A modern new inheritance law?

in Legal, 03.09.2018

Until now, one thing inheritance law is clear on is that family ties are unshakable – regardless of how “connected” next of kin are in their lifetime. The law provides for the majority of the decedent’s estate to pass to family members. This should continue in the future, but with more freedom.

Greater freedom to act

With more leeway called for, current revisions to inheritance law are designed to give testators more freedom to define the beneficiaries of their estate. This marks an important milestone for the revision of inheritance law.

The Federal Council submitted the dispatch and draft law to Parliament on 29 August 2018. It is now up to Parliament to take the process forwards. In any case, we are one step closer to a modernized inheritance law with lower compulsory inheritance shares, as first demanded in Gutzwiller’s motion in 2010.

Major changes

The Federal Council deems the following changes to be necessary:

  • The compulsory share for descendants is to be reduced by a quarter (1/2 instead of 3/4 of the legal estate).
  • The compulsory share for parents is to be abolished (the compulsory share for spouses and registered partners remains unchanged, however).
  • In cases of hardship, de facto life partners should have a maintenance claim at subsistence level.
  • If a divorce was ongoing at the time of death, the (still) spouse loses its claim to the compulsory share. This applies mutatis mutandis for registered partnerships in the process of being dissolved.
  • The new law addresses previously open questions about the calculation of the estate.

Key consequences

  • Testators have more freedom to define the beneficiaries of their estate.
  • The compulsory inheritance share provided by law for spouses and registered partners remains unchanged.
  • De facto life partners have a claim to maintenance in certain circumstances following the death of their partner, e.g. if during cohabitation they ran the household, or cared for children or other family members in place of gainful employment. This is a new instrument intended to safeguard a subsistence level and avoid the need to draw welfare benefits, but not to offer financial gains beyond this.
  • Once divorce proceedings have been initiated, spouses lose their claim to a compulsory inheritance share, provided the spouses filed jointly for divorce or have lived separately for at least two years. The same applies during the process to dissolve a registered partnership. This should prevent delaying tactics in open proceedings.
  • Tied private pension schemes (Pillar 3a) are not included in the estate, but may be drawn upon if compulsory shares are not honored. Excluded from the estate are preferential arrangements in a marriage agreement under matrimonial property regimes for surviving spouses/registered partners; they may be drawn upon if compulsory shares are not honored. These amendments address the previously open questions on how to calculate the estate.
  • The usufruct provision (Swiss Civil Code 473), often availed of by testators to allow a surviving spouse to use assets due to be inherited by their joint offspring, will also be adapted in line with new legal provisions on compulsory shares. Besides usufruct, testators can now leave half of their estate to their spouse, for example.

Background

The inheritance law currently in force dates back to 1912. It needs to be updated to reflect major changes in family life, including the emergence of patchwork families and de facto life partnerships.  Testators are also now often older when they die, and the social security of heirs is higher than in the past. Overall, then, inheritance law needs to be modernized and more flexible, which would also benefit succession planning in family businesses.

Some examples

Parents and offspring: If I am survived by a spouse and children, the spouse (on the one hand) and the children (collectively, on the other) will now each receive the same minimum amount, i.e. at least 1/4 of the estate. In total, then, they receive half. I am free to choose what happens with the other half of the estate.

Registered partner and parents: If am survived by a registered partner and my parents, I can now leave my entire estate to my partner. This also applies to spouses. This reflects the discontinuation of the compulsory share for parents.

Singe/divorced and offspring: If, as a single or divorced person, I leave behind children, I am now free to choose what happens with 1/2 of my estate (1/4 of the estate more than under prevailing law).

In the process of divorce and children: If I am in the process of getting divorced and leave behind children, I can now decide what happens with 3/4 of my estate. For example, I can leave the entire estate to my children.

Spouse and parents: If I am survived by a spouse, but no offspring, and my parents are still alive, I am free to choose what happens with the 5/8 of my estate remaining after the compulsory share for my spouse (i.e. freedom to choose what happens to 1/8 more of my estate following the discontinuation of the compulsory share for parents). I am free to leave the entire estate to my surviving spouse.

Spouse and joint offspring: If I am survived by a spouse and our joint offspring, I can grant a usufruct to my spouse for the entire share of the estate to be inherited by my children. I can also leave my spouse a share of the estate – now up to half.  This is 1/4 more than previously. This scenario can also apply to registered partnerships because the new adoption law, effective as of 1 January 2018, allows the registered partner to adopt their partner’s children.

How can you benefit?

  • The new freedoms provided in the draft law are not automatic. Testators must make the necessary arrangements during their lifetime. Statutory inheritance shares are unchanged, it is only the compulsory shares that have been reduced or abolished.
  • If someone dies without leaving a will and testament or inheritance agreement in favor of certain individuals or institutions, the estate will be divided up as governed in prevailing law (e.g. 1/2 to the surviving spouse, 1/2 to the offspring).
  • The amendments are intended to afford greater freedoms specifically to the testator. Nevertheless, it is a good idea for testators to involve all stakeholders in estate planning during their lifetime. It may be worth asking them to waive some or all of the compulsory share, provided a fair solution can be agreed overall. Plans to reduce the compulsory share will encourage some testators to proactively seek dialogue and arrange inheritance agreements with their beneficiaries. Testators may enjoy a stronger negotiating position now that the compulsory share – especially for descendants – is lower.

Recommendation

  • Draw up a will and testament or inheritance agreement. Otherwise the new freedoms are of no use.
  • Review existing wills and inheritance agreements and determine whether amendments or new solutions are required.
  • Keep in mind that most beneficiaries are themselves already over the age of 60 when they come into an inheritance. Financial support at a younger age (e.g. inheritance advances during the testator’s lifetime) may be more effective.

Next steps

  • Parliament has to debate the inheritance law revisions to the law on compulsory shares.
  • Technical points of the inheritance law revision will be dealt with in a separate bill. The corresponding dispatch of the Federal Council is expected in 2019.
  • How to govern digital legacies will also be dealt with separately (parliamentary initiative of 2014).
  • Changes in legislation in connection with more comprehensive inheritance law provisions on business succession planning will also be treated separately.
  • The Federal Council thus passed a resolution in 2017 to revise inheritance law in stages.
  • Last but not least: revisions will be made separately to inheritance law provisions in the Swiss law on private international law (IPRG/LDIP). The aim is to minimize conflict-of-law situations in cross-border succession through harmonization with the EU inheritance law directive. The consultation on the preliminary draft was opened in February 2018. The draft addresses issues such as the fact that foreigners resident in Switzerland can apply the inheritance law of their country of origin, even if they subsequently gain Swiss citizenship.

 

 

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