Next Generation Wealth: Preparing and supporting heirs

A will alone does not pass wealth on well. Structured assets and a considered choice of legal instruments matter as much, and so do heirs who know what to expect.

The key points

• Structure before transfer: Business, family and private assets follow their own rules when they are passed on.
• Advance on inheritance, gift, loan: The three instruments differ in whether and how the transfer is taken into account on death.
• Compulsory portions: Under the Civil Code (CC), they have been half of the statutory inheritance entitlement since 1 January 2023 (Art. 471 CC). Anyone leaving descendants can dispose freely of half the estate.
• Taxes: The cantons set them. Gifts to children are tax-free in most cantons, but not in Appenzell Inner Rhodes, Neuchâtel and Vaud (Source: Federal Tax Administration (ESTV), status of legislation 1 January 2025).
• Supplementary benefits: Assets given away are counted if supplementary benefits are applied for later, with the counted amount falling by CHF 10,000 a year (Art. 11a para. 2 ELG, Art. 17e ELV).

Why planning reaches beyond one generation

The so-called three-generation rule is an old rule of thumb: the first generation builds the wealth, the second manages it, the third loses it. It does not hold as a law of nature. It describes what happens when nobody plans beyond their own lifetime.

When inheritance follows the statutory rules, assets pass only on death, and the heirs may take them over unprepared. The guide Inheritance in Switzerland explains the statutory order of succession. A planned transfer settles in advance what goes to whom and when, and involves the next generation early.

The time horizon is long. Anyone planning at 60 is planning for their own remaining decades and for those of their children and grandchildren. Over such periods inflation eats into purchasing power: at 1 percent inflation a year, a franc loses about a quarter of its purchasing power in 30 years.

The three categories of assets

For a transfer, it helps to divide assets into three categories:

• Business assets comprise the stakes in operating companies that a family owns together, for instance through a holding company. If these assets stay together, the family can speak with one voice in dealings with the company.
• Family assets are held jointly by a family branch: minority holdings, real estate, agricultural and forestry land, or securities portfolios. They are looked after by a wealth manager or a family office, or by the family itself.
• Private assets belong to the individual family members: their own home, personal securities accounts, life insurance. Each person decides on them alone and, on death, only within the limits of the compulsory portions.

Keeping the three categories apart can shield the operating business from private withdrawals and makes the division among several descendants easier to trace. The legal form a structure takes depends on the family’s goals, its make-up and the size of the assets.

Instruments for transferring wealth

Three instruments are available during a lifetime. Equalisation, valuation, taxes and the consequences for supplementary benefits are covered in detail in the article Advance on Inheritance.

Advance on inheritance

An advance on inheritance is a transfer without consideration to a future statutory heir, which is later credited against that heir’s share (Art. 626 para. 1 CC). For descendants, the law makes dowry, endowment, assignment of assets, debt remission and the like subject to equalisation (hotchpot) unless the parents have expressly provided otherwise (Art. 626 para. 2 CC). As a rule, the value at the time of succession is what counts, not the value at the time of transfer (Art. 630 para. 1 CC).

Gift

Legally, an advance on inheritance is almost always a gift under the Code of Obligations (CO) (Art. 239 para. 1 CO). What separates the two is whether the transfer is equalised on death. If the parents expressly exempt a transfer from equalisation, it is not credited against the share when the estate is divided. If the transfer infringes the compulsory portions of the other heirs, they can request abatement (Art. 522 para. 1 CC and Art. 527 no. 1 CC). Customary occasional gifts are not subject to equalisation (Art. 632 CC). Education and training costs are subject to it only insofar as they exceed the normal amount, unless it is shown that the parents intended otherwise (Art. 631 para. 1 CC).

Loan

A loan from the parents obliges the child to repay it (Art. 312 CO). The money stays in the parents’ assets as a claim and falls into the estate on death. If the bank is to accept the loan as equity towards buying a home, it requires an assignment of the claim to the bank or a subordination agreement. For owner-occupied residential property, a written confirmation from the lender to the bank that the loan can be repaid only with the bank’s consent is also sufficient for loans from close family (Source: Swiss Bankers Association, minimum requirements for mortgage financing, valid since 1 January 2025). A written contract records the amount, interest, repayment and what happens to the loan on death.

Timing and scale of the transfer

How much parents pass on during their lifetime depends first of all on their own needs. Life expectancy is high, costs in old age rise, and a stay in a care home can draw heavily on the remaining assets. Parents cannot revoke a completed gift on the ground that they themselves later fall into need; Art. 249 CO does not name that ground.

Supplementary benefits matter as well. Assets that a person has given up without a legal obligation and without equivalent consideration are counted when supplementary benefits are applied for, as if they had never been given up (Art. 11a para. 2 ELG). The amount counted decreases by CHF 10,000 a year (Art. 17e ELV). The counted amount is also included when the asset threshold is tested: CHF 100,000 for single people and CHF 200,000 for married couples (Art. 9a para. 1 and 3 ELG); for a single person, a gift of CHF 200,000 can therefore rule out entitlement entirely for more than ten years.

A gift or an advance on inheritance reduces the parents’ taxable assets and with them their wealth tax. That does not apply if they reserve the usufruct, because assets subject to a usufruct are attributed to the usufructuary under the Tax Harmonisation Act (StHG) (Art. 13 para. 2 StHG). With a loan, the claim remains taxable in the parents’ hands. A transfer in stages keeps the parents’ own reserve intact and leaves room to adjust the handover.

