My husband and I have three children together. From a previous relationship, my husband has a son with whom we have no contact. We have neither a marriage contract nor an estate planning arrangement in place. How can I ensure that my children receive as much as possible from my estate, especially if I were to pass away before my husband?

You describe your blended family situation and your desire for the four children to inherit solely according to their respective parentage from the parental estate. By law, if your husband predeceases you, both you and his four offspring would inherit half. Before the distribution of the estate, the division of the matrimonial property between the spouses must be conducted. Only after the allocation of the marital assets to each spouse's estate will it be clarified what is even included in the estate.

In the event that you predecease your husband, your three children and your husband will form the estate community. Upon the second death of your husband, his four children will inherit equally, thereby indirectly benefiting the non-biological son from your original estate.

In your case, a regulation through a life interest with subsequent inheritance could be sensible. However, when implementing your plan, consideration must be given to your husband’s mandatory share in your estate. For instance, if you leave behind CHF 400,000, your husband’s mandatory share would currently amount to CHF 100,000. Your stepson could assert his inheritance rights against this mandatory share of your husband. Therefore, there are limits to a life interest with subsequent inheritance. A reduction in the mandatory share of descendants under future inheritance law (according to the upcoming legislative change) might additionally provide the opportunity to prevent the flow of assets from you to your stepson at the time of your husband’s second death by implementing different inheritance shares.

An alternative to the life interest with subsequent inheritance could be to favor your three children early during your lifetime and, if necessary, establish a usufruct in favor of you and your husband. These assets would then not even enter your estate upon your later passing.

If there are significantly different shares of the marital property between the spouses, a change to a different marital property regime should be considered. This would need to be executed with a notarized deed.

The legally simplest way would be to have an inheritance agreement notarized together with all four children, taking into account the differing parentage and inheritance claims.

Beyond these financial aspects, in this blended family situation, it may be advisable for the management of the estate to address certain descendants' inheritance claims through a bequest to prevent the formation of an estate community with stepsiblings or a stepmother. For the same reasons, the appointment of an executor should be considered.

Lucerne, February 15, 2021

Reto Marbacher

Unmarried couples or unregistered partners should proactively consider their partner's benefits and make the necessary arrangements. We are happy to assist you with this.

The following remarks are not exhaustive but aim to highlight the most important aspects that should be taken into account in the event of death. In the following text, unmarried couples and unregistered partners will be referred to as "partners." For simplicity, only the masculine form will be used.

No Legal Right of Inheritance

The surviving partner does not have a legal right to inheritance in the event of the partner's death. This will not change with the upcoming revision of the law. Therefore, if you want your partner to inherit something, you must make an express provision in your estate planning. This can be done through a will or a succession agreement. A will can be made either in handwritten form or in a publicly notarized form, while a succession agreement must be publicly notarized.

Legal Succession

If you do not make a provision for inheritance, or if you do not dispose of parts of your estate, the legal succession rules will apply. According to these rules, the nearest heirs are the descendants. If there are no descendants, the estate goes to the parental line (the so-called second parentel), meaning to the parents or their descendants (siblings, nieces, and nephews, etc.). If neither descendants nor heirs from the parental line exist, the inheritance will go to the grandparents' line (grandparents, aunts and uncles, cousins, etc.). If you have a spouse, they also have a legal share of the inheritance, which they must share with any descendants or heirs from the parental line. If only heirs from the grandparents' line are present, according to the legal rules of succession, the entire estate goes to the spouse. If there are no descendants, heirs from the parental or grandparents' line, or a spouse, the inheritance goes to the community. A "mere" partner is not considered in the legal succession.

Dispositive Share vs. Reserved Portions

Under Swiss law, there are certain persons entitled to a reserved portion (Pflichtteile). Currently, these are descendants (children, grandchildren, great-grandchildren, etc.), spouses, and parents. If you have no descendants and no spouse, or if these individuals and your parents have predeceased you, you do not need to consider reserved portions. In this case, you can freely dispose of your entire estate. However, be aware that if you do not make a provision, the legal succession (as outlined above) will apply.

In principle, a provision can be made without consideration for reserved portions. However, this carries the risk that the person entitled to a reserved portion may contest the provision or assert a reduction in court.

It is conceivable that persons entitled to a reserved portion might waive their claim to the reserved portion within the framework of a succession agreement (known as an inheritance waiver) in favor of the partner or unconditionally.

With the upcoming revision of inheritance law, the reserved portions of descendants are to be reduced, and those of parents abolished.

