of residence or usufruct until his death. This is because although the donee does not receive the unencumbered ownership of a property until after the testator’s death in the case of such a procedure, it is a case of a gift during the testator’s lifetime and possibly a violation of the new gift prohibition.

2. What is the legal succession?

If the testator has not made a will or concluded a contract of succession, the legal succession applies. The legal heirs are determined by the parentel system. A distinction is made between the first, second and third parentel. The first parentel includes the issue  of the deceased person (children, grandchildren, etc.), the second the parents with their issue and the third the grandparents with their issue. Within a parentel predeceased heirs are replaced by their issue. This also applies if the predeceased heir has renounced the inheritance. Furthermore, if there are no heirs in the first parentel, the inheritance will only go to the second parentel. If there are no heirs even in the third parentel, the estate falls to the state.

3. What possibilities does a prenuptial agreement bring?

The prenuptial agreement can be an important instrument for estate planning. Its relevance becomes particularly apparent when the procedure after the death of the testator is considered in more detail. This is because, in the case of a married deceased, before the succession issue can be dealt with at all, the issue of the marital property law has to be solved first. A prenuptial agreement can therefore play a decisive role with regard to the size of the estate.

In a prenuptial agreement, the spouses can agree on a deviation from the ordinary statutory marital property regime of participation in acquired property They can choose either the community of property or the separation of property. Since the choice of the marital property regime is decisive for how much is allocated to the surviving spouse in the marital property regime, it consequently affects the size of the estate.

If the spouses only have joint issue, the testator can leave all of his or her assets to the surviving spouse under a prenuptial agreement. The compulsory portion claims of the joint issue  and the surviving spouse do not have to be taken into account and the consent of the joint issue is not required.

4. What opportunities do a will and a contract of succession offer?

Swiss inheritance law recognizes two types of disposition with which a testator can dispose of all or part of his or her assets. One is the will and the other is the contract of succession. The timely preparation of a will or contract of succession can prevent inheritance disputes and ensures that the last wishes of the testator are complied with. Both types of disposition therefore represent an important precaution in the event of death. The type of disposition to elect  depends on the testator’s estate planning objectives. If the testator decides neither to use a will nor a contract of succession, the legal succession apply.

In a will, the testator can make various arrangements to ensure that his assets are distributed according to his wishes after his death. One of the most fundamental decisions a testator can make concerns the appointment of heirs. Here, he or she can determine, within the limits of his or her disposable part , which individuals or organizations should receive a portion of his or her estate. Furthermore, the testator can determine in a will how his estate is to be divided. Thus, he can allocate property A to his son, while his daughter is to receive property B.

In contrast to the will, the contract of succession offers additional regulation options. In it, the testator can make binding agreements with his heirs about the estate. In the case of real estate that exceeds the value of the legal share of the inheritance by more than 10%, such an approach is probably the most sensible. This is because the contract of succession allows the testator and his heirs to determine the terms on which an agreement is to be made in order to comply with the testator’s will. The contract of succession represents a binding agreement, the content of which all parties confirm with their signature. Drawing up a contract of succession is therefore a popular way of preventing inheritance disputes.

5. What possibilities do foundations, trusts and insurance policies offer?

Foundations, trusts and insurance policies are important instruments for estate planning. When it comes to inheritance issues, these structures offer more comprehensive options than Swiss inheritance law currently allows. While Switzerland has its own foundation law, it does not currently have its own trust law. Consequently, a Swiss trust is not available for cross-generational estate planning. However, it is possible to use foreign trusts.

Foundations, trusts and insurance policies should be seriously considered in the cases below:

  • In case of larger assets
  • If the testator has complex asset structures
  • In case of complicated family relationships or minor heirs
  • If the testator has international ownership relationships
  • If the heirs live internationally
  • If a certain degree of discretion is desired

6. What must be considered in case of  inheritance advance?

Real estate often represents the largest asset in terms of value in estates. Accordingly, caution must be exercised when making grants between living persons a will or contract of succession, since the law generally assumes that heirs are treated equally. If one heir is given special preferential treatment, the remaining heirs must be provided with assets of equal value. This must be organized in due time in the estate planning in order to anticipate disputes and challenges among the heirs and to protect the beneficiary from unexpectedly high compensation obligations.

Furthermore, since January 1, 2023, it must be observed in the case of grants between living persons that, if a contract of succession exists, the testator may only make an inheritance advancef the  contract of succession expressly provides for this. Since this is a procedure that could be carried out without hesitation in the past, the required clause cannot be found in most  contracts of succession concluded before January 1, 2023. Consequently, it is necessary to amend the  contract of succession before making a planned inheritance advance .

LINDEMANNLAW can assist you with your individualized estate planning. We can assess your personal circumstances and work with you to develop the best possible estate plan. With our in-house notary, we can provide public notarizations of inheritance contracts, combined prenuptial and inheritance contracts, and wills.

 

For more information, please feel free to contact us and we will be happy to assist you.

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