Institution of heirs under Swiss law

Inheritance agreements are a major legal tool in Swiss inheritance law, enabling the contractual organization of one’s succession. At the heart of this system is the institution of heirship, a provision by which the de cujus contractually designates his or her heirs. This practice, which is specific to the Swiss legal system, offers greater flexibility in estate planning, while providing greater legal certainty. In particular, it makes it possible to depart from the rules of legal succession and adapt the transfer of assets to the wishes of the person making the will, within the limits set by law. The institution of heirs by inheritance agreement raises complex questions as to its implementation, effects and implications for the parties concerned.

Legal foundations of the institution of heirs by contract of inheritance

The institution of heirs by inheritance agreement is based on the Swiss Civil Code (CCS), more specifically articles 494 et seq. This legal provision enables a person to enter into a contract with one or more heirs, whether legal or instituted, to settle his or her estate in an anticipated and binding manner.

A covenant of inheritance differs from a will in that it is contractual and irrevocable. Unlike a will, which can be unilaterally modified or revoked by the testator at any time, a covenant of inheritance is binding on the parties and can only be modified or terminated by mutual agreement.

The institution of heirs by inheritance agreement can take different forms:

• The positive institution: the de cujus undertakes to leave all or part of his estate to a specific heir.
• Negative institution: the de cujus undertakes not to institute a particular heir, or not to leave him a specific share of his estate.
• Inheritance renunciation: an heir renounces all or part of his or her inheritance rights in advance.

It is essential to note that the institution of heirs by inheritance agreement must comply with the rules governing hereditary reserves. Swiss law protects certain reserved heirs (descendants, surviving spouse, parents) by guaranteeing them a minimum share of the estate. An inheritance agreement may not therefore affect these reserves, unless the heirs with reserved rights expressly agree to this in the agreement.

Conditions of validity

To be valid, the institution of an heir by inheritance agreement must meet several conditions:

• Capacity of the parties: the disposing party must be of full age and capable of discernment. The instituted heirs must also have the capacity to contract.
• Authentic form: the covenant of inheritance must be drawn up before a notary, in the presence of two witnesses.
• Free and informed consent: the parties must express their will freely and without any defect of consent (error, fraud, well-founded fear).
• Lawful purpose: the content of the agreement must not be contrary to law or morality.

Failure to comply with these conditions may result in the nullity of the inheritance agreement, with potentially serious consequences for the estate planning of the disposing party.

Legal effects of the institution of heirs by inheritance agreement

The establishment of an heir by agreement as to succession produces considerable legal effects, both during the lifetime of the settlor and after his or her death. These effects are quite distinct from those of a will or legal succession.

During the disposant’s lifetime :

• Irrevocability: the settlor can no longer unilaterally modify the provisions of the covenant of inheritance. This feature provides greater legal certainty for the instituted heir.
• Limited power of disposal: the disposing party retains ownership and enjoyment of his assets, but may no longer dispose of them free of charge in a manner incompatible with his contractual commitments.
• Protection against prejudicial acts: the instituted heir may contest acts of the disposing person that would prejudice his future rights.

After the death of the settlor :

• Acquisition of heir status: the instituted heir automatically acquires heir status on the death of the settlor, without having to accept the succession.
• Rights and obligations: the instituted heir enjoys the same rights and obligations as legal heirs, particularly with regard to liability for inheritance debts.
• Precedence over testamentary provisions: the clauses of the covenant of inheritance take precedence over any subsequent testamentary provisions that conflict with them.

It is essential to emphasize that the institution of heirs by inheritance agreement can have significant tax implications. Indeed, depending on the canton, the tax treatment of gifts made by an inheritance agreement may differ from that of ordinary successions. Careful tax planning is therefore recommended when concluding such an agreement.

Limits to the institution of heirship

Despite its great flexibility, the institution of heirs by inheritance agreement has certain limitations:

• Respect for hereditary reserves: unless heirs with reserved rights expressly waive their rights, the agreement may not affect their rights.
• Prohibition of agreements concerning future inheritance: Swiss law in principle prohibits agreements concerning an unclaimed estate, except within the strict framework of an inheritance agreement.
• Impossibility of instituting a third party: the contract of inheritance can only be concluded with heirs, whether legal or instituted. It is not possible to institute a third party by this means.

These limitations are designed to protect the interests of legal heirs and maintain a balance between freedom of disposal and protection of the family.

Advantages and disadvantages of establishing an heir by inheritance agreement

There are advantages and disadvantages to establishing an heir through a contract of inheritance, and these must be weighed carefully before embarking on this path.

Advantages :

• Legal certainty: the irrevocability of the pact offers a strong guarantee to the heir instituted.
• Flexibility: to adapt the transfer of the estate to the specific wishes of the donor and the needs of the heirs.
• Dispute prevention: by settling the estate in advance and by contract, the covenant can reduce the risk of disputes between heirs.
• Comprehensive estate planning: integrates tax and wealth considerations into a long-term estate strategy.

