Assets

Pass on real estate fairly: follow these tips

Real estate often has both financial and sentimental value, which makes passing on property challenging for many families.

29 Jul 2021 6 min read
People can often feel a strong emotional attachment to a property.

The main points in a nutshell

  • If the testator does not leave a will or contract of inheritance, the entire estate is distributed in accordance with Swiss inheritance law. This will not necessarily be in the interests of the surviving dependents.
  • If the surviving spouse wishes to remain in the home as the sole owner, they must pay out the legal heirs up to their mandatory share.
  • To avoid disputes within the community of heirs, inheritance law and transfers should be clarified while the testator is still alive.

For many families, real estate is a substantial part of their assets. A house cannot simply be divided up or one large apartment converted into smaller units. This is what makes the inheritance a challenge. The fact that a property can’t be divided easily makes questions of inheritance a challenge. Aside from the material value, some will also feel a strong emotional bond to a property.

In this article, we show the hurdles that can arise when passing on a house and property in general and give tips on how to overcome them.

Real estate inheritance: emotions are frequently to the fore

The value of a home can change over time. For the homeowner, it will also have a personal and emotional value.

For example: You own a house in the mountains, an apartment building as an investment property, and the home where your two children grew up. How would you divide these three properties between your two children?

Parents often want their home to stay in the family, due to strong emotional attachments. But what if the children do not even want to inherit these properties? Perhaps they want to build their own home or are about to start a business and could do with some start-up capital.

In addition, owning real estate often involves a lot of administration. Maintenance costs should also not be underestimated. Will an expensive renovation be needed soon? Do existing mortgages need to be taken on? These questions need to be addressed together within the family and openly discussed.

What happens to real estate if no arrangements have been made

If no arrangements have been made, statutory provisions are applied. These provisions often do not match a family’s needs and expectations. According to inheritance law, the surviving parent is entitled to one half of the inheritance, the children to the other half. However, these rules are often not in line with the expectations and needs of families. For example, often the surviving parent wants to continue to live in the home as the sole owner. In this case, the remaining heirs must either receive other parts of the family’s assets or have their share of the inheritance paid out.

You can read more about Swiss inheritance law in our article “How to deal with your estate planning early on.”

If one party wants their inheritance paid out, the following questions must be addressed:

  • Is there enough liquidity to pay out the inheritance? If there is, can the resulting inheritance taxes be afforded?
  • Should the parent be granted right of usufruct or right of residence? If yes, how much is this worth? How must it be taxed?
  • Would the continued existence of the community of heirs – without dividing up the estate or paying out one heir’s inheritance – be the better solution?

If a property is passed on several times over the years, the community of heirs will grow without appropriate regulation. This can make it more complicated to manage or sell the property because the decisions need to be unanimous. This is one of the reasons why an inheritance ruling or a transfer while someone is still alive should be considered.

You should note the following when transferring real estate while a person is still alive

Transferring real estate while the owner is still alive means that the heirs will become the owners of one or more properties earlier than would otherwise have been the case. The following points need to be observed here:

  • If ownership of a property has been transferred as an advance inheritance, the accepted value is the value on the date it is inherited. If the value of the property has changed since then, this leads to compensation claims within the community of heirs.
  • Given that a property cannot be divided up easily, this can lead to insufficient liquidity in the estate. The property in question may thus need to be sold to be able to pay out compulsory shares.
  • If you are considering gifting a property to one of your children, you need to examine its affordability if there is still a mortgage on it. Tax payments and the required liquidity for payouts to coheirs must also be examined.

Listen to the needs of the beneficiaries

We often have strong emotional ties to our properties, and so too do our heirs. That’s why it is advisable to clarify whether transferring a property to one of your children is in line with their wishes, and whether it will lead to conflicts within the family. You can read more in our article “Inheritance: avoiding conflict”.

Take a look at our UBS real estate checklist if you are currently wondering how to divide up your real estate equitably.

Real estate checklist

How to create a stable foundation for real estate inheritance:

  • Property is often the biggest material component of an estate. Inheritance of property thus has a major impact on inheritance planning and the parties involved.
  • Ensure that the heirs’ wishes and expectations regarding the real estate are known and that the existing mortgage is affordable.
  • In case of the advance inheritance of a property, its valuation and any financial settlement should be recorded in writing by the heirs, with all relevant family members involved.
  • Each time a property is inherited without a specific inheritance plan, the community of heirs grows. This makes coordinating property management or a future sale more difficult.
  • When selling an investment property, participants should consider the impact that losing regular rental income will have on the portfolio.
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