Inheritance Benefits for the Partner

The ways in which the partner can be favored are diverse and depend on the individual case. This can range from a simple testamentary provision to very complex arrangements, depending on the situation.

Inheritance Tax

It should be noted that cohabiting partners are taxed in many cantons as if they were third parties, significantly burdening the inheritance with tax. In some cantons, a reduced tax rate applies to cohabiting partners, while in others, the partner is even exempt from inheritance tax. This depends on the canton of the deceased partner’s last residence. Additionally, different requirements exist in various cantons regarding the duration and intensity of the partnership to qualify for a tax reduction.

Additional Benefits for the Partner

Many pension funds (second pillar) provide for the partner to be named as the beneficiary for a pension or a one-time death benefit from the pension fund. Typically, a beneficiary designation must be made during the partner's lifetime. It is important to note that this designation must be made in different forms depending on the pension fund, and different requirements must also be met. Generally, a cohabitation relationship must have existed for several years for a beneficiary designation to be possible. The pension fund’s regulations provide information on this.

For third pillar insurance, a designation may be possible even without a multi-year cohabitation. Typically, these will involve mixed life insurance policies with a surrender value. The surrender value is considered part of the estate, which is not the case with the second pillar.

Moreover, a life insurance policy (third pillar) presents a good opportunity for benefit designation. If it is a pure risk insurance policy, the insurance benefit is not included in the estate (thus not increasing the share of the heirs entitled to a reserved portion). If it is a mixed insurance policy, the surrender value is again considered part of the estate and thus increases the share of the heirs entitled to a reserved portion.

Lucerne, January 27, 2021

Simeon Beeler

As of January 1, 2021, fathers who have recently become parents are entitled to a two-week paternity leave.

During the referendum held on September 27, 2020, a majority of 60.3 percent approved the introduction of a paternity leave compensated through the Earnings Replacement Ordinance (EO). The Federal Council established the commencement of the legislative change to January 1, 2021, in its meeting on October 21, 2020.

Commencement of Entitlement

The entitlement to paternity leave and the associated paternity compensation arises when the child is born viable (Art. 23 para. 1 EOV). The right to paternity compensation does not expire upon resuming work, which is different from the rules concerning maternity compensation (Art. 25 EOV by analogy).

Taking Paternity Leave and Payment of Paternity Compensation

Paternity leave can be taken flexibly within six months after the birth of the child. Unemployed fathers are also entitled to paternity compensation.

The compensation can be applied for once the leave has been fully taken. It is paid out as a one-time payment.

Amount of Paternity Compensation

The compensation is calculated based on the last applicable salary earned before the birth, converted to a daily rate. For self-employed individuals, a compensation table from the Federal Office for Social Insurance applies (Art. 32 in conjunction with Art. 7 para. 1 EOV).

Increase of EO Contribution Rate

To finance paternity leave, the EO contribution rate was increased from 0.45 percent to 0.5 percent as of January 1, 2021.

Lucerne, January 11, 2021

Simeon Beeler

Like a specter of dread, the obligation to repay supplementary benefits has been swirling in the media for more than a year. But how "strict" is this new regulation, which has been in effect since January 1, 2021? Am I affected by it?

With the reform of the Federal Act on Supplementary Benefits (EL) and its entry into force a week ago, the supplementary benefits have been "streamlined": Moving forward, assets will be more heavily considered, introducing a threshold for entry and reducing the exemption amounts. This reflects the newly introduced obligation for heirs of a recipient of supplementary benefits: “Where there is money, the state should not be entitled.”

Greater Consideration of Assets and Income

From now on, individuals will only be entitled to supplementary benefits if their assets are below the relevant asset threshold (CHF 100,000 for singles, CHF 200,000 for couples, CHF 50,000 for children). If assets are below this limit, they (along with income) will only be partially considered when calculating the actual entitlement to supplementary benefits. The so-called exemption amount does not play a role in this calculation. As of January 1, 2021, the exemption amounts are lower: CHF 30,000 instead of CHF 37,500 for singles and CHF 50,000 instead of CHF 60,000 for couples.

Furthermore, the calculation of supplementary benefits will also include assets that a person has voluntarily waived. “Voluntarily” in this context means that assets are relinquished without a legal obligation and without an equivalent consideration. The gift of a property from parents to their descendants typically represents a voluntary waiver of assets. Generally, asset transfers of CHF 10,000 per year (for assets below CHF 100,000) or 10% of assets above CHF 100,000 are still accepted.

The income of the spouse of the recipient of supplementary benefits will also carry more weight: From now on, 80% will be considered instead of the previous two-thirds.

