Naming a cohabiting life partner as a beneficiary can raise both testamentary and tax challenges for couples. First, a partner has no legal claim on inheritance, and second, estate taxes or gift taxes apply in most cantons.
Two ways to make beneficiary arrangements are discussed and compared here. Succession on death by allocating property as a bequest or through appointment as heir or by a gift of property while alive. This will be considered here from the standpoint of a purely Swiss situation: The last place of residence of the decedent in question was in the canton of Zurich, and the decedent holds property in the canton of Schwyz.
Bequeathing the property in the canton of Schwyz to a cohabitation partner through a bequest or appointment as heir will incur inheritance taxes. This might come as a surprise, because the canton of Schwyz has no inheritance tax. However, since the testator’s last place of residence was in the canton of Zurich, this canton is entitled to effect an intercantonal allocation and hence to assess inheritance taxes proportionately. Thus: The canton in which the decedent had his or her last place of residence and the canton in which the property is located may tax the heirs and recipients of the bequest at a rate corresponding to the proportion of the assets located in each canton within the total assets [case law of the Federal Supreme Court (BGE 2C_415 / 2017].
However, if the property is conveyed in the form of a gift while alive, preferably preserving the donor’s right to usufruct, only the canton in which the property is located is entitled to tax the gift. Since the canton of Schwyz has waived gift taxes, there would be no tax burden whatsoever in the case considered here.
The property may be conveyed to the cohabitation life partner (recipient of the bequest or by being named an heir) within the discretionary portion of the estate. Whether the property fits entirely within the discretionary portion of the estate will thus depend on amount of the total assets. In cases where this is not clear, it is advisable to come to an agreement with the forced heirs in the framework of an overall inheritance settlement. As part of that arrangement, the forced heirs would waive their entitlement to the legitime. If the value of the bequest to the cohabitation life partner exceeds the discretionary portion and there is no contractual waiver, the forced heirs whose rights are infringed are entitled to demand a reduction in the bequest (Article 522 Swiss Civil Code [ZGB]).
In accordance with Article 527.3 Swiss Civil Code, gifts that may have been freely revoked by the decedent or made in the five years preceding the decedent’s death are also subject to reduction. It is therefore also advisable to notify any forced heirs of gifts made in life and reach a settlement with them, to ensure problem-free distribution of the estate.
In the specific case considered here, having the tax implications in mind, making an assignment in life would make sense. An arrangement with the heirs is a good idea in either of the cases considered here.
Bringing in the help of a specialist is worthwhile to avert or at least minimize taxes and avoid future difficulties when distributing the estate.
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