Inheritance law and real estate

Inheritance law in Switzerland is a complex area of law, particularly when it comes to real estate. The transfer of real estate assets upon death raises a number of questions, both in terms of taxation and civil law. The Swiss legal system, with its cantonal and federal particularities, establishes a precise framework for the devolution of real estate. This is a matter that affects the majority of Swiss citizens, whether owners or potential heirs, who have to navigate between hereditary reserves, available quotas and tax implications. Legal professionals note that estate planning for real estate is a major concern for many owners, who wish to optimize the transfer of their assets while minimizing tax burdens and potential conflicts between heirs.

The fundamental principles of Swiss inheritance law

Inheritance law in Switzerland is governed primarily by the Swiss Civil Code (CCS), in particular articles 457 to 640. This legal framework defines the rules applicable to the transfer of a person’s assets after his or her death. An understanding of these fundamental principles is the basis for understanding the specificities of real estate inheritance.

Legal devolution and reserved heirs

In the absence of a will or inheritance agreement, Swiss law provides for a precise order of succession. Heirs are divided into three kinships:

• Direct descendants (children, grandchildren)
• Parents and their descendants (brothers, sisters, nephews, nieces)
• Grandparents and their descendants

The surviving spouse or registered partner enjoys a special status, competing with heirs of different kin. If there are descendants, they receive half the estate. With heirs from the second kin, they receive three quarters of the estate.

A fundamental feature of Swiss law is the system of hereditary reserves. Certain heirs (descendants, surviving spouses, parents) are entitled to a minimum share of the estate, which cannot be withdrawn except in exceptional cases:

• For descendants: 3/4 of their legal right of inheritance
• For the surviving spouse or registered partner: 1/2 of his/her legal inheritance rights
• For parents: 1/2 of their legal inheritance tax

The available portion represents the share that the deceased is free to dispose of. This proportion varies according to the composition of the deceased’s family.

Forms of dispositions upon death

Swiss law recognizes several instruments for organizing one’s succession:

• Holograph will: entirely written, dated and signed by the testator’s hand
• The public will: drawn up by a notary in the presence of two witnesses
• The oral will: used only in extraordinary circumstances
• Inheritance agreement: contract between the future deceased and his heirs requiring authentication

These arrangements can be used to organize the transfer of assets, including real estate, while respecting hereditary reserves. Inheritance agreements have the advantage of not being unilaterally revocable, unlike wills, offering greater legal certainty for complex arrangements involving real estate.

In-depth knowledge of these legal mechanisms is an essential prerequisite for the efficient transfer of real estate assets in Switzerland.

Inheritance of real estate

In Swiss law, the transfer of real estate as part of an inheritance has a number of distinctive features. These assets, often the most highly-valued in the estate, require special attention in terms of both valuation and allocation.

The opening of the estate and the fate of real estate

From the moment of death, the heirs automatically acquire ownership of the deceased’s property, including real estate, forming a community of heirs(Erbengemeinschaft). This indivision means that decisions concerning real estate must be taken unanimously by the heirs until the final division of the estate.

This undivided situation can prove problematic when the heirs do not agree on the management or disposal of the property. The Swiss Civil Code nevertheless provides for the possibility of appointing a representative of the community of heirs to facilitate the administration of the property.

Registering the heirs’ property rights in the land register does not affect their material rights, but it is necessary in order to be able to legally dispose of the property. Registration may be requested on presentation of an heir’s certificate or an executor’s certificate.

Property allocation methods

When dividing an estate, several methods can be used to allocate real estate:

• Full attribution to one heir with financial compensation to the others
• Sale of the property and distribution of the price among the heirs
• Maintaining joint ownership organized by an agreement
• Setting up a real estate company

Article 612 of the Swiss Civil Code grants special protection to the surviving spouse, who can request that the family home be allocated to him or her as a deduction from his or her share. This provision is designed to preserve the surviving spouse’s living environment.

Similarly, article 613 CCS provides for the possibility of an heir operating a farming business to be awarded the business in its entirety if the legal conditions are met, a provision that is particularly relevant to farming estates with buildings.

