Inheritance: passing on wealth early

In the case of advancements, the obligation to compensate – which ensures that all heirs are treated equally – must not be forgotten. Gifts made by the testator to be deducted from the inheritance are counted as part of the estate, as is the beneficiary’s compulsory legal share.

However, in their will or in the inheritance contract, the testator is at liberty to exempt the persons from the obligation to compensate.

In the event of real estate or a plot of land, the fair market value at the time of the testator’s death is used when dividing the inheritance. If this value has changed over time, the person who received the advancement will have to pay appropriate compensation.

When the testator dies, it is important that the other heirs to the estate are compensated accordingly, so as not to disadvantage the other children and to ensure compliance with the legal inheritance share. Occasional gifts of up to 5,000 francs are the only exception to this rule.

In the case of gifts to relatives who do not come under the protection of the compulsory share, or in the case of donations to third parties, there is in principle no obligation to equalize the settlement.

As with advancements, gifts must also be considered as part of an inheritance. Unlike advancements, in the case of gifts, heirs can challenge the deed of gift within a period of five years.

In this scenario, the compensation claims of the compulsory share are therefore also central. Thus, if a testator gives away part of their inheritance during their lifetime and a gift is made, this triggers a claim to compensation of the compulsory share. For example, if a testator sells a plot of land to one of their children, then upon the testator’s death the other heirs entitled to a compulsory share must be compensated for this amount, together with any increase in value of the plot of land.

Advancements are subject to inheritance tax payable by the heir or legatee. The tax is levied in the canton in which the testator is or was resident. Spouses are exempt from paying this tax and in most cantons direct heirs are also exempt. By contrast, unrelated persons pay a relatively high amount of tax.

If you receive a gift, you’ll be required to pay tax on it. The amount of tax is generally identical to that payable under inheritance tax, to ensure inheritance tax is not avoided by the testator making a gift while they are still alive.

Although in the case of a mixed gift the recipient does provide something in return, this is clearly not proportionate to the service provided, such that some of the amount will be treated as a gift. The recipient of the gift is therefore required to pay tax on the difference between the amount and the consideration provided in return.