Institution of heirs under Swiss law

The inheritance agreement is a major legal tool in Swiss inheritance law, allowing the inheritance to be organized by contract. At the heart of this arrangement is the institution of heirs, a provision by which the deceased contractually designates his heirs. This practice, specific to the Swiss legal system, offers increased flexibility in inheritance planning, while providing greater legal certainty. In particular, it allows for derogation from the rules of legal succession and for the transfer of assets to be adapted to the wishes of the testator, within the limits set by law. The institution of heirs by inheritance agreement raises complex questions regarding its implementation, its effects and its implications for the parties concerned.

Legal basis for the institution of heirs by inheritance agreement

The institution of heir by inheritance agreement is based on the Swiss Civil Code (SCC), specifically on Articles 494 and following. This legal provision allows a person to conclude a contract with one or more heirs, whether legal or appointed, to settle their inheritance in advance and in a binding manner.

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

The appointment of an heir by inheritance agreement can take various forms:

• Positive institution: the testator undertakes to leave all or part of his estate to a specific heir.
• Negative institution: the testator undertakes not to appoint a specific heir or not to leave him a specific share of his estate.
• Renunciation of inheritance: an heir renounces in advance all or part of his inheritance rights.

It is paramountly important to note that the institution of heirs by inheritance agreement must respect the rules relating to reserved portions of an estate. Swiss law protects certain heirs by law (descendants, surviving spouse, parents) by guaranteeing them a minimum share of the inheritance. The inheritance agreement cannot therefore infringe these reserved portions, unless the heirs by law expressly consent to this as part of the agreement.

Conditions of validity

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

• Capacity of the parties: the grantor must be of legal age and capable of discernment. The heirs instituted must also have the capacity to contract.
• Authentic form: the inheritance agreement 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 object: the content of the agreement must not be contrary to the law or morality.

Failure to comply with these conditions may result in the nullity of the agreement as to succession, with potentially serious consequences for the testator’s estate planning.

Legal effects of being appointed heir by testamentary agreement

Being appointed heir by testamentary agreement has very significant legal effects, both during the testator’s lifetime and after their death. These effects are very different from those of a will or legal succession.

During the testator’s lifetime:

• Irrevocability: the grantor can no longer unilaterally modify the provisions of the agreement as to succession. This feature offers increased legal security to the instituted heir.
• Limitation of power of disposition: the grantor retains ownership and enjoyment of his property, but can no longer dispose of it free of charge in a manner incompatible with his contractual commitments.
• Protection against prejudicial acts: the appointed heir may challenge the acts of the testator that would infringe his future rights.

After the death of the testator:

• Acquisition of the status of heir: the appointed heir automatically acquires the status of heir on the death of the testator, without needing to accept the succession.
• Rights and obligations: the instituted heir has the same rights and obligations as the legal heirs, particularly with regard to responsibility for the debts of the estate.
• Precedence over testamentary dispositions: the clauses of the agreement as to succession take precedence over any subsequent testamentary dispositions that may be contrary to them.

It is crucial to emphasize that the institution of heirs by inheritance agreement can have significant tax implications. In fact, depending on the canton, the tax treatment of gifts made by inheritance agreement can differ from that of ordinary inheritance. Careful tax planning is therefore recommended when entering into such an agreement.

Limits to the institution of heirs

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

• Respect for reserved portions of the estate: unless the heirs entitled to a reserved portion expressly waive their rights, the agreement cannot infringe on their rights.
• Prohibition of agreements on future inheritance: Swiss law in principle prohibits agreements on an unopened inheritance, except within the strict framework of the inheritance agreement.
• Impossibility of appointing a third party: the agreement as to succession can only be concluded with heirs, whether they are legal or appointed. It is not possible to appoint a third party in this way.

These limitations aim to protect the interests of the legal heirs and to maintain a balance between the freedom to dispose of property and the protection of the family.

Advantages and disadvantages of being named as an heir by inheritance agreement

Being named as an heir by inheritance agreement has advantages and disadvantages that should be carefully weighed before embarking on this path.