Repayment Obligation of Heirs

If you inherit and the deceased was receiving supplementary benefits, you will have an obligation to repay:

• The supplementary benefits received in the 10 years prior to death and from January 1, 2021,
• Up to a maximum of the estate value over CHF 40,000.

Example:

If your mother passes away in December 2021 after receiving supplementary benefits for 14 years and leaves you as the sole heir CHF 70,000, you will need to repay the supplementary benefits received since January 1, 2021, up to a maximum of CHF 30,000.

Important to Know:

• For couples, the repayment obligation of heirs arises only upon the death of the other spouse.
• Real estate will be considered at its market value.
• The compulsory share may be violated by the repayment obligation.
• The authority must issue an order for repayment through a ruling. After the ruling becomes final, repayment must occur within three months. If heirs sell property to repay, repayment must occur within one year or no later than 30 days after the transfer of ownership.

When Do the New Rules Apply?

If you are currently receiving supplementary benefits, you will have a transition period of up to three years during which your previously received supplementary benefits will not be reduced or revoked due to the reform. Adjustments will occur on January 1, 2024.

Additionally, the repayment obligation for heirs only applies to supplementary benefits that have been granted since January 1, 2021.

Conclusion

As of January 1, 2021, the requirements for supplementary benefits have been tightened. As an heir, you may be potentially subject to the repayment obligation if the deceased received supplementary benefits from January 1, 2021, onward.

Often, parents consider transferring their self-occupied property to their descendants during their lifetime. Regarding the entitlement to supplementary benefits, nothing fundamentally changes (apart from the thresholds and lower exemption amounts): Because the self-occupied property of the supplementary benefits recipient is considered at its tax value, while the gifted property (as a voluntary waiver of assets) is considered at its market value, the entitlement to supplementary benefits is typically reduced or may even cease. However, concerning the repayment obligation for heirs that has been in effect since January 1, 2021, the lifetime transfer of assets to descendants may gain attractiveness: If the estate ultimately amounts to less than CHF 40,000, the repayment obligation generally does not apply. If there is a potential repayment obligation for supplementary benefits, this must be accounted for in the estate inventory by the executor or the heirs' representative.

Lucerne, January 8, 2021

Reto Marbacher

Unmarried couples enjoy certain financial advantages over married couples, such as tax benefits and a higher AHV pension. However, cohabitation also has its disadvantages, which often only become apparent in the event of death. It is important to plan ahead! We are here to assist you!

The following statements do not claim to be exhaustive. They highlight the key aspects in which it makes sense for cohabiting partners to take proactive steps and make the necessary arrangements.

No Claim to Retirement Benefits

In the event of a divorce, both spouses are entitled to half of the retirement savings accrued in the second pillar during the marriage, provided that no pension case has occurred. If a pension case has occurred or the retirement savings cannot be divided for other reasons, there is a right to reasonable compensation. Cohabiting partners do not have comparable protection in the event of separation, which is particularly disadvantageous for the partner who has been less or not employed during the relationship to take care of children and/or the household.

Right to Visit and Right to Information in the Hospital

The right to information and visitation becomes an issue when the injured or ill partner is no longer responsive. Whether a cohabiting partner can obtain information from medical professionals and/or visit the partner is uncertain. This can be addressed with a power of attorney or a medical confidentiality waiver or an advance healthcare directive.

Representation of the Partner

Spouses can legally represent each other in ordinary matters of daily life. Limited representation is possible during stays abroad, hospitalizations, temporary incapacity, or lack of judgment that is not officially confirmed, etc. Cohabiting partners do not have a comparable legal right. Again, a power of attorney could provide a solution.

Representation in Case of Incapacity or Advance Directive

In the case of legally declared incapacity, spouses still have a limited right to representation by law. Typically, a professional guardian is appointed by the Child and Adult Protection Authority (KESB) in instances of incapacity, which is not always necessary for married couples. Cohabiting couples could appoint each other as representatives through an advance directive, allowing them to fully represent their partner in case of incapacity (provided the advance directive is validated by the KESB). The advance directive must be drafted either in handwritten form or in an officially notarized manner.

Widow/Widower’s Pension and/or Death Benefit

Spouses generally have the right to a widow’s pension from the first and second pillar and/or a capital benefit upon the partner’s death. Cohabiting partners do not automatically have this right. Most pension funds provide for the option to benefit a cohabiting partner in their regulations. Typically, a beneficiary designation will need to be submitted to the pension fund. The requirements and type of beneficiary designation may vary by pension fund. Generally, a written declaration is required, and some pension funds may require the insured person's signature to be certified, while others mandate that the declaration be submitted on a specific form provided by the pension fund.

