Death and Taxes: Final Tax Return, Estate Inventory, and Share of the Inheritance Act

When a loved one passes away, it is already a significant burden for the survivors. It does not help when soon after, tax authorities contact them with numerous forms to fill out. In this article, we will explain how to best handle this and what to keep in mind.

Nothing in this world is certain except for death and taxes. Therefore, it is not surprising that tax authorities do not take long to present paperwork following a person's death.

What documents do the tax authorities require?

With death, tax liability ceases. However, the survivors are faced with a series of tax forms:

• ‍Final tax return: The final tax return allows for the taxation of taxable income and taxable assets of the deceased for the last tax period up to the date of death.‍
• Estate inventory: The estate inventory serves to capture the entire estate of the deceased.‍
• Inheritance deed: The inheritance deed outlines how the estate of the deceased is divided among the survivors.

How should the final tax return be processed?

The final tax return will automatically be sent to the survivors or their representatives by the tax authority of the municipality of residence. The taxable income and taxable assets for the last tax period up to the date of death must be declared (e.g., January 1, 2021, to the date of death). To complete the final tax return, the same information and documents are generally required as for any regular tax return. If a spouse passes away, joint taxation applies up to the date of death. Afterwards, the surviving spouse will be taxed under the rate for singles.

How is the estate inventory prepared?

The law stipulates that an official estate inventory must be prepared within two weeks after a taxpayer's death, unless it can be assumed that there are no assets (Art. 154 ff. DBG). In practice, the legal inventory requirement is handled differently by the cantons. While in some cantons officials take over the inventory process, in many places it is the responsibility of the survivors to prepare and submit an estate inventory with documentation to the tax authorities. The estate inventory will include the assets of the deceased as of the date of death, as well as any assets belonging to a spouse and minor children. The inventory preparation occurs regardless of whether inheritance tax is applicable.

What to do if the deceased has income or assets that were not taxed?

Whether cash under the mattress or secret accounts, it is not uncommon for survivors to discover untaxed assets when reviewing the estate. The simplified re-taxation for heirs allows the survivors to declare tax factors that the deceased did not correctly report without penalties. To be granted simplified re-taxation, the following conditions must be met:

• The tax evasion must not be known to the tax authorities at the moment of reporting by the heirs.
• The heirs must unreservedly and actively assist the tax authorities in determining the evaded asset and income elements.
• The heirs must then seriously pursue the payment of the back taxes and interest.

If the survivors meet the legal requirements, only back taxes for the last three tax periods will be due. Otherwise, the regular re-taxation procedure will apply for a maximum of ten tax periods. If the survivors conceal estate values, they also risk criminal proceedings for tax evasion.

How does the inheritance deed work?

The inheritance deed forms the basis for executing the inheritance division. It details how the estate is divided among the survivors. If the deceased left no written instructions, such as a will or a marital and inheritance contract, the division will occur according to legal provisions.

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