Buying a home with an advance on inheritance

Starting a family, owning a home – this is the life plan of many. In particular the dream of owning your own home remains undiminished: According to the "Wohntraumstudie 2021 (content in German)" two in every three people currently renting would like to own their own home. This is despite the fact that prices have been rising almost continuously since 2000, a trend that has only intensified in recent years. Simultaneously, since the pandemic, quality of accommodation has become very important to the Swiss, as the 2021 survey by the Homeowners Association (HEV) Switzerland (content in German) demonstrates.

Buying a house or apartment as a primary residence solely from your own savings is becoming increasingly difficult. Young people often do not (yet) have sufficient savings to meet financing requirements – at least 20 percent of the property value must be financed by equity.

Parents have various options during their lifetime to help their offspring buy real estate, for example via a loan, gift or an advance on inheritance.

An advance on inheritance is a part of the future inheritance that parents pass on to their offspring during their lifetime. This can be money, property or a piece of land. An advance on inheritance must be taxed like an inheritance, but in most cantons spouses and offspring are exempt from inheritance tax. An advance on inheritance is voluntary; heirs are not entitled to it. The current value of the advance on inheritance is taken into account when the estate is subsequently divided. Monetary amounts are credited according to the principle of nominal value, all other assets (e.g., land and real estate) according to the principle of market value.

An advance on inheritance must be brought into hotchpot with respect to legal heirs, insofar as the testator gave the inheritance as an advance against their share of the inheritance. If the advance on inheritance is greater than the actual share of the inheritance, compensation must be paid to the coheirs.

In addition to the hotchpot obligation of statutory heirs, the protection of certain groups of persons (heirs protected by the compulsory share) must also be taken into account when making an advance on inheritance. Under Swiss inheritance law, they are entitled to a share in the estate, regardless of whether they are named as heirs in the will or not. According to the updated inheritance law, spouses / registered partners and descendants are the heirs who are protected by the compulsory share. The compulsory share cannot be circumvented, and the entitled heirs cannot generally be excluded from their inheritance, unless they waive their claim.

If parents leave their house or apartment to one of their children during their lifetime – for example, because they themselves want something smaller – this is also considered an advance on inheritance. Here, too, the descendant must have the value of the property credited to their share of the inheritance when dividing the estate, and their siblings must be compensated. The parents can circumvent this by expressly describing the transfer as a “non-compensatory gift,” in which case the beneficiary is exempt from the duty to bring into hotchpot. However, this arrangement must not prejudice the compulsory shares of the other children.

Children often receive the parental home as a mixed gift: they pay a purchase price, but it is below the market value. The obligation to bring into hotchpot when dividing the estate remains – with the exception mentioned above. The difference between the market value on the date the testator dies and the market value at the time of the transfer must also be equalized. It is important that the parents have the property appraised at the time of the mixed gift, so that the subsequent equalization amount can be calculated more easily.

An advance on inheritance – whether as a sum of money or real estate transfer – can be a source of tension between heirs. It must therefore be dealt with correctly and with great care. A written contract is not mandatory, but it is advisable to record all donations in writing and, ideally, to involve all parties concerned. This will ensure clarity. There will be less mistrust if all siblings know who received what and when. This way the pleasure of owning your own home will not be spoiled by any disputes.