An advance inheritance can be an important option when it comes to distributing assets within the family. But what exactly does this term mean and what are the consequences of an advance inheritance?
What is an advance inheritance?
An advance inheritance is a voluntary gift made by the testator to one or more heirs. In this case, part of the estate is transferred to the beneficiary or beneficiaries during the testator's lifetime. The advance inheritance is often used by testators as an instrument to support their descendants, for example by transferring the property to their children during their lifetime. The advance inheritance is not subject to any legal formal requirement, which is why verbal agreements are also legally valid. However, it is advisable to record an advance inheritance in writing.
The obligation to equalize and its consequences
In Switzerland, there is an equalization obligation according to which all heirs must be treated equally. This means that in the event of a subsequent division of the estate, a beneficiary heir must compensate for his or her advance withdrawal in order to ensure an equal division of the estate. According to the legislator, the equalization obligation applies to certain categories of gifts, such as marriage property, furnishings, assignment of assets or debt relief. The obligation to compensate does not apply to gifts of property that are merely luxuries, gifts of opportunity and gifts that are made in fulfillment of a legal obligation, such as the parental obligation to support the children.
When the inheritance is divided, the asset can either be separated from the own assets and added to the estate or the corresponding value can be credited to the estate.
The equalization value
It often happens, for example, that in the case of an early withdrawal of a property, the property increases in value between the transfer to the beneficiary and the death of the testator. To determine the equalization value, the value of the advance withdrawal is added to the estate and the resulting sum is divided by the number of heirs. The beneficiary heir must then pay out the difference between the advance withdrawal and the calculated equalization value to the other heirs.
Tax consequences of an advance inheritance
Advance inheritances are subject to inheritance tax, which is regulated on a cantonal basis. The declaration is the responsibility of the recipient. Also relevant and regulated on a cantonal basis is the real estate gains tax. Often cantons grant a tax deferral so that the beneficiary does not have to pay the real estate gains tax until the property is sold.
Advantages of advance inheritance
An advance on an inheritance can, among other things, reduce the decedent's tax burden as the assets decrease. The beneficiary, in turn, receives assets earlier, which he or she can use in a targeted manner. This makes it possible, for example, to finance a home.
Disadvantages of an advance inheritance
An advance withdrawal from an inheritance may result in the loss or reduction of the entitlement to supplementary benefits. The reason for this is that when calculating the supplementary benefits, the advance withdrawal is treated as a voluntary waiver of assets and is therefore offset against the assets of the person making the waiver. An advance withdrawal can also lead to a heavy financial burden for the beneficiary due to the equalization obligation.
Alternative advance inheritance
As an alternative to an advance withdrawal, parents can grant their descendants an interest-free loan. This is not subject to the equalization obligation and can be reclaimed by the testator at any time.