Revision Inheritance Law Succession Planning Part II - Why is a revision needed?

The Federal Council intends to lower the barriers for family-internal business succession by amending the inheritance law. The reform aims to promote the stability of Swiss SMEs and secure jobs. We explain why a revision is necessary.

The Federal Council's draft on the revision of business succession in inheritance law was welcomed in the consultation process. By early 2021, the Federal Department of Justice and Police (FDJP) should now submit the message to the Federal Council. But why is a reform actually necessary?

What is problematic about the current regulation?

Cases where the business is sold at market price during the lifetime of the testator are unproblematic. For example, if a father and entrepreneur sells his business at market value, the proceeds fall into the estate as bank deposits and can easily be divided among the heirs after death. Also, no problems arise if the business falls into the estate but only represents a small part of the entire inheritance. In this case, the company can be assigned to an individual heir as his share. In reality, however, it is usually not that simple. Either there is a division of business shares among various heirs, leading to a fragmentation of the business, or one heir takes over the business alone. In practice, the heir often finds themselves in difficulty because they do not have the financial means to buy out their co-heirs.

Why is the revision needed?

Although the problems resulting from the prevailing legislation can be mitigated by contracts, an adjustment of the law is still necessary. In practice, the bankruptcy problem is addressed through advance inheritances, mixed donations, or shareholder binding contracts. However, these instruments cannot completely solve the difficulties described above. The heir who takes over the company is still subject to a duty of equalization. Also, the voting proposal in the shareholder binding contract is not mandatory; only a conventional penalty must be paid in the event of non-compliance. The revision will mitigate these problems. The new regulation will allow the heir best suited to manage the business to get the company alone. Moreover, the concerned heir would be granted the possibility to request a payment deferral from the court if they do not have the funds to immediately pay out their fellow heirs.

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