Update on the Revision of Swiss Inheritance Law

First of all: Revising a Swiss law takes time! In March 2021, it will be ten years since the National Council accepted the Gutzwiler motion to adapt the Swiss inheritance law, which has been in place since 1912, to current needs. Where do we stand today?

The Federal Council has conducted two consultations, in which the Association Successio (of which we are double representatives as certified lawyers in inheritance law) participated. The National Council and the Council of States have since discussed a draft of the revised Swiss inheritance law and decided that the revision should take place in two phases: The first part will make significant adjustments to the forced heirship rules to expand the freedoms in estate planning. The second part will address provisions for business succession and "technical adjustments" to the existing law.

Part One (Adjustment of Forced Heirship Rules)

Under current Swiss inheritance law, spouses, descendants, and—if there are no descendants—parents are protected with relatively high forced shares. This often overly restricts the ability to arrange the estate, as mandatory forced shares must be considered. For example, parents or descendants limit the ability to favor the spouse or registered partner. Grandchildren can only receive gifts as allowed by the forced shares of their "children" (their parents). The desire for greater freedom and flexibility for testators has led to a consensus that the forced share for descendants should now only be half of the statutory inheritance claim (instead of the previous three-quarters). The forced share protection for parents is to be eliminated altogether. Since the forced share claim for spouses remains at half, a testator with descendants will have a freely and flexibly usable share of 50% under future law (previously 37.5% or 25%).

Furthermore, registered partners will not automatically have inheritance rights in each other's estates and will continue to rely on corresponding testamentary or contractual arrangements. A legal special provision intended to prevent "hardship cases" for registered partners through a pension entitlement was rejected by the Council of States.

The draft does not provide for any so-called "transitional law," meaning there will be no provisions concerning the application of the new, revised law. It will be established that anyone who dies after the new inheritance law comes into effect will inherit under the new rules. Previous wills and marriage/inheritance contracts will remain valid. The omission of transitional provisions has led the National Council to revisit the matter for a second time, likely on August 26, 2020. Only after that will it be clear when the new provisions will come into effect. We anticipate this will be in 2022.

Part Two (Business Succession)

The challenge of reconciling estate planning with the current and future goals of a (family) business continues to exist. There is a particular risk that forced heirship claims from the spouse and/or descendants will need to be satisfied, thereby tapping into essential business resources. This is especially relevant as it may not be sufficient to leave a minority share of the business without decision-making power to a forced heir. The reduction of the forced heirship claim described and proposed in Part One will already significantly reduce this existing problem. Specific business succession rules (from Part Two) are now intended to further mitigate this conflict by allowing an heir who takes on the business succession to defer the claims of co-heirs (known as "deferral"). However, with the legal requirement to ensure the inheritance claims of co-heirs and to accrue interest until fulfilled, it remains questionable whether such a deferral will be attractive or economically viable for the business succession heir. Furthermore, unlike current case law, the court will in the future be able to assign a business to a business succession heir, thereby supporting the continuation of the business. Additionally, there is a discussion regarding the timing for valuing the business at the time of assignment and estate division. The preliminary draft shows a tendency towards the time of transfer of the business to the business succession heir, which could provide greater security for this heir in terms of financial planning.

Conclusion

Whether you wish to review your existing estate planning or are in the process of drafting your will or inheritance contract: it is essential and can provide you with additional options to consider the future Swiss inheritance law. We are, of course, here to assist you with everything according to your needs. Utilize our expertise and experience!

Luzern, August 7, 2020

Reto Marbacher