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Inheritance and lifetime gifts: quick wins to optimise your estate
As life expectancy increases, only 5% of inheritances pass to those under the age of 401. A planned strategy of lifetime gifts that actively involves the next generation can optimise a family's overall tax burden, helping to preserve an estate over the long term.
The value of Swiss inheritances has skyrocketed. In 2020, it was estimated to be valued at CHF 95 billion. Therefore it comes as no surprise that estate planning services from banks has flourished. Despite these being essential services, they actually only come into effect at the time of death.
We believe a more proactive, forward-looking and multi-generational approach – optimising the overall estate structure and addressing legislative and tax uncertainties – is better suited to the needs of our clients and their families.
From personal asset management to multi-generational management
In our opinion, the realities of the age pyramid demands a new approach that provides instant family solutions and positively impacts finances and wealth during the lifetime of various family members.
As a result, traditional estate planning should be expanded to include the concept of lifetime gifts. By transferring assets during their lifetime, donors can optimise their tax burden. For example they can enable their children to use pension tools to their advantage. Furthermore, it is also an opportunity to re-assess investment strategies over a longer horizon, taking into account the age and life plans of the next generation. This strategy also limits the risks of legislation changing to the detriment of taxpayers, both at a national and international level.
Moreover, the lifetime gift approach enables the donor, together with their banker, to actively help the beneficiary with some initial decisions which makes transferring an estate more harmonious and fluid. This is something our clients repeatedly request out of concern for the long-term preservation of their estate.
Solutions that immediately benefit estates
- As beneficiaries of a lifetime gift are often of an age where they are still professionally active, they can exploit certain wealth options available to them (especially the advantages of supplementary pension provision). By the time they reach 65, most of their options have run out.
- International inheritances are an ever-increasing phenomenon, and can trigger some thorny issues. Some investments are taxable on death in the countries of their source (e.g. real estate and certain financial assets), even if the person whose estate is being administered resided in Switzerland at the time of their death. The risks and tax costs involved in such a situation are sometimes overlooked and unfortunately very high. These could be reduced by lifetime gift strategies.
- Lastly, being younger by definition and often still in work, beneficiaries can access more flexible financing options than older borrowers. This is a crucial point when dealing with a family estate consisting of assets and debts.
Optimal planning for long-term preservation of wealth
For a wealthy family or an individual wishing to involve the next generation before the inevitable happens, the first step should be to have an open discussion with a financial partner. The partner should be able to understand the objectives and know how to manage the legal and tax constraints (and the many avenues for optimisation) across several jurisdictions, even if all the family members are Swiss residents at the time of the discussion.
Read more: Inheritance law reform in Switzerland: what do I need to know?
When a donor is contemplating a lifetime gift for the purposes of tax-efficient management and meeting the family's shared goals, it is obviously important to ascertain the donor's "surplus wealth" and find out how much they can gift without compromising their lifestyle.
In our view of wealth management, we believe that organising a family estate on a multi-generational basis is the most beneficial option for all parties. Our approach has shown, in practice, that a significant portion of future performance depends on making good decisions when it comes to multi-generational transmission.
1 Les héritages en Suisse: évolution depuis 1911 et importance pour les impôts, 2019, by Marius Brülhart (Inheritances in Switzerland: developments since 1911 and significance for taxation). Professor of Economics (Faculty of Business and Economics), University of Lausanne.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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