Estate planning: sell, donate or bequeath the house to the children?

November 3, 2022
  1. Sell house to a child at market value
  2. Sell house to a child below market value
  3. Donate house to a child
  4. Usufruct or right of residence?
  5. Bequeath house to a child
  6. How to avoid conflicts

The average age of homeowners in Switzerland is 58. At this age, the children have left home and many parents are concerned about their housing situation. Some because the house is too big and the garden too busy. The others because they want to travel more after retirement or enjoy their retirement by the sea, for example. Of course, they could simply sell the house and buy an apartment with the proceeds. But many homeowners are emotionally attached to their house and want to keep it in the family. How can parents transfer their house to a child during their lifetime without disadvantaging their other children?

Sell house to a child at market value

The simplest way is to sell to a child at market value. The proceeds of the sale - as with a sale to someone outside the family - flow into the parents' assets, which are later divided among all heirs according to the inheritance contract or will. It is important that the house is sold at its market value and that no one is advantaged or disadvantaged. The parents can have the market value estimated by a realtor or with our Property Valuation. Our market value estimate takes into account sales prices of comparable properties in the same region and is based on hedonic valuation, which is also used by banks. The child assumes the previous mortgage(s) and pays the parents the balance, or refinances the purchase entirely and pays the parents the full sale price.

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Sell house to a child below market value

A sale to a child for less than fair market value is legally a mixed gift and must be offset if more than one child is entitled to inherit. Example: If the family home with garden could be sold for 1.2 million francs, but the parents only want 1 million francs from their son, they have given him 200,000 francs. This is often well-intentioned, but can lead to disputes with siblings and have financial consequences for the son later on:

  • The CHF 200,000 will be counted as an advance withdrawal in the event of subsequent inheritance.
  • The possible increase in value since the purchase is compensated against other heirs.

Houzy Advice

Good to know

If parents expressly designate a mixed gift in the gift contract as not subject to equalization, the beneficiary child is exempt from his or her equalization obligation. However, the parents' arrangement must not violate the other children's compulsory shares under inheritance law.

Houzy Hint

Tip

With our Real Estate Gains Tax Calculator you can simulate how much tax you would have to pay. Read more about the tax in «Real Estate Gains Tax: What Sellers and Buyers Should Know».

Donate house to a child

An outright gift to a child is an advance inheritance and must be offset if more than one child is entitled to inherit. Example: If the parents give their house, worth 1.2 million francs and mortgaged for 700,000 francs, to their daughter, this advance inheritance is worth 500,000 francs. Therefore, they would have to pay each of the other children 500,000 francs as compensation. The complete gift, like the mixed gift, may have financial consequences for the daughter later on:

  • The CHF 500,000 will be counted as an advance withdrawal in the event of subsequent inheritance if the gift has not been settled.
  • The possible increase in value since the donation is compensated against other heirs.

Houzy Advice

Good to know

If parents expressly designate a complete gift in the gift contract as not subject to compensation, the beneficiary child is exempt from his or her obligation to compensate. However, the parents' arrangement must not violate the other children's compulsory shares under inheritance law.

Houzy Hint

Tipp

In our article «Inheritance Plan with Residential Property: It's Better to Plan Early than to Argue Later» we have summarized how homeowners can plan their estate sensibly.

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Usufruct or right of residence?

Do you want to pass your house on to a child during your lifetime, but continue to live in the house? Then you can sell or give away the house and grant yourself the right of residence or the right of use. With both variants, ownership passes to your daughter or son, but the rights, duties and financial obligations differ:

  • With the gratuitous usufruct, you can continue to use the house, i.e. live in it or rent it out. You pay for maintenance, mortgages, insurance, major repairs and heating and ancillary costs and pay tax on the official value as an asset and on the imputed rental value or rental income as income. In return, you may deduct mortgage interest and maintenance costs from your taxable income. Your daughter or son only has to pay for extraordinary costs, such as major repairs.
  • With the free right of residence, you may occupy the house. You pay only the usual maintenance, heating and ancillary costs and minor repairs, pay tax on the imputed rental value as income and deduct the maintenance costs from your taxable income. Your daughter or son must pay the mortgage interest and insurance premiums and pay tax on the official value; in return, he or she may deduct the mortgage from the assets and the mortgage interest from the income.

The usufruct and the right of residence must be publicly recorded and entered in the land register. They end with the death of the entitled person(s). The right of residence is personal and non-transferable; the usufruct is transferable as long as it is not recorded as a personal right.

Houzy Hint

Tip

If you can afford it, you should opt for the usufruct. The financial advantage is greater for your daughter or son, because as usufructuary you pay tax on the rental value and official value and pay the insurance premiums. Nothing changes for your children in terms of taxation.

Bequeath house to a child

If you want to bequeath the house to a child only after your death, you must draw up an inheritance contract or a will. With this, you can assign the house to a child in sole ownership and stipulate how the other members of the community of heirs must be compensated if the house is worth more than his or her compulsory share (see "Selling a house to a child below market value" and "Giving a house to a child"). This is often the case because residential property is the largest asset item in most families. In an inheritance division contract, which all heirs must sign, the members of the community of heirs can determine how they want to manage, liquidate and divide the estate. Details such as the amount of the equalization payments can be stipulated in this contract.

Inherit house - inheritance contract
With a contract of inheritance or a will, you avoid conflicts over the division of the estate.

How to avoid conflicts

Every death puts a strain on a family. Then it takes very little for family members to argue. Mostly about the estate. You can avoid this, at least to a certain extent:

  • Inform your partner and any descendants of all arrangements.
  • Clearly define in the inheritance contract or will how you want to divide your estate. If you bequeath residential property, you should specify who is to estimate the sale value, to whom you want to grant a right of first refusal if necessary, and how the house or apartment is to be sold. Take care not to violate any compulsory portions in the inheritance contract or will.
  • Document all advance inheritances or gifts and inform all heirs.
  • Have the form and content of the will or inheritance contract checked by a lawyer or notary. Contradictory dispositions or unclear formulations lead to misunderstandings.
  • Appoint an executor to take the burden off your family. This can be a lawyer, notary, trustee or any other neutral person you trust and have confidence in.

Do you want to sell or donate your house or apartment to a child? Then you need a market value appraisal to determine the fair market value and thus the compensation payments to your other children. Ask a certified realtor from our network who knows the regional real estate market. He or she can also advise you on how to arrange the sale, mixed gift or outright gift in a legally correct manner.

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