New inheritance law: what does it imply and what should you consider when drafting your will?

In Switzerland, inheritance law decides who inherits the estate in the event of the testator's death and how the deceased's estate will be divided among the heirs. As for married couples or registered partners, the surviving spouse is entitled to a share of the marital property and a share that goes to the estate.

Faced with the evolution of the social fabric over the years (new family and social models, couples living together, increase in the number of divorces and multiple marriages), a revision of the provisions of the century-old Swiss law on inheritance has been imposed. The new reform, which will come into force from January 2023, appears promising and aims to adapt to current social contexts offering more freedom to testators, modern couples, divorced people and even family businesses in the wealth and estate planning.

In this article, the wealth and estate planning specialists at Impact FE give you an overview of the latest developments in this area, as well as the consequences that result from them and to take into account, particularly when setting up your estate planning.

First, we will discuss the basic principles of inheritance law.

The hereditary reserve : This is a minimum part of the inheritance guaranteed to certain members of the family despite a will or inheritance pact already established by the deceased. The Swiss Civil Code sets the rules which establish the limits of estate planning for the protection of the hereditary reserve. Being fixed by law, this minimum share of the inheritance cannot be withdrawn from a legal heir protected by law. In this regard, the testator has very limited freedom in the distribution of his estate and in the formulation of his will.

Legal inheritance share : This is a share of inheritance allocated to certain heirs by the law in the absence of a will or inheritance agreement.

Available portion : The part of the estate which exceeds the reserved shares stipulated by the Civil Code represents the available portion. The testator can freely dispose of this share.  

The main developments in the new inheritance law

• The hereditary reserve of direct descendants is reduced to 50% of their legal share, compared to 75% in the current regime.
• Removal of hereditary reserve for father and mother
• Couples engaged in divorce proceedings can deprive the future ex-spouse of inheritance before the judgment
• Still no inheritance tax for cohabitants  
• The inheritance does not include Pillar 3a assets, which have their own devolution.

Provisions of current inheritance law

Here are the amounts of hereditary reserves currently set by the Civil Code:

Descendants (children, failing that grandchildren, failing that great-grandchildren): three quarters or 75% of the legal inheritance share

Spouses or registered partners : half or 50% of the legal inheritance share

Parents : half or 50% of the legal inheritance share (in the absence of descendants.)

What will be the impact of the new reform on your inheritance?

Here is a table illustrating the provisions of current and new inheritance law, as well as how inheritance is distributed in different situations.

Reduction of hereditary reserves

In the future, the hereditary reserve will be only half for descendants and will be completely abolished for father and mother. The spouse's reserve will remain unaltered. These measures will result in a higher available portion, significantly increasing the room for maneuver in estate planning. Testators will now be able to allocate their assets more freely to favor one of their heirs, their spouse, their spouse's children or any other third party. This revision will also facilitate the transfer of businesses.

The additional part of the profit made during the marriage which, by marriage contract or by registered partnership contract, is allocated to the surviving spouse is considered as a donation between living persons. Although it is taken into account in the calculation of legal reserves and can be reduced, depending on the result, it is not likely to affect the reserve of non-common children and their descendants. Common children and their descendants can request a reduction in the additional portion of the benefit allocated to the surviving spouse if the latter remarries or enters into a registered partnership.

Remember that it is best to plan your succession early enough. At Impact FE, we help you carefully structure your will to ensure that your wishes and the legal framework are respected.  

A higher available portion in favor of the surviving spouse in the presence of usufruct

To allow the surviving spouse (or registered partner) to maintain living conditions prior to the death of the partner, the Civil Code provides for the possibility of bequeathing to the surviving spouse, by will, the usufruct of the entire share allocated to the children common by attributing bare ownership to the latter.

To date, in addition to the usufruct, the testator can allocate what remains of the estate after deduction of the encumbered share of the usufruct in favor of the surviving partner. The spouse thus receives 1/4 or 25% of the estate in ownership and the usufruct of the remaining 3/4 or 75%. When the new reform takes effect, the spouse will be able to receive 50% (instead of 25%) of the estate in full ownership and the rest, or the other half, in usufruct.  

Removal of the right to the reserved share for the surviving spouse already engaged in divorce proceedings

According to the new law, the right to hereditary reserve is removed for the surviving spouse (or registered partner) upon the initiation of divorce proceedings. Furthermore, at this stage he/she will no longer be able to assert claims arising from the provisions relating to the cause of death in his/her favor. The surviving spouse or registered partner retains their legal inheritance rights in the absence of a will stating otherwise. In the presence of a will, the testator can completely exclude his future spouse as heir.

No provision for cohabiting couples

In the current legal situation, cohabiting couples (who are neither married nor in a registered partnership) – have no inheritance rights. Cohabitants will have to continue to actively settle their inheritance for the benefit of their partner because the new reform does not provide relief for this situation.

Donations after the conclusion of an inheritance agreement

The new reform also advocates a ban on donations after the conclusion of an inheritance pact. A donation can actually be canceled if it contravenes the provisions of the pact or if there was an intention to harm the heirs established. In the future, when concluding an inheritance agreement, the testator should be well aware of the possibility of freely disposing of his fortune during his lifetime.

Exclusion of 3rd pillar assets  

Pillar 3A pension assets are still excluded from the inheritance. The surrender value (3A and 3B life insurance) or the account balance (3A bank) will be collected directly by the heirs but will be reduced if hereditary reserves are not respected. Reserved heirs will therefore be able to take action for reduction against beneficiaries of the 3rd pillar if their rights are not respected.  

Good to know: The reform has no impact on the 2nd pillar. In addition, the services of the foresight professional are not included in the inheritance and are not subject to the action for reduction.

Sharing of inheritance in family businesses

As a next step, the Federal Council also intends to make changes to the inheritance regulations that would clarify the sharing of inheritance in family businesses. The new provisions will aim to eliminate the difficulties encountered by business owners and heirs when transferring the business by inheritance. This new step will ensure greater stability for Swiss companies, in particular SMEs, and will guarantee jobs. However, no decision has yet been made in this regard.

What impact on wills already drawn up?

Despite the revision of inheritance law, old wills and pacts generally remain valid. However, if you have already drawn up your will, we recommend that you re-examine it in light of the new provisions valid from January 1, 2023.

When reviewing your will, ask yourself the following questions:  

• Do you want to take advantage of the increased flexibility in distribution?
• Are the provisions you have made regarding hereditary reserves clearly stated under the new inheritance law?
• Do you need clarification in the event of possible divorce proceedings?

The answers to these questions will help you rethink and adapt your wealth and estate planning.

Please note that you can update or modify your will once it is drawn up, in this case to take into account the provisions of future inheritance law.  

Drafting a will or inheritance agreement is meticulous work. This is why it is best to contact experts to benefit from their sound legal advice. Impact FE experts are at your disposal to offer you relevant advice and support on this complex subject, so that you can plan the transfer of your assets and inheritance optimally.  

If you have any questions, contact us from now!