Quick Summary
- The advance withdrawal is the early payment of the later inheritance. It is therefore taken into account later when the estate is divided. They are automatically subject to equalization when the estate is divided.
- Gifts are final, gratuitous transfers of assets without repayment obligation. They are legally regarded as advance withdrawals if they are made within five years before the death of the testator. They can therefore also be the subject of an equalization and reduction action.
- Family loans are loans between family members that must be repaid and should be documented in writing.
- The tax consequences vary considerably depending on the canton and variant.
What is an advance withdrawal?
An advance withdrawal is an early payment of the later inheritance. The special feature: The amount received is deducted from the recipient’s share of the inheritance when the estate is subsequently divided. This means that all heirs ultimately receive the amount provided for in the estate plan, just at different times.
When the estate is divided, the advance inheritance is taken into account at the market value at the time of the gift. The market value is the value for which the same or similar items could be bought or sold under normal economic circumstances. So if a daughter received a property worth CHF 500,000 as an advance inheritance five years ago, this amount will be deducted from her inheritance share – even if the property is worth more today.
What is a gift?
A gift is a definitive transfer of assets free of charge. The person receiving the gift receives the assets without consideration and, in principle, without any subsequent deduction in the division of the estate. The gift therefore reduces the subsequent estate.
Gifts can also violate the compulsory portion claims of other heirs. If gifts fall short of the compulsory portion claims of the other heirs, they can demand a reduction. The heirs whose claim to a compulsory portion has been violated can do so primarily by bringing an action for reduction pursuant to Art. 522 et seq. ZGB. Within one year of becoming aware of the breach of the compulsory portion, they can demand that the gift be reduced by such an amount that the compulsory portions can also be fulfilled.
Example: A father gives his son CHF 300,000 to buy a house. When he dies two years later, he leaves an estate of 200,000 francs. The daughter can demand that the gift be taken into account when calculating her compulsory portion.
What is a family loan?
A loan (Art. 312 ff. CO) is a contract in which one party (the borrower) undertakes to transfer ownership of an item to the other party (the borrower). The borrower in turn undertakes to return the item in the same type and quantity. Although this object can be many different things, money is usually the object of a loan. If the loan agreement is concluded between private individuals, the loan is only interest-bearing if this has been explicitly agreed. A family loan is therefore a loan between family members, which is often granted interest-free or on favorable terms. As the borrower undertakes to repay the loan agreement, the family loan must be repaid, unlike a gift or inheritance. In addition, the borrower can terminate the loan at any time and, if no repayment date or period of notice has been agreed, demand repayment within 6 weeks. However, it is possible for the loan to be converted into a gift or even an inheritance preference through a so-called debt waiver.
If the lender dies before the loan is repaidthe loan becomes part of the estate. The heirs can then demand repayment or offset the loan directly against the debtor’s inheritance claim.
Tax aspects of the three variants
The tax consequences differ considerably and vary greatly between cantons. While some cantons do not levy inheritance or gift taxes, others have high tax rates.
Advance inheritances are usually taxed in the same way as inheritances, i.e. only on the death of the testator. Gifts, on the other hand, are often subject to immediate gift tax. Family loans generally remain part of the lender’s assets during their lifetime and are taxed there. They are therefore generally tax-neutral.
In many cantons, direct descendants are exempt from inheritance tax or gift tax. In such cases, there can hardly be any difference between an inheritance and a gift from a tax perspective. Other cantons tax gifts more heavily than inheritances. The tax laws of the relevant canton must therefore always be observed when choosing between a gift and preferential inheritance.
Protection of compulsory portions and equalization
All three variants can affect the compulsory portion claims of other heirs. In the case of advance withdrawals of inheritance equalization when the estate is divided. Gifts made less than five years before death are legally regarded as advance withdrawals. They are then subject to the automatic equalization obligation when the estate is divided. Older gifts are generally safe from compulsory portion claims and equalization. Family loans are unproblematic as long as they are actually treated as loans and repaid.
An important point: gifts to a spouse cannot be contested by means of an action for reduction. This means that there is more freedom than with gifts to children.