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Estate planning: why make a will?
LO Patrimonia SA
Lombard Odier Group
Lombard Odier & Co AG Zürich
LO Patrimonia SA
Lombard Odier Group
More than half of Swiss people have witnessed disputes over inheritance1 among those in their family circle. Nearly 30% say that they have even experienced this type of argument within their immediate family. A death is already a painful situation but it is sometimes accompanied by tensions between those closest to the deceased. This alone demonstrates the importance of estate planning for those who wish to have peace of mind for themselves and their loved ones when it comes to their succession. The primary means of achieving this is to draw up a will, which three-quarters of the Swiss people surveyed acknowledge. However, only a quarter of the population has drawn up a will, with half minded to do so in the near future. How far have you got in your thinking?
Protecting your loved ones
Apart from those content with what the Swiss Civil Code provides for in the absence of any testamentary provisions, the figures mentioned above could also be indicative of a relative lack of understanding of the legal framework for succession in Switzerland. The law makes it possible to adapt to changes in life circumstances (marriages, births, divorce, career changes, pensions, etc.) and incorporate modifications to reflect society today (civil partnerships, joint families, longer life expectancy, etc.). It is therefore essential to ensure that your estate planning is adequate for your personal and financial circumstances.
How is the estate to be inherited assessed?
One of the first steps involves identifying the different components of the estate to be passed on. In many cases, the pension component is overlooked. However, according to the figures of the Swiss National Bank2, it accounts for around 25 percent of the assets of Swiss households, and more for those who are not property owners. Being able to plan your succession before retirement is therefore crucial. It is all the more important when you consider that most of the different pension funds determine who will receive the benefits in the event of death based on their own rules.
Consequently, testators can only determine whether their wishes will be met once they have had the opportunity to analyse not only the aspects of their estate that can be passed on to their heirs, but also the pension benefits that will be distributed to their beneficiaries. The pension aspects will be addressed in a dedicated publication.
What happens in the absence of a will?
When addressing the issue of succession, the first question is what happens if there is no succession plan.
It is therefore useful to start by looking at the ordinary inheritance rules. These are the rules that will determine the heirs that will share the deceased's estate.
If the deceased is not in retirement at the time of death, the beneficiaries of the pension payments must be determined.
What does Swiss inheritance law provide for in the event of death?
Civil inheritance law distinguishes heirs based on their relationship to the deceased: marriage or civil partnership, parent-child relationship (descendants, ascendants), or even relationships with the community if there are no marital or parent-child relationships.
With regard to heirs that have a parent-child relationship with the deceased, civil inheritance law establishes several principles for identifying the deceased's heirs. Firstly, the Swiss Civil Code establishes an order of inheritance based on a system of kinship.
- The first inheritance group comprises the deceased's descendants: children, grandchildren, etc.
- The second inheritance group comprises the deceased's mother and father and their descendants, namely the brothers and sisters of the deceased, and possibly the descendants of the latter – the nephews and nieces of the deceased.
- Finally, the third inheritance group comprises the deceased's grandparents and their descendants, namely the uncles and aunts of the deceased, and the descendants of the latter – the deceased's cousins, second cousins, etc.
Alongside the principle that excludes members of an inheritance group that is further removed from the deceased if there is a member within a closer inheritance group (just one is sufficient), the Civil Code also establishes rules that make it possible to specify the heirs within each of the different inheritance groups.
Read also: Reform of inheritance law: what's changing?
The estate is allocated to the state only if there are no legal heirs in any of the three inheritance groups and there is no surviving spouse or registered partner.
Identification of heirs and the share allocated to them
In the absence of any testamentary provisions, or if those provisions are invalid, the distribution of the estate will depend on the existence of heirs with whom the deceased is related according to the principles set out above, as well as on the existence of a surviving spouse or registered partner.
If there is no spouse/registered partner, the children receive – in equal shares – all of the deceased's assets that constitute the estate to be shared.
What share does the spouse receive?
If there is a surviving spouse, the matrimonial property must first be liquidated to determine the estate. This liquidation of assets is therefore a particularly important first step in the calculation. Taking, for example, a couple married under the joint estate regime (applicable by default) in respect of participation in property acquired, where all the assets come from the professional activity undertaken during the marriage, liquidation of the matrimonial property will result in half of the deceased's assets being allocated to the surviving spouse. It should be noted that the above does not apply to registered partners, who are subject, by default, to the matrimonial regime of separation of property.
Consequently, only the remaining half will constitute the estate to be shared between the heirs (including the surviving spouse or registered partner).
The spouse's share depends on the existence of other relatives
The share of the spouse or registered partner in the deceased's estate (i.e. following liquidation of the matrimonial property) increases depending on the inheritance group with which they are obliged to share the inheritance.
Read also: Lifetime gifts and inheritances: quick wins to optimise your estate
If the spouse/registered partner is obliged to share with the children of the deceased (children of both spouses or otherwise), half of the estate is allocated to the children and half to the spouse/registered partner. If the spouse or registered partner is obliged to share with members of the second inheritance group (the mother and father of the deceased or their descendants), the estate is shared as follows: 75% to the spouse or registered partner and 25% to the mother and father or their descendants. Lastly, if the only heirs are in the third inheritance group (grandparents and/or their descendants), the spouse or registered partner receives the entirety of the estate.
Again, taking the example of a couple married under the joint estate regime, with all the assets originating from professional activity undertaken during the marriage, the surviving spouse would receive 50% of the liquidated assets and, if they are obliged to share with the children (children of both spouses or otherwise) of the deceased, 50% of the estate. In this situation, the surviving spouse would receive a total of 75% of the deceased's assets, and the children 25%.
The inheritance law reform, which comes into force on 1 January 2023, will not affect the inheritance rules applicable in the absence of any testamentary provisions, as described above.
To summarise, for those who have not planned their estate or made a will, the heirs to the deceased's estate and the share they receive will be determined in accordance with civil inheritance law. This favours the surviving spouse, who will first receive the proceeds of the liquidation of the matrimonial property and then their share of the estate. It should be noted that in the event of death before retirement, the pension component of the estate is allocated according to rules that differ from those set out above.
This article is for information purposes only and does not constitute a recommendation, as it is important to assess the specifics of each individual situation. Our specialist estate planning and wealth planning teams support our clients in all aspects of their succession, allowing them to plan a stress-free transfer of their estate, both in Switzerland and abroad.
1 https://www.letemps.ch/suisse/seul-un-quart-suisses-suissesses-ont-regle-succession
2 https://data.snb.ch/fr/topics/texts#!/doc/focus_20210429
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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