Inheritance law: what entrepreneurs should know

The first part of the inheritance law reform took effect in 2023, but the second part failed in the Council of States in March 2024. Its purpose was to establish specific inheritance rules for companies to facilitate the transfer of businesses within families, either during the owner’s lifetime or after their death.

A separate law would have been introduced to govern business succession. The idea was to simplify succession planning, strengthen the stability of small and medium-sized enterprises (SMEs) in Switzerland, and safeguard jobs.

The revised inheritance law reduces descendants’ claims to compulsory shares and eliminates parents’ claims entirely. This gives testators greater freedom when distributing their estate.

“These changes are very important for business owners because dividing up a business while ensuring equal treatment of heirs often proves very difficult in practice,” says Oliver Pscheid, Head of Wealth Planning Content & Offering Switzerland at UBS.

Oliver Pscheid goes on to say: “Even though the second part of the reform failed, the rigorous debates in the National Council and the Council of States demonstrated the importance of clear succession planning for business owners, their potential successors and their companies.”

There are various reasons for this. Some business owners say they don't have enough time to address the issue. Others have trouble finding a suitable successor.

There is often no clear vision for the company’s future after the owner’s departure – especially when there is no successor within the family. 

“We also regularly see business owners who find it difficult to part with their companies or step back,” says Oliver Pscheid.

He mentions another reason that should not be underestimated: “Succession planning is an emotional topic. That’s quite understandable.”

A distinction should be made between planned and unplanned succession.

Ordinary succession

Ordinary succession means that the previous owner transfers their business during their lifetime while they are still fully capable of making decisions. If the succession is not planned far enough in advance, there is a risk that a suitable successor can’t be found or prepared at short notice. In extreme cases, the company may have to be completely dissolved and liquidated when the owner steps down.

Unplanned succession

An unplanned succession occurs when a business has to be passed on at the last minute due to the owner’s incapacity or unexpected death. This is often a very difficult situation. It leads to significant uncertainty within the company, undermines operations, and can have a negative impact on employees and customers. 

“To prevent an unplanned succession, every business owner should have a contingency plan ready and keep it up to date,” advises Oliver Pscheid. 

A business contingency plan sets out emergency measures in case the owner is suddenly unable to perform their duties, particularly due to incapacity or death. “A truly effective contingency plan grants proxy rights and contains specific provisions for unplanned business succession,” explains Oliver Pscheid. The details should be settled "as soon as possible".

After all, even young entrepreneurs – especially those with families – should identify key trusted advisors early on and establish solid structures that will hold up during an emergency handover. They can safeguard their business by appointing a broadly representative Board of Directors or an executive management team capable of taking decisive action, for instance. A divorce can also threaten a company’s very existence. It is sensible to make clear arrangements for this eventuality as well – usually by signing a prenuptial agreement.

When someone sells a company rather than transferring it to their descendants for free, it usually brings about a significant change in their financial situation.

Until that point, most of the owner’s assets were tied up in their business. Once the sale is complete, the funds become available in liquid form, raising the question of what will happen to the assets. “We help our clients identify suitable ways to structure their assets, using proven models,” says Oliver Pscheid. Liquidity – longevity – legacy: this is a standard principle for asset allocation.

Whether they are planning to sell their business or need advice on succession planning, UBS provides entrepreneurs with comprehensive advice and support throughout their professional careers and beyond. 

According to succession planning expert and lawyer Oliver Pscheid, adopting a holistic approach is crucial. “Advice should not be limited to banking matters, but should also cover legal and tax issues, as well as liquidity and retirement planning,” says Pscheid, referring to the large team of qualified specialists at UBS who can provide support across a wide range of areas. “This expertise allows us to find customized solutions for our clients.”

Despite the failure of the most recent attempt to revise inheritance law, it is advisable to seek advice on business succession as early as possible. “An amicable settlement within the family is still the preferred option under the new law,” explains Oliver Pscheid. A carefully defined succession plan allows the wishes, needs and expectations of all those involved to be determined and taken into account at an early stage. “This is in the best interests of all the individuals and the company – no matter what happens,” says Oliver Pscheid.