Revision of the Swiss inheritance law What companies need to know about the new inheritance law

The inheritance law is being revised. A revision came into force on 1 January 2023, which focused in particular on the reduction of compulsory shares. A revision is currently being discussed in the Federal Assembly that deals with company succession in inheritance law. Can you tell us more about this?

Oliver Pscheid: The revised inheritance law, which has already come into force, reduces the compulsory share claims of descendants and abolishes those of parents altogether. This gives testators more leeway. These changes are important for entrepreneurs because dividing up a company and treating descendants equally often proves problematic in reality.

The second part of the revision includes the introduction of an actual company inheritance law for the first time and is intended to make it easier to transfer a company during the owner's lifetime or in the event of inheritance. This is intended to simplify family succession processes, contribute to the stability of Swiss companies and secure jobs.

What are the key elements of the revision?

Oliver Pscheid: From the perspective of entrepreneurs, the following changes in inheritance law are particularly relevant:

1. Integral allocation: An important component of the revision proposal is the so-called “integral allocation” of a company. This may apply, for example, in the event of the death of the owner of a company, if no allocation of the company was stipulated in the will and an heir demands such an allocation for themselves. The new option of integral allocation is intended to prevent fragmentation or, worse still, the closure of the company.
2. Deferred payment: Another element of the revision relates to the possibility of requesting a deferral of payment from the court for the settlement of the remaining heirs. If payment is due immediately, as is the case under the current law, this can lead to serious liquidity problems for the successor taking over the company.
3. Determination of the imputed value: The draft also contains new provisions for determining the imputed value. Under certain conditions – in particular if the transfer of ownership takes place during the lifetime of the owner – the time of the transfer and no longer the time of inheritance shall be decisive. If, for example, an entrepreneur transfers the family company to their daughter under the new law, the imputed value at the time of the transfer will now apply under certain conditions and no longer the value at the date of the father's death.
4. Protection of heirs entitled to a compulsory share: Finally, greater protection is also provided for heirs entitled to a compulsory share. This is intended to prevent them from being allocated their compulsory shares against their will in the form of minority shares in the company. This is at least the case if another heir has control of the company. Specifically, this means that heirs entitled to a compulsory share do not have to take over minority shares in the company against their will but can demand to receive their inheritance share in the form of other assets.

What would be a practical example where an integral allocation is used?

Oliver Pscheid: Let's take the following example: An entrepreneur has three children and dies without leaving a will. There is therefore no regulation with regard to the settlement of the company under inheritance law. Let us further assume that the children are unable to reach a mutual agreement on the division of the estate. One point of contention could be, for example, which party would take over the company. A joint acquisition may not be possible.

The draft now provides that heirs can have a company included in the estate “integrally" allocated to them. The integral allocation must at least give the heir control over the company. In our example, it may be the case that all heirs demand allocation. In such a case, the draft provides for the court to decide which party is most suitable. It is also conceivable that several heirs request a joint allocation. However, it is clear that the beneficiary of the company must compensate the co-heirs accordingly.

Notwithstanding the new law that may come into force, does it still make sense to find a solution for the succession during the testator's lifetime and with the participation of the heirs?

Oliver Pscheid: That's right, the current revision simply contains numerous clarifications and simplifications in the event that this has not happened.

In my opinion, a mutual solution worked out in advance is always the best solution. An example: What value must acquiring heirs attribute to a company? Experience has shown that the valuation of tangible assets – be it real estate, works of art or companies – poses one of the greatest challenges in inheritance distributions. This is often a point of conflicting interests. In order to avoid such conflicts, it is advisable for the persons involved to jointly agree on the base values and valuation principles of a business transfer during the lifetime of the owner.

Numerous studies have shown that entrepreneurs often find it difficult to plan for business succession. What could be the reasons for this?

Oliver Pscheid: We have also observed that many entrepreneurs struggle with the topic and often postpone succession planning.

The reasons for this are complex. Entrepreneurs often state that they do not have enough time to deal with their succession. Sometimes they find it difficult to find a successor. There is often a lack of a clear vision of how the company should continue after the person has left. This is particularly the case when there is no succession within the family. Ultimately, however, we have also noticed that entrepreneurs often find it difficult to come to terms with the idea of separating from their company or withdrawing. Succession is an emotional topic, and understandably so.

What are the possible negative consequences of an entrepreneur putting off succession planning?

Oliver Pscheid: In succession planning, a distinction must be made between ordinary and unplanned succession. Ordinary succession refers to the case where a company is handed over during the owner's lifetime and with full capacity of judgement. If ordinary succession is not planned in good time, this may mean, for example, that no suitable successor can be found for the short or long term. In such cases, a company may have to be completely dissolved when the owner leaves.

In the event of an unplanned succession, the company must be handed over as a result of the entrepreneur's unexpected incapacity or death. This is often a very difficult situation that leads to great uncertainty in the company, weakens the business and can have consequences for employees and customers. To prevent this from happening, every entrepreneur should have a contingency plan to hand at all times and keep it up to date.

What is a business contingency plan?

Oliver Pscheid: This refers to provisions that regulate the case in which an entrepreneur suddenly becomes unavailable. Typically, the case of incapacity and death should be regulated. A good contingency plan regulates representation rights as well as specific regulations for unplanned company succession. This should be done as early as possible. Young entrepreneurs, especially those with families, should also identify important people they can trust and create solid structures that will take effect in the event of an unplanned handover. One way of achieving this is through a broadly supported board of directors or competent management.

A divorce can also jeopardize the existence of a company. It is therefore advisable to clearly regulate this case as well – usually with a marriage contract.

From entrepreneur to investor: If a company is sold rather than handed over free of charge, the role of the entrepreneur changes. What are typical new challenges following a sale and how can UBS provide support in this regard?

Oliver Pscheid: If a company is sold and not transferred to the heirs free of charge, the financial situation of the entrepreneur usually changes significantly. While the majority of the assets were previously tied up in the company, the scenario will be completely different after the transaction.

As an entrepreneurial bank, we provide entrepreneurs with comprehensive advice and support throughout their entire journey through working life and beyond. For the reasons already mentioned, we address the contingency plan in the event of an emergency, the desired succession in the event of a planned handover and the possibility of a future sale at an early stage – even if the entrepreneur wants to remain active in the company for a long time and is not yet thinking about a handover or sale.

At a later stage, we can assist entrepreneurs with the succession transaction, either by providing M&A support or financing the transaction. The next challenge then comes with the question of what happens to the assets from the sale. We show clients suitable forms of asset structuring and utilize proven models. Our asset strategy is generally “Liquidity. Longevity. Legacy.” – It is therefore a question of securing short and medium-term liquidity requirements, providing for old age and finally handing on the assets.

Is a holistic consultation therefore essential?

Oliver Pscheid: Absolutely. Holistic consultation should not only deal with bank-related issues, but also include legal and tax aspects as well as liquidity and benefit planning. UBS has highly qualified specialists who cover a wide range of fields. This expertise allows us to find customized solutions for our customers.

In conclusion: What is your final recommendation for entrepreneurs?

Oliver Pscheid: Regardless of whether or in what form the new inheritance law will be revised, early advice on succession planning is crucial, as amicable arrangements within the family are also favored under the new law. In addition, the wishes, needs and expectations of the parties involved can be recognized and addressed at an early stage. Whatever happens, all parties involved and the company will benefit from this.