Property valuation

The valuation of real estate is often a source of tension between heirs. Under the Swiss Civil Code, property is valued at market value at the time of division. However, there are exceptions:

• For agricultural businesses: application of the yield value under rural land law
• For certain family properties: possibility of taking into account their use value

The heirs may agree on a different valuation method, or use an independent real estate appraiser to determine the value of the property. This valuation has a direct impact on the calculation of the balances to be paid by the heirs to the other co-heirs to ensure equal sharing.

The transfer of real estate as part of an inheritance therefore requires careful planning and in-depth knowledge of the legal mechanisms available to avoid blockages and optimize the distribution of assets.

Taxation of real estate inheritance in Switzerland

Inheritance tax is a key aspect of planning the transfer of real estate assets in Switzerland. Unlike other areas of inheritance law, which are primarily governed by federal law, inheritance taxation is almost exclusively governed by cantonal law, creating a patchwork of rules that vary from canton to canton.

Inheritance taxes in the various cantons

Each canton has its own inheritance tax legislation. This cantonal autonomy gives rise to significant differences in both tax rates and exemptions. Nevertheless, a few general principles can be identified:

• The surviving spouse is generally exempt from inheritance tax in all cantons.
• Direct descendants are fully exempt in most cantons (with the exception of Vaud, Neuchâtel and Appenzell Inner-Rhodes).
• Other heirs are taxed according to a progressive scale that takes into account the degree of kinship and the amount received.

For real estate, the canton competent to levy inheritance tax is the one where the property is located, regardless of the domicile of the deceased. This rule can lead to taxation in several cantons when real estate assets are scattered throughout Switzerland.

The impact of real estate value on the tax burden

The value used for real estate can vary from canton to canton, with some cantons using the market value, while others use a specific tax value, generally lower than the market value. This difference in valuation has a direct impact on the amount of inheritance tax due.

In several cantons, the tax valuation of buildings can be significantly lower than their market value, which represents a significant tax advantage. In the canton of Geneva, for example, the tax value of real estate can be around 70% of its market value.

The repossession of a property by an heir may have other tax consequences:

• Real estate transfer taxes in certain cantons
• A reassessment of the property’s tax value for wealth tax purposes
• Impact on property taxes depending on cantonal regulations

Tax optimization strategies

Faced with this tax complexity, various strategies can be considered to optimize the transfer of real estate assets:

• Living gifts are generally subject to more favourable rates than inheritance tax.
• Usufruct or dwelling rights, enabling the transfer of bare ownership while retaining the right to use the property
• Setting up a real estate company to facilitate the gradual transfer of shares
• Using life insurance as a wealth transfer vehicle

These strategies must be carefully evaluated in light of the owner’s personal and family situation, as well as the location of the property. Advance planning can often significantly reduce the overall tax burden at the time of inheritance.

It should be noted that certain practices aimed solely at tax avoidance may be requalified by the tax authorities. The boundary between legitimate optimization and tax avoidance must be respected in all estate planning.

Estate planning tools for real estate

Estate planning for real estate is a strategic process designed to optimize the transfer of real estate assets. Swiss law offers a range of legal instruments for adapting this transfer to the owner’s wishes, while respecting the legal framework of hereditary reserves.

Testamentary provisions specific to real estate

A will is the most common tool for organizing a real estate succession. Several specific clauses can be included:

• Preferential allocation of real estate to a specific heir
• Establishing specific valuation rules for buildings
• Creating a bequest for a specific piece of real estate
• Establishing a usufruct or right of habitation in favour of the surviving spouse

These provisions help avoid conflictual situations of indivision, and ensure that certain properties remain in the family or are allocated to specific persons. The will can lay down precise terms for calculating compensatory payments between heirs, in order to respect the balance of inheritance shares.

The inheritance agreement and its real estate applications

Pacts of inheritance are particularly well-suited to complex situations involving real estate. Unlike a will, it is a contract between the future deceased and his or her heirs, requiring their agreement and offering enhanced legal security since it cannot be unilaterally revoked.

