4 important points about inheritance advance
- Do you want to transfer assets to your children during your lifetime? Set it out in writing.
- When transferring ownership of properties, consult a lawyer, who can give you professional advice.
- Set out in writing whether and to what extent the recipients must compensate an inheritance advance. Such instructions are particularly relevant for property as their value can increase over time. It is important to ensure that the statutory entitlement is not violated as this can avoid disputes between the siblings later on.
- Check whether a loan or a gift would be the better alternative.
What is an inheritance advance?
An inheritance advance is a gift made to the recipient during the testator’s lifetime. This gift is given gratuitously, meaning that the recipient does not have to provide the testator with anything in return for this inheritance advance. However, legal heirs (e.g. children and spouses) must compensate for payments received during the lifetime of the testator when the inheritance is divided, including any increase in value. If, for example, a child’s inheritance advance exceeds his or her legal share, he or she must compensate his or her siblings in the estate. In order to avoid disputes later on, it is always best to respect the statutory entitlement rights of the heirs.
The only exceptions to compensation are occasional gifts (up to approx. CHF 3,000). Other exceptions include gifts to children relating to their upbringing or education. However, these must not exceed the average costs. Parents may exempt their children from the duty to compensate an inheritance advance. This exemption must be explicit and in writing.
What are the advantages of an inheritance advance?
By giving an inheritance advance, the giving parents can reduce their taxable assets. This can be worthwhile as the parents usually have higher taxable assets than their children, and the children often benefit more from the money when they are young rather than later when they have sufficient funds of their own. People can use inheritance advances to financially support the future heirs while they are still alive. However, the recipients should bear in mind that the inheritance advance may be subject to a gift or an inheritance tax, unless they are exempt from it. Both taxes are regulated at a cantonal level.
What else is there to consider?
Last but not least, it must be considered that an inheritance advance can also play a role when it comes to certain issues in the area of social assistance. If a donor becomes dependent on social assistance at a later point in time, this can have financial consequences for a donee in line with the obligation of financial assistance to relatives.
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