No judicial authority to allot estate property to heirs
An entrepreneur dies intestate. His family business becomes estate property. Who will run the company and take it over? Without binding instructions of the testator respectively entrepreneur, allocation problems arise. Let’s assume the heirs cannot consent to an amicable division of the estate.
Challenges
If the entrepreneur dies unexpectedly, without a will, a leadership vacuum may arise. Business operations must be maintained. Several heirs form a community of heirs. Decisions must be made unanimously. This may be difficult in case of dissenting heirs.
According to the Federal Court, a judge has no authority to allocate any estate property. In other words: A judge cannot assign a company to an heir (cf. ruling of the Federal Supreme Court of Switzerland 143 III 425) if the heirs argue. This applies even if one co-heir would be willing to take over the company. An heir has no legal title to avert the sale or liquidation of the family business.
If an heir asked for a court-ordered division of the estate, a judge forms lots of the estate. The lots should be of equal value and size. If this is not possible, the” 10%-rule” applies: The worth of the different lots may not differ by more than 10% from an heir’s statutory share of the estate. Excessive compensation payments between co-heirs must be avoided.
If the family business is the main asset of the estate, it must be liquidated, broken up or sold. It is sacrificed in an inheritance dispute.
According to the Federal Court, legislature must provide for express legal authority for allotting estate property.
Planned but rejected regulation
Right to integral allocation of the company
The draft for corporate succession provided for an integral allocation of a company in the estate. Provided that the testator died without appointing a successor or disposing of the company.
According to Art. 617 Para. 1 draft-CC, every heir (whether alone or with other heirs) should be able to request the allocation of the entire company or of shares that enable them to control the company.
The criteria for judicial allocation were control and suitability.
Anyone who is already involved in the company has an interest in its continued existence and management. This person should be given control of the company.
Several heirs may request that the company be allocated to themselves alone. The judge would choose the most suitable person. Criteria can include professional training, professional and management experience in the relevant company or business area.
In corporate inheritance law, each heir’s right to allocation of the company should be introduced in the undivided estate. However, the Counsil of State defeated this bill. As a result, there is no safety net for unregulated, unstructured estates that involve a family business.
Outlook
There is no special inheritance law for companies. There may be a provision regulating judicial division in the next revision package. It would be advantageous if a judge could allocate individual and related items integrally to an heir upon request.
Conclusion
Start planning your company succession early. Write your business will now. Do not sacrifice your life work.