Disadvantages :

• Rigidity: once concluded, the agreement can only be modified or terminated by mutual consent, which can prove problematic in the event of a change in circumstances.
• Complexity: drafting an inheritance agreement requires in-depth legal expertise to avoid pitfalls and ensure its validity.
• Cost: the authenticated form and the need for a notary entail higher costs than a holograph will.
• Risk of family tension: the institution of heirs by covenant can create inequalities between heirs and generate family conflicts.

Faced with these challenges, it is advisable to consult a lawyer specializing in inheritance law before entering into an inheritance agreement. This professional will be able to assess the appropriateness of instituting an heir by covenant in light of the disposing party’s personal situation and assets, and propose suitable solutions.

Special cases and complex situations

The institution of heirs by agreement as to succession can be particularly useful in certain complex situations:

• Business transfer: to ensure the continuity of the family business by irrevocably appointing a successor.
• Blended families: offers the possibility of balancing the interests of children from different unions.
• Protection of the surviving spouse: can strengthen the spouse’s position beyond the rights conferred by law.
• International wealth management: facilitates cross-border estate planning in coordination with other legal instruments.

In these situations, the expertise of a specialist lawyer is essential to navigate the complexities of inheritance and tax law.

Practical implementation of the institution of heirs by contract of inheritance

Implementing the institution of heirs by inheritance agreement requires meticulous preparation and compliance with several key stages.

Steps in concluding the agreement :

• Assessment of the applicant’s assets and family situation
• Defining estate objectives
• Identifying heirs and negotiating the terms of the agreement
• Draft agreement drawn up by a notary
• Pact signed before a notary in the presence of two witnesses
• Registering the agreement with the competent authorities

It is crucial to ensure that covenant clauses are drafted precisely and unambiguously. Each provision must be worded in such a way as to avoid any divergent interpretation that could give rise to subsequent disputes.

Implementing an inheritance agreement may also involve additional measures:

• Updating of land registers for affected properties
• Adapting life insurance or provident contracts
• Revision of articles of association in the event of company transfer
• Tax planning to optimize the tax consequences of the transfer

Regular monitoring of the covenant of inheritance is recommended to ensure that it remains in line with the situation of the settlor and the heirs. Although the agreement is irrevocable, adjustments may be necessary in the event of a significant change in circumstances, which will require the agreement of all parties.

Litigation and dispute resolution

Despite the legal certainty offered by the inheritance agreement, disputes may arise, particularly concerning :

• Interpretation of covenant clauses
• Validity of the agreement (lack of consent, failure to comply with legal requirements)
• Performance of contractual obligations
• Infringement of the rights of reserved heirs not party to the agreement

In the event of conflict, mediation can be an interesting alternative to litigation, enabling family relations to be preserved while a fair solution is found. As a last resort, the civil courts are competent to settle disputes relating to inheritance agreements.

Current implications of the institution of heirs by contract of inheritance

Inheritance agreements are becoming increasingly important in today’s Swiss legal landscape. In the face of changing family structures and increasingly complex estates, this tool offers much-appreciated flexibility for organizing one’s succession in a personalized manner.

Current trends show an increased use of this device, particularly in the following contexts:

• Transfer of family businesses: the pact of inheritance helps to ensure a smooth transition and prevent conflicts between heirs.
• International wealth management: in a globalized world, the covenant facilitates coordination between different legal systems.
• Protection of spouses in unmarried couples: the covenant can reinforce the rights of the surviving partner over and above legal provisions.
• Philanthropy: the institution of heir can be used to organize major bequests to charity.

Notarial and judicial practice continues to refine the interpretation and application of provisions relating to inheritance agreements. The courts are called upon to rule on delicate questions, such as the scope of the irrevocability of the pact or the limits of contractual freedom in the face of the rights of heirs with reserved rights.

In this context, the role of lawyers specializing in inheritance law is crucial. Their expertise enables them not only to design tailor-made inheritance agreements, but also to anticipate potential difficulties of interpretation or execution. They play a key role in mediating family disputes and finding innovative solutions to meet the specific needs of each client.

Developments in Swiss inheritance law, and in particular the discussions surrounding a possible reform of hereditary reserves, could have a significant impact on the practice of establishing heirs by inheritance agreement. Legal practitioners need to keep a close eye on these developments in order to adapt their advice and strategies.

Ultimately, the institution of heirs by inheritance agreement remains a powerful and flexible legal tool for estate planning in Switzerland. Its judicious use, guided by the sound advice of a specialist lawyer, makes it possible to meet the contemporary challenges of inheritance planning while preserving family harmony.