Legal framework

Succession law limits testamentary freedom through the compulsory portions. Descendants and the surviving spouse or the surviving registered partner are protected by them. The compulsory portion is half of the statutory inheritance entitlement (Art. 471 CC).

Two examples. If a widowed person leaves two children, each child inherits half under the law (Art. 457 CC), and each child’s compulsory portion is a quarter. If a married person leaves a spouse and two children, the spouse receives half under the law (Art. 462 no. 1 CC) and the children share the other half. The compulsory portions are then a quarter for the spouse and together a quarter for the children. In both cases half of the estate is freely disposable. For married persons, the marital property regime is dissolved first on death (Art. 204 para. 1 CC) and settled under matrimonial property law; only what falls into the estate afterwards is divided in this way.

The disposable portion allows individual descendants to be favoured, a life partner to be better provided for, or third parties and charitable organisations to be remembered. If a disposition infringes compulsory portions, it remains valid; those affected can, however, request abatement (Art. 522 para. 1 CC).

A will can be revoked at any time in one of the forms prescribed for making it (Art. 509 para. 1 CC). A contract of succession must meet the same formal requirements as a will executed as a public deed (Art. 512 para. 1 CC). It can be revoked by written agreement of the contracting parties (Art. 513 para. 1 CC), unilaterally only in cases named by law, for instance where the beneficiary later commits an act that constitutes grounds for disinheritance (Art. 513 para. 2 CC). It is therefore more binding, which matters, for example, when a family business is taken over. A disposition with a formal defect can be declared invalid if it is contested in court (Art. 520 para. 1 CC).

Taxes on the transfer of wealth

Inheritance and gift taxes are levied by the cantons, not the Confederation. Schwyz and Obwalden levy neither tax, and Lucerne levies no gift tax. Gifts to children are tax-free in almost all other cantons. Appenzell Inner Rhodes and Vaud tax them above an allowance, Neuchâtel the whole gift once it exceeds CHF 10,000 (Source: ESTV, dossier “Erbschafts- und Schenkungssteuern”, status of legislation 1 January 2025).

Movable assets are in principle taxed by the canton in which the donor was resident at the time of the gift or the deceased was last resident, real estate by the canton in which it is located (Source: ESTV, dossier “Erbschafts- und Schenkungssteuern”, section 2).

When a property passes by succession, advance on inheritance or gift, property gains tax is deferred (Art. 12 para. 3 let. a StHG). If the child later sells, the increase in value from the parents’ period of ownership is taxed as well. If the child assumes a mortgage with the transfer or makes a payment to the parents, that part can, depending on the canton, be treated as a sale.

Involving the next generation

Along with the assets, heirs take on decisions: about investments, properties, holdings and sometimes a company. Heirs who learn early about the structure, the contracts and the thinking behind them take over better prepared.

Families go about this in different ways. Some discuss assets and plans in regular family conversations, others record principles in a family agreement. Children can take on responsibility step by step, for example first for part of the family assets.

Managing wealth across generations

The handover is one step. Managing the assets afterwards takes far longer. Investors are prone to systematic thinking errors, known as behavioural biases, such as loss aversion: losses weigh more heavily than gains of the same size (Kahneman and Tversky, Prospect Theory, 1979). Fixed rules for strategy and rebalancing act as a counterweight that does not depend on the mood of the day.

The generations of a family have different investment horizons. Assets that the parents still need themselves have a shorter horizon than assets that children hold for decades. This affects how much volatility a portfolio can tolerate. Diversification across asset classes spreads the risks but does not remove them.

Over decades, goals, weightings and circumstances change. Within a mandate, wealth management puts the agreed strategy into practice and adjusts it when the guidelines change.

Five steps of a planned transfer

1. Overview and own needs

It begins with a complete overview: accounts, securities accounts, real estate, holdings, insurance, pension assets, each with its current value and assigned to one of the three categories. Next comes the parents’ own financial need for the coming decades, including care costs and a reserve. What goes beyond that can be considered for transfer.

2. The family’s goals

Should the assets stay together or be divided? Should the children have a say in them, or simply be favoured? Should the parental home stay in the family? The answers determine which long-term strategy and which instruments are options. Asset classes for long horizons are covered in Long-Term Investing.

3. Instruments and form

Advance on inheritance, gift and loan can be combined. The parents record in writing whether a transfer is to be equalised. A gift of real estate requires a public deed (Art. 243 para. 2 CO), a contract of succession the form of a will executed as a public deed. A will governs the disposable portion; if it encroaches on compulsory portions, it is open to abatement.

4. Taxes and costs

The rules of the canton of residence apply and, for real estate, those of the canton where it is located. Where a property is transferred with a mortgage taken over, the question of property gains tax arises. The parents’ wealth tax falls only if they give assets away without reserving a usufruct; a loan does not reduce it.

5. Implementation and documentation

When contracts, transfer documents and agreements are kept in one place that the heirs know about, they find what they need on death. Regular conversations in the family clarify who received what and why. This can prevent later disputes over interpretation.

Conclusion

The limits on transfer are set mainly by the compulsory portions and the parents’ own needs. Cantonal taxes affect how a transfer is structured more than whether it happens. Within these limits, the family decides. The earlier it does so, the more readily the handover can be staged and the next generation involved.