Advantages:

• Legal certainty: the irrevocability of the agreement offers a strong guarantee to the heir named.
• Flexibility: allows the transfer of assets to be adapted to the specific wishes of the person making the disposition and the needs of the heirs.
• Conflict prevention: by settling the succession in advance and by contract, the agreement can reduce the risk of disputes between heirs.
• Comprehensive estate planning: allows for the integration of tax and asset considerations into a long-term estate strategy.

Disadvantages:

• Rigidity: once concluded, the agreement can only be modified or terminated by mutual agreement, which can be problematic in the event of a change in circumstances.
• Complexity: drafting an inheritance agreement requires in-depth legal expertise to avoid pitfalls and guarantee its validity.
• Cost: the official form and the use of a notary generate higher costs than those of a holographic will.
• Risk of family tension: establishing heirs by agreement can create inequalities between heirs and generate family conflicts.

In view of these issues, it is recommended that you consult a lawyer specializing in inheritance law before concluding an inheritance agreement. This professional will be able to assess the relevance of the institution of heir by agreement in view of the personal and patrimonial situation of the testator, and propose suitable solutions.

Special cases and complex situations

The institution of heir by inheritance agreement can prove particularly useful in certain complex situations:

• Transfer of a business: allows the continuity of the family business to be guaranteed by irrevocably designating 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 on him/her by law.
• International wealth management: facilitates cross-border estate planning in coordination with other legal instruments.

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

Practical implementation of the institution of heir by inheritance agreement

The implementation of the institution of heir by inheritance agreement requires careful preparation and the observance of several key stages.

Stages of the conclusion of the agreement:

• Assessment of the patrimonial and family situation of the grantor
• Definition of inheritance objectives
• Identification of the heirs to be instituted and negotiation of the terms of the agreement
• Drafting of the agreement by a notary
• Signing of the agreement before a notary in the presence of two witnesses
• Registration of the agreement with the competent authorities

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

The implementation of the inheritance agreement may also involve additional measures:

• Updating the land registers for the properties concerned
• Adapting life insurance or pension contracts
• Revising company statutes in the event of the transfer of a company
• Tax planning to optimize the tax consequences of the transfer

Regular monitoring of the inheritance agreement is recommended to ensure that it remains in line with the situation of the grantor 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:

• The interpretation of the clauses of the agreement
• The validity of the agreement (defect of consent, non-compliance with legal formalities)
• The fulfillment of contractual obligations
• Infringements of the rights of the heirs entitled to a reserved share who are not party to the agreement

In the event of a dispute, mediation can be an interesting alternative to legal proceedings, making it possible to preserve family relationships while finding a fair solution. As a last resort, the civil courts have jurisdiction to settle disputes relating to inheritance agreements.

Current implications of being named as an heir by inheritance agreement

The institution of heir by inheritance agreement is of growing importance in the current Swiss legal landscape. In the face of changing family structures and increasingly complex estates, this tool offers much appreciated flexibility for organizing one’s estate in a personalized way.

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

• Transfer of family businesses: the inheritance agreement ensures a smooth transition and prevents conflicts between heirs.
• Management of international assets: in a globalized world, the agreement facilitates coordination between different legal systems.
• Protection of spouses in unmarried couples: the agreement can strengthen the rights of the surviving partner beyond the legal provisions.
• Philanthropy: the institution of heir can be used to organize significant bequests to charitable organizations.

Notarial and judicial practice continues to refine the interpretation and application of the provisions relating to inheritance agreements. The courts are called upon to rule on delicate issues, such as the scope of the irrevocability of the agreement or the limits of contractual freedom in relation to the rights of heirs entitled to a reserved portion of the estate.

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

Developments in Swiss inheritance law, particularly the discussions surrounding a possible reform of the reserved portion of an estate, could have a significant impact on the practice of establishing heirs by inheritance agreement. Legal practitioners must remain attentive to these developments in order to adapt their advice and strategies.

Ultimately, establishing 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 specialized lawyer, makes it possible to meet the contemporary challenges of wealth transfer while preserving family harmony.