In particular, this device makes it possible to:

• Organize the early renunciation by certain heirs of their hereditary reserve
• Provide for a property to remain in undivided ownership for a specified period of time
• Establish precise procedures for the allocation and valuation of real estate assets
• Combine dispositions on death with immediate transfers of ownership

Inheritance agreements are particularly appropriate for the transfer of family businesses that include real estate, or for complex arrangements between heirs concerning several properties.

Legal structures for holding and transferring property

In addition to traditional inheritance tools, various legal structures can facilitate the management and transfer of real estate assets:

• The real estate company: transforms direct ownership of real estate into shareholding, facilitating the gradual and fractional transfer of ownership.
• The family foundation: a special structure under Swiss law for preserving real estate assets for the benefit of family members
• Condominium ownership (PPE): facilitates the partial transfer of a property by allowing different units to be allocated to different heirs.
• Building lease: separates ownership of the land from that of the building, offering the possibility of differentiated transfer of ownership.

These structures should be set up well in advance of death, as part of an overall wealth strategy. Their appropriateness depends on a number of factors, including the nature and value of the property, family composition and inheritance objectives.

The judicious combination of these different tools makes it possible to develop a tailor-made strategy for the transfer of real estate assets, meeting the owner’s wishes while minimizing the risk of conflicts between heirs and optimizing tax aspects.

The contemporary challenges of real estate succession in Switzerland

Real estate succession in Switzerland is facing a number of major challenges that are gradually transforming traditional practices. These developments are as much the result of changes in legislation as they are of the social and economic changes that characterize today’s Swiss real estate market.

The impact of rising property values on estates

The steady rise in property prices in Switzerland over recent decades has considerably altered the inheritance equation for many families. This rise has several consequences:

• The increasing difficulty for a single heir to buy out the shares of other co-heirs
• Increased risk of property fragmentation
• The need for complex bank financing for successions
• Increasing inequalities between heirs according to their financial capacity

Faced with this situation, new approaches are being developed, such as the establishment of collective holding structures enabling heirs to hold property together without having to mobilize considerable liquid assets. Legal professionals are observing a growing trend towards organized joint ownership of real estate, a pragmatic solution to the financial impossibility of immediate division.

Blended families and real estate transfers

Changing family structures, with the rise in divorce and blended families, are making real estate estate estate planning considerably more complex. These family configurations pose specific challenges:

• Reconciling the interests of the surviving spouse with those of children from different unions
• Protecting the family home for the surviving spouse without prejudicing the rights of children
• Managing real estate acquired before and during various unions
• Balancing the rights of reserved heirs and the desire to favour certain members of the blended family

Legal solutions frequently include cross usufruct between spouses, time-limited dwelling rights, or complex contractual arrangements designed to respect hereditary reserves while protecting the surviving spouse.

Recent developments in legislation and case law

The legal framework for real estate inheritance in Switzerland is undergoing significant changes, which are gradually modifying practices:

• The reform of inheritance law, which came into force on January 1, 2023, has reduced the inheritance reserve of descendants from 3/4 to 1/2 of their legal share.
• Developments in case law concerning the valuation of real estate for inheritance purposes
• Cantonal tax changes affecting the transfer of real estate assets
• Changes in the rules governing the land register and the registration of real property rights

These changes offer greater flexibility in the organization of one’s estate, while requiring greater legal expertise to navigate a more complex legal environment. In particular, the reduction in hereditary reserves allows greater freedom in the allocation of real estate.

The role of specialized legal support

Faced with these multiple challenges, the intervention of specialized legal counsel often proves decisive in devising an appropriate real estate succession strategy. A specialized law firm can assist property owners in..:

• Overall analysis of wealth and family situation
• Identifying the most appropriate legal options
• Secure drafting of the necessary legal documents
• Coordination with other professionals (notaries, tax specialists, real estate experts)

This multi-disciplinary approach enables us to anticipate potential difficulties and develop tailor-made solutions that meet the specific objectives of each situation. Early intervention by a specialist in real estate inheritance law makes a significant contribution to preventing family conflicts and optimizing the transfer of assets.

The contemporary challenges of real estate succession in Switzerland call for constant adaptation of practices and a thorough understanding of the legal, economic and social developments shaping this complex area of law.