The community of heirs

Our mother passed away 16 years ago, and we, the "children," have never discussed the inheritance with our father. Are we still a community of heirs? What rights do we have concerning the properties of our father and our deceased mother? Can I cash out my share?

When multiple individuals are designated as heirs from an estate, a community of persons is automatically established by law at the time of the testator’s death. This community, referred to as an “heir community,” operates under the principle of unanimity unless otherwise agreed. The heirs can only make decisions regarding the estate’s assets, whether movable property or real estate, with the consent of all members of the heir community. If a property is transferred from the testator to the heir community through inheritance, the mutation in the land register incurs fees. However, as of January 1, 2018, all inheritance-related property transfers in the Canton of Lucerne are exempt from property transfer tax (this includes the transfer of an estate to a sole heir or to an heir community as well as the transfer of property from the heir community to an heir or legatee). This is different when one member of a larger group (e.g., a simple partnership) leaves the group, and their share is allocated to the remaining members: in this case, a property transfer tax of 1.5 percent is levied based on the share of the departing member. In practice, heir communities often remain intact for years without being dissolved. The later exit of an individual from a long-standing heir community can lead to unpleasant tax surprises if tax authorities conclude that the (original) heir community should be regarded as a simple partnership, thus making the exit of a person subject to taxation! How, then, can these two communities of persons be distinguished, and how can tax implications be avoided?

An heir community is dissolved through the division of the estate (by contract or court judgment) or—exceptionally—through transformation into another legal entity (e.g., into a simple partnership). Such a transformation can occur either intentionally or without the knowledge and consent of the heirs! The Federal Supreme Court has set high standards in its jurisprudence, ensuring that heirs do not become simple partners without explicitly deciding to do so. Time, i.e., the duration of the existence of the heir community, is not a criterion for distinction. Thus, according to the Federal Supreme Court, an heir community can continue for several decades without division or transformation. The continued existence of the heir community is, in this sense, the norm, while the simple partnership is the exception. For a transformation to occur, the heir community must pursue an objective that goes beyond mere joint administration of the estate. A borderline case may arise if heirs wish to subject a property in the estate to a larger construction project. Depending on the financing and involvement of third parties outside the heir community, the transformation into a simple partnership is more likely. In such cases, it is advisable to seek a tax assessment from the competent authority (so-called tax ruling) beforehand to avoid surprises upon the later exit of a person from the community.

Furthermore, the question of whether an heir community or a simple partnership exists also has implications for jurisdiction or other procedural aspects. For instance, an heir partition action must necessarily be filed at the court in the last residence of the testator.

If you are seeking assistance with the dissolution of an heir community or planning construction projects as an heir community and wish to assess the legal implications, you have come to the right place! We are happy to assist you!

Lucerne, March 10, 2021

Reto Marbacher