Contract of succession (aka contract to will) and inheritance renunciation contracts
Not all property is passed on by Will or, if a valid will cannot be located, by the rules of intestate succession. There are Will alternatives. Contracts of Succession and Inheritance Renunciation Contracts are two examples.
What Is a contract of succession (aka contract to will)?
A Contract of Succession (aka Contract to Will) is a binding agreement between a Testator and another party, obligating the Testator to bequeath his estate or a portion thereof (a legacy) to that person or a third party (Legatee).
Initial situation
During his lifetime, the Testator can buy, sell, spend or dispose of property as he pleases, so long as any gifts and testamentary transfers are compatible with the Testator’s obligations to the Legatee under the Contract of Succession. Otherwise testamentary dispositions or gifts are subject to challenge.
New, revised inheritance law (as of January 1, 2023), binding effect of inheritance contracts
Prohibition of donations, ban on lifetime donations
The revised inheritance law better protects the beneficiary and provides for a fundamental ban on gifts as of January 1, 2023. The usual occasional gifts and reservations are excluded.
According to Art. 494, para. 3 revised Swiss Civil Code, testamentary dispositions and gifts inter vivos, except for customary occasional gifts, are subject to challenge insofar as they: (1) are incompatible with the obligations under the contract of inheritance, namely if they reduce the inheritance contract benefits; and (cumulative) (2) have not been stipulated in the contract of inheritance.
Clear reservations
Clear reservations must be stipulated. Otherwise, you risk contesting the contract of inheritance on the grounds that it is contrary to the law and thus disturbing the family harmony.
Act and check existing inheritance contracts to ensure that they are compatible with the new inheritance law.
New, revised inheritance law (as of January 1, 2023): Loss of benefits provided for by contract of inheritance
Spouses may not raise any claims based on testamentary dispositions: after divorce; after the death of one spouse during divorce proceedings that result in the avoidance of the surviving spouse’s forced heirship (cf. Art. 120 par. 3 CC), unless there is an instruction to the contrary.
Hence, in these circumstances, contractual preferential treatment of the spouse or registered partner from dispositions taking effect on death lapse by operation of law.
Inheritance and marriage contract
An inheritance contract is often combined with a marriage contract - either prenuptial or postnuptial- and is a binding agreement between spouses.
When is an inheritance contract suitable?
A Contract of Succession may be suitable if:
- You have remarried but do not want your spouse’s testamentary interests to supersede those of your children from a previous marriage. You bind a spouse with whom you are living in a second marriage to certain conditions to avoid disputes with children from a previous marriage.
- You envision your spouse having more children after you die but want to prioritize your own children above those future children when the surviving spouse dies. You wish to bind the other parent to bequeath property to the children upon the death of the second spouse.
- You have a blended family (children and stepchildren) and want to control how your surviving spouse allocates your assets when her or she dies. You with tonbind the second spouse regarding the transfer of assets upon his or her death.
Differences between a will and a contract of succession
Three crucial differences between a Will and a Contract of Succession are that
- a Will is unilateral, and
- its contents are, at your discretion, confidential, as your instructions can remain sealed until death.
- Further, you can draft a new Will at any time and revoke your old one.
By contrast, a Contract of Succession and Marriage Contract are negotiated agreements, requiring
- mutual informed consent
- after information has been disclosed. They must be negotiated and notarized. I can help you negotiate and prepare both instruments. – All inheritance-related contracts must be notarized and are binding upon those who sign. They cannot be rescinded unilaterally.
- Termination must be by mutual informed consent and in writing. A marriage contract must even be dissolved before a notary public, since a previous or different matrimonial property regime is agreed by marriage contract.
Inheritance renunciation contract
A testator and an heir can also enter into an Inheritance Renunciation Contract – with or without valuable consideration. In a renunciation contract, the renouncer agrees to exclude himself (and his descendants, unless otherwise agreed).
Heirs renounce inheritances for numerous reasons – some personal, some practical.
Transparency through open communication
Whether you favor someone or not, ensure transparency. steal the other heirs’ thunder!
You may remedy perceived favoritism of certain family members during your lifetime. For example, one child may have required special attention. You may have clothed, fed and financed him for ten years longer than his siblings. Or you financed only one child’s business, education or place of residence. In each instance, you may want to scale back the previously favored child’s testamentary expectations and seek to restore fairness via reapportionment of your assets upon death. You can, of course, make such determinations unilaterally in your Will, but there are reasons for transparency and acceptance.
Valuation
Another common reason for inheritance-related contracts is Valuation. It is sometimes beneficial for heirs to agree in advance and in writing to the value of, or means of valuing, an indivisible, hard-to-appraise asset, e.g., a privately-held business, family heirloom or “priceless” work of art.
Particularly in the case of art objects in the Swiss estate, the question arises as to whether they qualify as tax-exempt household effects or as taxable assets.
Waiver of the compulsory share
The impetus for most Will alternatives is to waive one or more Compulsory Shares otherwise dictated by statute. For example, a second spouse may waive his or her compulsory share in exchange for a lump-sum payment, so you can divide the remainder of your estate among your natural born children. The converse may also occur: the children set aside their compulsory share in exchange for a pre-negotiated payment. Compulsory shares can only be waived by signed and notarized contract.
Brief summary
If an estate is to be settled independently of the statutory claims to a compulsory portion, a publicly notarized inheritance contract may be concluded, provided that all parties concerned agree and cooperate. For example, heirs may waive their right to a compulsory portion. Or heirs to a compulsory portion declare their agreement to the appointment of a preliminary and subsequent heir. Or with children from the first marriage, a waiver of inheritance is made in exchange for payment. Or an imputed value is set, such as the value of a property in the case of an anticipated inheritance.
Do you need help balancing the pros and cons of a will and its various contractual alternatives? Putting pen to paper? Dotting your i’s and crossing your t’s? I can make sure your wishes are articulated properly and executed. Call me for a consultation.