Advance on inheritance or gift: 10 tips.

10 tips for successfully transferring your assets to the next generation.

Ágnes Erdős, Product Management Life Expert

Ágnes has been working as a product manager at Generali since January 2023, and is responsible for digital pillar 3a and risk products. Ágnes has more than ten years of experience as a life insurance product manager. She began her career at Generali in Hungary, where she was responsible for single premium investment products for banks.

Transferring assets during your lifetime: what is the difference between an advance on inheritance and a gift? How can I prevent a dispute over inheritance? Is it necessary to have a contract? Tips for seamlessly transferring your assets to your own children.

1. The difference between an advance on inheritance and a gift

To make the best decision possible, it is important to understand the fundamental difference between an advance on inheritance and a gift. An advance on inheritance means paying out any inheritance the person is entitled to early, while a gift means transferring assets to a living person without receiving anything in return. The differences between the two will affect the taxes owed and inheritance claims at a later date.


2. Consider loans as an additional alternative

In addition to advances on inheritance and gifts, the testator or person giving the gift should also consider the possibility of providing a loan. Loans allow for flexible financial support without actually transferring the assets in question immediately. It is important to clearly set out the terms of repayment in order to avoid misunderstandings. 


3. Talk candidly about the arrangements with your beneficiaries

It is also important to keep communication between yourself and your beneficiaries clear. By maintaining an open dialogue, you can minimise misunderstandings, promote mutual understanding and avoid any potential inheritance disputes. It is important, in particular, to define the scope of the gift or advance on inheritance and clarify any conditions you might have. 


4. Clear communication between family members

It is not just important to ensure that you are in clear communication with the beneficiary, you will also want to ensure that you maintain transparency with the other members of your family. By speaking openly within the family, you can avoid any potential misunderstandings and ensure that everyone has the chance to understand why you have made your decision. This promotes harmony and reduces the risk of inheritance disputes later on. 


5. Take taxes into account

It is also important to pay attention to the tax implications of advances on inheritance or gifts. Get information on current tax law and consult a professional if necessary. This will help you to minimise any taxes owed. At this point, it is important to note that the individual cantons have different rules about this. 


6. Make use of tax allowances and minimise tax

It is essential that you take taxes into account as early as possible. Pay attention to tax allowances in order to reduce taxes for advances on inheritance or gifts. You can gain financial advantages and reduce the amount of taxes owed by carefully applying tax allowances. Stay informed about applicable tax allowances in your region and give your gift in a way that optimises tax benefits.


7. Contract: document an advance on inheritance or a gift

We strongly recommend that you document advances on inheritance or gifts in a contract. This is not just a sensible measure in terms of the law, it is also a preventative measure to avoid any uncertainties, or even the risk of disputes with parents or between siblings.


8. Take collation obligations and statutory portions into account

If you are planning on offering an advance on inheritance or gift, it is essential to bear the collation obligation and statutory portions of the remaining people with inheritance rights in mind. These legal obligations ensure that any transfer of assets is compensated for later during the distribution of your estate as a means of guaranteeing that your inheritance is distributed fairly.

It is possible to explicitly release the person receiving the gift from their collation obligation. Please note, however, that you cannot reduce the statutory portion owed to your other children.

Advance on inheritance to purchase a house: effect on compensation

For real estate, it is particularly important to note that it is the market value at the time of the death that counts when distributing an inheritance. In other words: if you transfer real estate as part of an advance on inheritance, there is no way of knowing what effect this will have on the inheritance later on. The real estate may be worth much more later on, which is a risk for the person you gave it to. The obligation to provide compensation can lead to serious financial fallout.


9. Focus on long-term financial security

All decisions regarding advances on inheritance or gifts should be made with your long-term financial situation in mind. It is important to ensure that your own income and pension are protected so that you can remain financially secure in old age.

  • What will happen if, after paying out an advance on inheritance or a gift, you find yourself in a financial difficulty?
  • If you end up needing to rely on financial support as you age, there is no obligation for your relatives to pay back an advance on inheritance or a gift.
  • Your children are also not, as a general rule, obligated to support you. Any obligation to provide support is reviewed on an individual basis and will depend, among other factors, on your children’s income.

Indeed, it might even be the case that any advances on inheritance or gifts you have provided will reduce your supplementary benefits from AHV and IV. When determining your entitlement to supplementary benefits, any advances on inheritance or gifts will continue to count towards your total assets. How much a gift or advance on inheritance counts towards your assets depends on how long it has been since you made it.

It is important to plan for financial security well in advance, taking these risks into account. 


10. Take advantage of legal counsel

In order to avoid any legal pitfalls, we recommend you consult a legal expert. A lawyer can help you to take all relevant legal aspects of advances on inheritance or gifts into account and to plan accordingly.

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Gifts and advances on inheritance: key points

To summarise, it is very important to plan early and carefully when arranging gifts or advances on inheritance. Clear communication with beneficiaries and other heirs, bearing tax considerations in mind, and ensuring solid legal documentation via a contract create the necessary foundations for a seamless transfer of assets. You should pay particular attention to collation obligations and statutory portions, particularly when it comes to real estate and property. Careful use of tax allowances and consulting a legal expert are the final touches to comprehensive planning, guaranteeing not just short-term benefits but also long-term financial security.

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