- Individuals
- Entreprises
Succession Planning
Note: This language version is an automatically generated translation. The text may therefore contain linguistic and terminological errors.
view in original language (German)Note: This language version is an automatically generated translation. The text may therefore contain linguistic and terminological errors.
view in original language (German)How can wealth be preserved across generations and transferred in a legally sound manner? The seminar featuring Hanna Brozzo and Dr. Ruth Bloch-Riemer explores various aspects of national and international succession planning. The focus is on protecting heirs with special needs, cross-border inheritance structures between Switzerland and Germany, trusts, family foundations, and the tax challenges of business succession and employee ownership. Using practical case studies, the seminar will illustrate various structuring options and their implications under civil and tax law.
Hans Müller (74) and Anna Müller (71) have been married for over 45 years and live in their single-family home in Küsnacht, ZH. The couple has a substantial fortune, which consists primarily of the following:
Anna Müller is the owner of AM Fashion AG, a tailor shop and boutique she founded, which is headquartered in Bad Zurzach, AG, and employs approximately 25 people. Seven years ago, upon reaching retirement age, Anna transferred management of the company to her long-time employee, Alexandra. Anna currently still holds 100% of the shares in AM Fashion AG. However, she has been looking for a buyer for some time.
As they grow older, Hans and Anna are considering how to structure their succession plan early on and in a tax-efficient manner.
The initial facts apply. Hans and Anna have two children: Katharina (41) and Sara (44). The family’s total assets amount to approximately CHF 17 million. Sara is permanently incapable of exercising her legal capacity and is under comprehensive guardianship (Art. 398 of the Swiss Civil Code); she lives in a supervised shared living arrangement and has no income of her own.Katharina works as a doctor at the Lucerne Cantonal Hospital and is financially independent. Hans and Anna have two central goals in their estate planning:
Hans and Anna intend to transfer Sara to an assisted living facility near St. Andrews (Scotland). Sara would move her habitual residence there and live permanently in Scotland from then on. Hans and Anna have decided to take this step because the facility offers a care program specialized in Sara’s disability, which is not available in a comparable form in Switzerland. The care costs are to continue to be covered by the family’s assets.
The initial facts apply. Hans and Anna have two children:
The situation is the same as in the initial scenario. Hans and Anna now have only one daughter, Katharina.
Fabrizio is a longtime friend of Hans and Anna who has been living with the couple for several years and provides them with daily care and support. To ensure that he can continue living in his current home for the rest of his life after their deaths, Hans and Anna name Fabrizio as a preliminary heir to the property in Küsnacht in their will. The reversionary inheritance is to take effect upon Fabrizio’s death. Katharina is designated as the reversionary heir with respect to the property and is to receive it only upon the occurrence of the reversionary inheritance (Fabrizio’s death), while the remainder of the estate is to pass to her immediately. In this way, Hans and Anna wish to ensure that Fabrizio can remain in the property in Küsnacht for the rest of his life, that it is not freely sold until the reversionary inheritance takes effect, and that it ultimately remains in the family.
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Hans and Anna now live in Samedan, GR. They have three children—Marco (residing in the U.S.), Sara, and Katharina (residing in Switzerland)—as well as two grandchildren, Jeffrey and Melina, who are Katharina’s children. Hans, the three children, and the grandchildren are dual citizens of Switzerland and the U.S., but Anna is not.
For his U.S. assets (real estate, securities), Hans establishes the Müller Trust during his lifetime. He may revoke the trust; he is the trustee and sole beneficiary.
Upon Hans’s death, the three children and their descendants are the exclusive, equal beneficiaries by family line, and at least one of them is always the trustee; all family lines elect or remove the trustee by majority vote and have a veto right against decisions. Anna agrees to this:
Scenario 1: Descendants are the sole beneficiaries. They have no control over or influence on the trust. The trustee has discretion over the timing, scope, and amount of distributions and is not required to treat descendants equally.
Alternative Scenario 2: In addition to the descendants, Hans’s friends and U.S. charities are secondary beneficiaries, but they only come into line after all descendants have passed away.
Hans and Anna have returned to their residence in Küsnacht, ZH. Unlike in the initial scenario, Hans repeatedly withdraws substantial amounts from the Müller Trust during his lifetime, which he donates to the California-based nonprofit organization “California Children’s Health Foundation.” These donations are made on the basis of a resolution by Hans as trustee of the revocable Müller Trust, and the individual payments accumulate to a substantial amount over the years. The descendants are not involved in the decision-making process regarding these donations nor are they informed of them. After Hans’s death, they discover that the assets remaining in the Müller Trust are significantly less than they had expected due to the donations that were made.
Hans and Anna Berger are German-Swiss dual citizens and are so-called “UHNWIs.” They have been living in Germany for several decades. Their assets include numerous portfolios, equity interests, and real estate in Switzerland, Germany, and third countries.
Hans and Anna have two daughters, Dora and Erica, who are now adults. Dora has been living in Zurich for several years and works at a bank. Erica also recently moved to Zurich after marrying Sebastian, who lives there. They have since welcomed their first child, whom Erica is caring for.
As part of their estate planning, Hans and Anna want to achieve several goals: their assets should remain together, since some of the investments are difficult to divide and, in their opinion, “the whole is greater than the sum of its parts.” They also want to protect their assets—on the one hand, from children-in-law and similar family influences or potential disruptive factors; on the other hand, they fear that the political climate and, consequently, the tax environment in Germany could become more restrictive.
After careful consideration and detailed consultation, Hans and Anna decide to establish a German family foundation in which they are not beneficiaries but in which they actively participate on the foundation’s board. They retain certain privileges and continue to maintain close contact with the bankers and asset managers who oversee the foundation’s assets. In addition, their daughters are to serve on the board, though they have few rights and are primarily there to “learn”; the board is further complemented by external members (third parties), who are expected to contribute their expertise and ensure continuity while helping to avoid deadlocks.
The foundation is established in Germany as a separate legal entity independent of Anna and Hans and is also recognized as a separate tax entity (a preliminary German tax ruling—analogous to a tax ruling—has been issued). Hans and Anna contribute a large portion of their assets to the foundation. In Germany, this transfer will result in tax consequences, which Hans and Anna are prepared to accept.
How should the foundation be assessed for tax purposes from Dora and Erica’s perspective under Swiss law? What options are available, and what advice would you give them?
In addition to her personal estate planning, Anna is considering the succession of the tailor shop and boutique AM Fashion AG, based in Bad Zurzach (AG), in which she holds 100% of the shares as part of her personal assets (founder’s shares).
Since none of her children are interested in taking over the business and she has been searching unsuccessfully for a buyer for a long time, Anna decides to transfer her shares in the company to Alexandra, a long-time employee who has been managing the business for several years.
Alexandra is a German citizen and is tax-resident in Munich. During the week, she is a weekly resident in Bad Zurzach (AG). She works exclusively in Switzerland and is subject to withholding tax and social security contributions here.
After tough negotiations and with the assistance of a consultant specializing in succession planning—who had to convince Anna that she could not secure a higher purchase price—Anna and Alexandra enter into a stock purchase agreement under the following terms:
Three years after the sale, KSTA AG initiates a back-tax and fine proceeding against Alexandra on the grounds that the AM Fashion AG shares she acquired were employee shares and that the difference between the sales price and the formula value—CHF 3 million—is taxable as earned income.
