Real Estate Succession

Without a will or inheritance contract, the statutory order of succession applies. For real estate, this often leads to problems:

Example: married couple with a home (worth CHF 1 million) and two children - Spouse inherits 50% of the estate (or 25% plus usufruct of the rest) - Children each inherit 25%

This means: the children become co-owners of the house. In theory, they can demand a division at any time – i.e. force a sale or a payout.

Without arrangements: - The surviving spouse lives in a house that only half belongs to them - The children have a claim to their share at any time - In case of disagreement, a forced sale looms

With a will: - You can guarantee the spouse usufruct of the house (right of residence for life) - The children receive "bare ownership" and wait for the transfer - Clear rules for the timing of the final transfer

Usufruct and right of residence are central instruments in real estate succession:

Usufruct (Art. 745 ff. Swiss Civil Code): The usufructuary may live in the property OR rent it out and keep the income. They bear the running costs (maintenance, insurance, taxes), while the owner covers major investments.

Advantages: - Lifetime security for the partner - Reduced taxable value for gifts/inheritance - Flexibility: can later be relinquished

Right of residence (Art. 776 ff. Swiss Civil Code): More limited than usufruct. The beneficiary may live in the property but not rent it out. Can also be agreed for life or for a limited time.

Advantages: - Simpler arrangement - Protects housing needs - Even greater reduction of the taxable value

Example: For a property worth CHF 1'000'000 and a 65-year-old usufructuary, the value of the usufruct is approx. CHF 350'000-400'000. For a gift/inheritance, only the remaining value of CHF 600'000-650'000 is taxed.

Should the property be transferred during your lifetime or only upon death? Both options have advantages and disadvantages:

Transfer during your lifetime (gift): + Clarity while you're still alive + Tax advantages through reserved usufruct + Children can already benefit from value appreciation + With staggered transfer: progressive tax rates can be reduced - Loss of control (though mitigated by usufruct) - Gift tax applies (tax-free for children in many cantons) - In the event of death: offsetting against other heirs (the gift is credited to the estate)

Transfer upon death (will/inheritance contract): + Full control until death + No gift tax during your lifetime + Easier to handle if you change your mind - Children bear the risk that the property must be sold - Potentially higher inheritance taxes - Co-heirs must be paid out

Recommendation: the optimal solution depends on your family situation, assets, and wishes. A combination often makes sense: partial transfer during your lifetime, the rest upon death.

The mortgage does not automatically pass to the heirs – it remains a claim of the bank. Important questions arise for the heirs:

Affordability: Can the person taking over the property afford the mortgage? The bank checks the income of the person taking over. Rule of thumb: the burden (interest, amortization, incidental costs) should be a maximum of 33% of gross income.

Taking over the mortgage: Heirs can take over the existing mortgage or take out a new one. Taking over keeps the existing terms; a new mortgage means current interest rates.

Paying out co-heirs: Often the mortgage must be increased to pay out co-heirs. Example: property worth CHF 1 million, mortgage CHF 400'000, 2 heirs. Whoever takes over the property must pay the other heir CHF 300'000 (half of the equity). New mortgage: CHF 700'000. Is that affordable?

Planning is crucial: - Calculate early on whether affordability is given for the heirs - Check whether life insurance can cover the mortgage - Clarify the terms for a takeover with the bank

Special situations require special solutions:

Patchwork families: When children from different relationships are involved, real estate succession becomes complicated. The surviving spouse and children from a first marriage may have conflicting interests.

Solution: an inheritance contract with all parties involved, clear regulation of the partner's right of residence, and fair compensation arrangements for all children. Communication is crucial here.

Business properties: If the property is used for business purposes (e.g. a workshop, shop), additional aspects must be considered: - Is the property part of a business? - Who continues running the business? - How is the property valued (income value vs. market value)?

Solution: a combination of business and real estate succession. Often sensible: transferring it into a real estate company to create flexibility.

Holiday properties abroad: Here, the law of the country where the property is located often applies. Find out about foreign inheritance law and taxes. A separate arrangement (e.g. a will under foreign law) may be necessary.