Usufruct and right of residence as elements of estate planning for real estate

Case 1: Right of residence

Basic facts

Anna and Beat have two children, Caroline and David. They decide to transfer their property in Uster ZH (variants: Köniz BE / Chur GR) to Caroline as an advance inheritance.

Anna and Beat want to remain living in the property and reserve an exclusive right of residence for both of them for the rest of their lives. The property is no longer encumbered with a mortgage.

Anna is 60 and Beat 70 years old at the time of the transfer.

Two years after the transfer, the heating system breaks down and needs to be replaced. This incurs costs of CHF 50,000. In addition, the ordinary maintenance costs amount to CHF 3,000.

The property values are as follows:

Variant I

Initial situation as in the basic case, but Anna and Beat have no children. In gratitude for their loyal service, they donate the property in Uster ZH (variants: Köniz BE / Chur GR) to their long-time housekeeper Erica, subject to the exclusive right of residence.

variant II

As in the basic situation or variant I, but the property in Uster ZH is additionally encumbered with a mortgage of CHF 0.7 million, which Caroline / Erica must take over (in addition to Anna and Beat's right of residence).

Variant III

After 10 years, Anna and Beat move into a retirement apartment and voluntarily (option: involuntary move to a nursing home due to need of care) and free of charge (option: against redemption at the then present value) waive their right to live in the property in Uster.

Questions

• What are the tax consequences for the persons involved?
  • When transferring the property?
  • During the term of the right of residence, if:
    1. the costs are borne in accordance with the statutory regulations,
    2. Anna and Beat bear all costs incurred in connection with the property)?
  • On termination of the right of residence to the property in Uster
    1. due to the death of Anna and Beat,
    2. by renouncing Anna and Beat (= variant III)?
• What is the value of the property in Uster that Caroline must take into account as an advance withdrawal if the market value of the property at the time of inheritance is CHF 2 million?
  • In the basic facts
  • In variant II
• What are the consequences for Anna and Beat if they have used up their assets in
  variant III and apply for supplementary benefits?

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Case 2: Usufruct

1. facts of the case

The couple Fabian and Gabriela have two adult children, Haiko and Isabel.

They are wealthy and own real estate in the cantons of Zurich, Bern and Graubünden with a total value of CHF 100 million as well as movable assets (mainly investments, securities) of a further CHF 100 million.

Fabian and Gabriela would like to optimize their wealth and estate planning in view of the inheritance tax initiative.

They do not consider unconditional gifts of assets to Isabel and Haiko or relinquishing control of assets and transferring them to third parties.

If the inheritance tax initiative is rejected, they would like to restore the status quo.

The matrimonial property law situation is as follows:

• Fabian and Gabriela do not have a marriage contract and are subject to the matrimonial property regime of participation in accrued gains.
• Her assets are mainly inherited from Gabriela's family.
• In the event of the death of a spouse, no actual property settlement would take place due to the equal size of the respective estates (assumption: no claims for compensation between the estates).
• Gabriella's estate assets would amount to CHF 170 million and Fabian's to CHF 30 million.

Overview of the matrimonial property law situation:

Questions

• What planning options are available to Gabriela and Daniel if they want to optimize the situation with regard to the inheritance tax initiative in the best possible way, taking into account their "guard rails"?
• What are the tax consequences in this context?
• What should we make of the plan to restore the status quo if the inheritance tax initiative is rejected?