Upon the death of the testator, by law pursuant to Art. 602 of the Swiss Civil Code (ZGB) the heirs form a community of heirs, also referred to as a “community with a shared fate”. They have joint ownership of all the testator’s assets on an undivided basis, and they can only make decisions on what happens to these assets jointly and unanimously.
In the cantons of Zurich, Aargau and Glarus it is also the heirs’ responsibility to dissolve the community of heirs by dividing up the assets bequeathed to it. The heirs receive no support from the public authorities to do this. As well as having to deal with grief, heirs often face complex legal issues that prove to be too difficult for many relatives of deceased persons. In addition, if the heirs cannot reach a unanimous decision on how to proceed, the division of the assets bequeathed to them may be postponed almost indefinitely.
Properties often form part of estates in Switzerland. The following challenging situations that can and do arise in practice illustrate how this is often a burden and a blessing at the same time. The heirs cannot agree on whether they should sell or rent out the property. They have very different ideas as to the price they believe the property should fetch, or several heirs wish to take over the property themselves. This frequently results in disputes that can drag on for years. During this time, the house is generally vacant. Meanwhile mortgage interest and maintenance costs continue to accrue, shrinking the value of the inheritance. If no agreement is reached and one heir applies to the courts to decide on how the estate should be divided, the judge may order a judicial sale or a compulsory sale by public auction. As this is unlikely to be in line with the wishes of the deceased, these matters should be discussed with future beneficiaries in good time. Ideally, a corresponding inheritance contract should be signed while the person who will subsequently make the bequest is still alive. But what should be done if no such contract can be drawn up because those involved are already at odds over the future inheritance?
One way out of a tricky situation like this is for the owner to include a partition clause in his or her will specifying which heir may take over the property, with the respective value being offset against his or her share of the overall inheritance. Appointing an independent executor in a will or an inheritance contract can also take some of the burden off the heirs, as the executor can assume the role of an intermediary in winding up the estate and adopt an objective approach. An inheritance dispute can also be avoided by selling the property before the testator dies or including instructions to sell the property in the will.
If the heirs agree to sell the property to a third party as part of dividing up the estate, any change of ownership and capital gains taxes that may be payable need to be borne in mind. If the property is taken over by one of the heirs, capital gains tax is initially deferred. However, when the estate is divided up arrangements can and should be made for this deferred tax as well as any rights of first refusal and entitlements to profit shares. Ideally, these arrangements will be specified within the scope of a contract setting out the partition of the estate, which as well as allocating the property to an heir also determines how all the remaining assets bequeathed should be divided.
If you would like to address the issue of succession planning or if you yourself are a member of a community of heirs in need of support in winding up an estate, it is worthwhile seeking professional advice.
Nathalie Rickli
Master of Law / CAS UZH Erbrecht
Legal Consultant
nathalie.rickli@swisspartners.com
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