To counter these disadvantages, the Swiss Federal Council is proposing changes to the current inheritance law in order to facilitate the continued existence of enterprises in an estate, in particular in case the deceased has not made a last will or concluded an inheritance agreement with his heirs. The aim is to protect enterprises from conflicts among the heirs, in particular, from heirs who are (by compulsory law) entitled to a share in the estate of the deceased but who do not receive (a share in) the enterprise. For this purpose, the following four measures are proposed to be introduced:
a) General principle of an integral allocation of an enterprise
If a deceased has not made any arrangements in a last will or an inheritance agreement regarding the allocation of an enterprise, the enterprise may be allocated entirely to one heir only (so-called principle of an “integral allocation”). In such case, within the framework of the division of the estate, the heirs shall be entitled to an integral allocation of an enterprise or a controlling majority of an enterprise. If several heirs file an application with the court, the enterprise shall be assigned to the most suitable heir. This provision shall prevent the fragmentation or even closure of an enterprise.
However, listed companies and mere asset management companies are excluded from this new provision.
b) Abolition of the obligation to assume a minority interest
According to current law, an heir entitled to a compulsory portion may be forced – within the framework of a division of an estate and in credit to his portion of the inheritance – to accept a minority interest in an enterprise that regularly is of reduced value and often cannot be sold (so-called situation of “an heir trapped to receive a compulsory portion”). Such situations should no longer occur and according to the proposal of the Swiss Federal Council an allocation of assets can in the future only be made with the consent of the heir concerned.
c) Deferment of the obligation to compensate
Pursuant to current law, irrespective of any dispositions made in the last will of the deceased (if any), the heir who receives an enterprise on the occasion of the division of an estate must immediately pay out the other heirs with respect to their compulsory portions. This often results in unbearable financial liabilities for the respective heir and may prevent an integral allocation of an enterprise. Therefore, according to the current proposal of the Swiss Federal Council, an heir may request to defer such compensation payments to the other heirs. Comparable provisions can already be found today in matrimonial property law (e.g., art. 218 para. 1 SCC). Taking into account the circumstances (in particular whether the enterprise would be able to survive without such deferment), the court shall grant payment periods of up to five years, provided that the immediate payment could put the recipient of the enterprise in financial distress. However, such deferment should under no circumstances result in the other heirs not receiving their portion and, therefore, any deferred amounts must be secured.
d) Relevant time of valuation
A further innovation concerns the valuation of the enterprise and, in particular, the relevant time of valuation. Under current law, absent any different dispositions in a last will or inheritance agreement, the time of valuation is generally the date of death. If an enterprise has been transferred to an heir during the lifetime of the deceased, all changes in value since the transfer are attributed to the community of heirs.
As early as 2007, the Swiss Federal Supreme Court considered it inequitable for the heir who is subject to compensation to share a profit generated by his business activities with his fellow heirs. Conversely, according to the Swiss Federal Supreme Court, it would also be inappropriate if the co-heirs had to bear a loss (which they could not influence) suffered from business activities of the heir taken in the enterprise earlier. These considerations shall now be codified: The enterprise (or the assets essential for its operation, respectively) shall be credited at the value at the time of transfer in case the heir who has received the enterprise proves that since the time of transfer the value of the enterprise has increased. This shall create an incentive to have the enterprise valued at the time of transfer, which in turn will also facilitate the settlement of the division of the estate. This valuation is further supposed to assist the testator in assessing the risk of, or – as the case may be – even in eliminating, any breaches of compulsory portions. Ultimately, these changes shall also serve the long term estate planning.
According to another proposed new regulation (that is based on the same ulterior motives), an enterprise taken over by one of the heirs during the lifetime of the deceased may only be returned to the estate with the consent of all the heirs. This is to prevent an heir from passing on losses suffered after taking over an enterprise to the other heirs.
Status of implementation
The Swiss Council of States has already approved the amendments to the inheritance law regarding the reduction of the children’s compulsory portion (from ¾ to ½) and the abolition of the parents’ compulsory portion. The thereby increased testamentary freedom facilitates the transfer of enterprises by the testator to persons of his choice. If the Swiss National Council also agrees, the amendments will come into force in 2021 at the earliest. We recommend to examine existing last wills and inheritance agreements, in particular with respect to provisions including the words compulsory portion and available quota, and to amend them, if necessary.
Regarding the amendments of the inheritance law in connection with successions of enterprises, the respective consultation procedure expired in late summer 2019. The results are expected to be evaluated in the first quarter of 2020. Whether, when and in what form the proposed regulations will come into force is therefore still unclear today.
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