Ruedi and Gertude Islisberg (names changed) gave each other questioning looks. Ruedi is the first to speak: “Yes, I believe we signed something at some point or other. Gertrude, what was that now...?” The middle-aged married couple was consulting with their lawyer and the succession advisor of their local bank – and was slightly startled. During the consultation, they found out that the documents in which they thought they had already arranged how their assets would be passed down were outdated.
Check that your documents are up to date on a regular basis
What went wrong? Mr. and Mrs. Islisberg married 20 years ago and, five years later, drew up marriage and inheritance contracts for how they wanted their assets handled in the event that either (or both) of them died. Among other things, they stipulated how the assets they jointly acquired during their marriage would be allocated to the surviving spouse as inheritor, within the available quota. The surviving spouse, as opposed to their children, would have been guaranteed the rest of the inheritance for life-long beneficial use. If both spouses were to die, the children they had together or their children's descendants would have claim on the inheritance.
However, the Islisbergs do not have any children and have reached an age when it is highly unlikely that they will any offspring or adopt. Their current succession solution corresponds with circumstances that may once have pertained to their wishes and plans, but that failed to materialize.
“This example shows that you should check your succession plan every couple of years to make sure it’s up to date,” concludes UBS succession advisor, Reto Furter. This case was relatively easy to solve with a new contract of inheritance that named a non-profit organization as the final beneficiary. This story illustrates nicely that the quality of a prepared inheritance contract can indeed vary widely, depending on who prepares it and who notarizes it. In fact, a full succession solution should also include a scenario in which no children are born.
Patchwork families are especially challenged
“The most common mistakes and problem areas in drawing up succession solutions involve not thinking ahead sufficiently," explains Furter." Believing that a signed document, if never amended, is valid for an unlimited period of time can also be problematic, as can unclear wording and ignorance of or failure to take general legal requirements into account," he continues. "This goes for inheritance rights and statutory rights to reserved portions, valuation rules as well as equalization provisions.”
Along with clear wording, it is very important that a will can be retrieved in the event that the testator dies. To ensure that it can, a will is frequently deposited at a bank or with another trusted person who has been appointed as executor. Depositing a will at the official cantonal depositary is another option. In many cases, a sensible alternative to a one-sided will is a contract of inheritance. In such a contract, all parties concerned are involved in arranging the succession, and in the event of death, the inheritors won’t be confronted with any nasty surprises.
Alongside the will and contract of inheritance, a marriage contract is the classic tool for planning your succession. It’s important to note that this contract can only be amended or terminated if all contracting parties agree. Only after a divorce do the benefits granted to a former spouse become invalid by law.
“The topic of succession planning is also particularly relevant for patchwork families, a number that has risen significantly in recent years,” says Furter. A clear succession plan is especially important for them, but arranging one can also be a challenge.
“If a patchwork family wants to prevent their succession solution from being bounced around the family wildly, like the little metal ball in a pinball machine, turning inheritance benefits and their distribution into a game of chance, it should be taken care of early on by a competent advisor,” advises Furter. The same goes for cohabitating couples, especially if they have heirs and/or they own property together.
In fact, cohabitation is not a recognized legal form regulated by law. This means that such a couple has a 100 percent need to settle and formalize how their assets are passed on. Typical problem areas in cohabitation are the asset distributions reserved for successors and parents, the sometimes high inheritance taxes and the often unknown consequences of rights of residence and usufruct that are repeatedly encountered.
Succession solutions should be reviewed when the following basic parameters have changed:
- Living circumstances due to marriage, cohabitation, divorce, births or deaths;
- Your asset situation due to occupational changes, inheritance or advance inheritance, gifts or lottery winnings as well as inheriting property;
- Becoming or ceasing to be self-employed; establishing, purchasing or selling a business;
- Requirements because of new laws and/or regulations;
- Place of residence in your home country or abroad and your living arrangements;
- Your line of succession, for example when a married couple does not have children, the death of allocated heirs, or conflicts caused by heirs in the family.
UBS Family Banking
UBS Family Banking believes two central features are key to the sensitive topic of “Inheritance and Bequeathing”.
Fair distribution of family assets
- Developing a common understanding of personal hopes and needs while thinking of the next generation.
- Setting up a financial plan and getting an overview of assets.
- Developing and regularly reviewing the succession solution.
Preserving family values across generations
- Developing your own approach to investing.
- Discussing and selecting a suitable investment strategy.
- Including the next generation in the investment process.
This article was written by NZZ Content Solutions on behalf of UBS.