Inheritance Law

Spouses have a legal right to inherit. Depending on the circumstances, they share the estate with the deceased's children or, in the absence of such, with the parental line (i.e., parents, siblings, and/or nieces and nephews of the deceased). Cohabiting partners do not have a legal right to inherit. Therefore, it is essential to make a legal provision to benefit the cohabiting partner. This provision can be made through a will or inheritance contract. A will can be handwritten or made with a public document, while an inheritance contract must be notarized. A will is not binding and can be revoked or amended at any time, while an inheritance contract is binding. In any case, when drafting the will and/or inheritance contract, the possibility of separation should be considered, as the legal benefit to the cohabiting partner does not automatically terminate upon separation, as it does for married couples in the case of divorce.

Would you like to optimally benefit your cohabiting partner? We are happy to advise you!

Luzern, November 18, 2020

Simeon Beeler

We have been married for 33 years and have two adult children together. We would like the surviving spouse to inherit the entire estate, remain in the condominium, and for the children to inherit later. Can we arrange this in a will?

Upon the death of one spouse, a division of the estate must first be preceded by a settlement of the matrimonial property regime. This division is made according to the applicable matrimonial property regime (participation in acquisitions, community of property, or separation of property), allocating the marital assets to the surviving spouse on one side and the estate of the deceased spouse on the other. Unless you have entered into a marriage contract, you are likely subject to the participation in acquisitions regime, unless you have made a declaration to maintain the property connection or if there is an extraordinary property regime.

Each spouse has two types of property: personal property (Eigengut) and acquisitions (Errungenschaft). Personal property includes what a spouse brought into the marriage or received as a gift (inheritance or donation) as well as items for exclusive personal use. Acquisitions include, in particular, earned income or returns from personal property. Under the participation in acquisitions regime, upon the death of a spouse, each spouse retains their personal property and half of both spouses' acquisitions. In practice, this means that when one spouse dies, it must be calculated which assets belong to which property category and the magnitude of each property category. From this, it follows how much wealth and which assets belong to the surviving spouse under matrimonial property law. Only thereafter do the inheritance laws come into effect.

You intend to maximize the benefits for the surviving spouse. Depending on the composition of your marital assets, you can achieve this goal (to a significant extent) with a marriage contract in which both spouses agree, with notarization, that the surviving spouse will receive the acquisitions of both spouses. If the marital property primarily consists of savings since the marriage, then only a small portion of the first deceased spouse's assets will fall into the estate. Consequently, the children's inheritance claims will also be based on a small estate.

Through an estate planning arrangement (will or inheritance contract), you can limit the children's inheritance claims and further benefit each other as spouses. A "preference" for the surviving spouse regarding the self-occupied marital home is provided for both in matrimonial property law and inheritance law.

It may also be possible for you, together with the children, to enter into an inheritance contract whereby the children largely waive their inheritance claims in the estate of the first deceased parent (so-called inheritance waiver agreement), in favor of the other parent. While a will provides a unilateral stipulation "with limits," an inheritance contract would establish a binding arrangement. With an inheritance contract with the children, the need to calculate and differentiate the property categories later is generally eliminated. Since there are various interests and aspects to consider, you should seek careful advice from a notary!

Luzern, November 9, 2020

Reto Marbacher

Neither the federal government nor the Canton of Lucerne imposes inheritance tax on descendants. However, it is within the jurisdiction of the municipalities in Lucerne to levy an inheritance tax on descendants and utilize it for their own purposes. In the Lucerne region, only the City of Lucerne, Meggen, Schwarzenberg, and Malters still impose an inheritance tax on descendants. In the City of Lucerne, the basis for this tax is an agreement that dates back one hundred years (from February 8, 1920). Approximately half of all municipalities in Lucerne have already abolished the inheritance tax on descendants.

In May 2019, the SVP (Swiss People's Party) faction submitted Motion 289 (for the second time) demanding the abolition of the inheritance tax on descendants in the City of Lucerne, arguing that it is outdated, unjust, and hostile to business. They stated that descendants who had cared for and supported their parents for many years would be penalized with an additional tax on what their parents had already paid taxes on as income and assets over the years. They noted that in cases of business inheritances, the inheritance tax often forces heirs to take out a bank loan to pay the tax due to a lack of liquid assets. Additionally, wealthier individuals might leave the City of Lucerne in search of tax-favorable alternatives in nearby areas.

On September 24, 2020, the Lucerne City Council rejected Motion 289 and decided to retain the inheritance tax on descendants. Their reasoning included the following points:

• The majority of OECD industrialized countries have some form of inheritance tax.
• An heir receives an increase in net assets with an inheritance without any consideration, leading to increased financial capability.
• The inheritance tax includes a redistribution function, channeling financial resources for social purposes at the expense of the wealthy.
• The fact that certain municipalities (42 out of 82) forgo the inheritance tax on descendants is not a convincing argument.
• More than two-thirds of the inheritance tax is paid by individuals who do not reside in the City of Lucerne.
• The tax exemption threshold of CHF 100,000 per descendant frees small or medium-sized estates from tax liability.
• The City of Lucerne cannot afford to forgo the average revenue of around CHF 3.69 million per year generated from the inheritance tax for various, including very current, reasons.
• There are practically no known cases where the inheritance tax has prevented business succession through descendants. Moreover, early planning allows for the prevention or reduction of the inheritance tax on descendants.

Would you like to arrange your estate, address business succession, and/or optimize the inheritance tax on descendants? We are happy to assist you!

Lucerne, October 16, 2020

Reto Marbacher

Inheritance disputes can sometimes require a great deal of patience. Proceedings before ordinary Swiss courts often last several years, especially if the Federal Supreme Court is involved after the two cantonal instances (in the canton of Lucerne, the District Court and the Cantonal Court). This raises the question: Is there an alternative?

First of all, it should be noted that the executor cannot make decisions unilaterally in the case of disagreements among the heirs; rather, he can only mediate or propose amicable solutions. To the extent that the testator has allocated estate components to specific individuals or has provided for division rules in the will or inheritance agreement, the executor is both entitled and obligated to carry out those directives. However, disputes over the (valuation) worth of, for example, an artwork or a property, the need for interpretation of a will or inheritance agreement, or competing claims by multiple parties to the same assets can still lead to a deadlock. In such cases, the executor (not least for his own protection) must wait to proceed with further distribution and settlement until the heirs reach an agreement or a court has rendered a decision.

An arbitration procedure can, ideally, lead to a resolution more quickly and discreetly than an ordinary court proceeding, as an arbitration court typically issues a final decision without subsequent appeal options. While there is the option of appealing to the Federal Supreme Court (at least according to the provisions of the Swiss Civil Procedure Code), the grounds for appeal are quite limited, meaning there is likely to be only one substantive assessment of the matter, namely that by the arbitration court. One advantage of arbitration is that, due to the specialization of the arbitrators in their respective fields, their expertise may lead to a more appropriate ruling or settlement. Depending on the value of the dispute and the number of instances in the ordinary process, the costs of arbitration may be lower than those of a corresponding ordinary procedure. However, the right to free legal aid (provisional litigation at the state’s expense for those without means) is excluded in arbitration.

The establishment of an arbitration court can fundamentally be provided for by the testator in the will, by several parties within the framework of an inheritance agreement, or by the heirs during the division of the estate. If a ruling is made within the framework of an arbitration proceeding, the executor is also bound by it. While the executor can generally be appointed as an arbitrator, this situation can often be precarious due to a conflict of interest regarding the executor.

In Switzerland, arbitration received its first "anchor" with the federal Civil Procedure Code (ZPO) in 2011. Articles 353 and following of the ZPO generally regulate the organization of the arbitration court and the arbitration procedure for arbitrable matters – including those outside inheritance law. The parties have considerable leeway to agree on a procedure that suits them. The choice of arbitrators is of great importance: they should be free from specific conflicts of interest and dependencies with the parties. One option is the Swiss Association for Arbitration in Inheritance Matters (SVSiE), established in 2012 to provide services in the area of arbitration in inheritance matters. It offers national and international arbitration services in inheritance matters in Switzerland, irrespective of the applicable law (www.schiedsgericht-erbsachen.ch). With its arbitration rules, the SVSiE largely refers to an existing regulatory framework, namely Articles 1-45 of the Swiss Arbitration Rules. Members of the association’s board or individuals appointed by them usually serve as arbitrators.

Similar to initiating an ordinary civil process, you should also carefully consider entering into arbitration:

• What legal questions are at stake, and can they even be adjudicated by an arbitration court?
• Which individuals possess the necessary expertise and independence?
• What deviations (particularly simplifications) from the ordinary civil process are desired and/or sensible?
• What costs and time duration can be expected?

Are you considering including an arbitration clause in your estate planning or hoping to resolve an inheritance dispute through arbitration? We would be happy to advise you!

Lucerne, August 21, 2020

Reto Marbacher