Taxes on inheritance for unmaried couple with kids

Taxes
1

Situation:
Unmarried couple with two kids in the canton of Zurich. The man died unexpectedly. His will leaves the minimum amount (Pflichtteil) to kids, the rest to his girlfriend. She will receive:

  • a lump sum payment from the man’s pension fund
  • man’s liquid assets and investments
  • man’s 3rd pillar (3 accounts)

My understanding: the lump sum and the man’s assets will trigger inheritance tax since they were not married. The 3rd pillar will be taxed the usual withdrawal tax.
Any experience or ideas on how to save some taxes on this inheritance? Our first ideas are:

  • move some more money to the kids since there is on inheritance tax for kids. Of course, you need to argue with KESB if you need some of this money until they are 18. But it seems this can be done.
  • have staggered withdrawals for the 3rd pillar. I’m skeptical if this is possible.

As background: the reason for not getting married were also tax considerations (both adults were working with good salaries). Of course, the unfortunate early death of the man turned these considerations into a disadvantage.

2

Lump sum for 2nd and 3rd should behave ~same. (I’m actually not 100% sure about 3a, while 2nd Pillar often allow non married partners to be registered as beneficiary).

If the sums are high, might be worth getting professional advice.

My assumption is that there isn’t a lot of option after the fact…

One I can think of: if the lump sum from 2nd Pillar is “enough” (and is indeed not counting as part of inheritance, but rather contractual beneficiary – still not clear to me how that works), then the spouse could decline the inheritance and 100% would go to the kids.

(Technically once they’re above 18yo, they could donate up to 200k to an ascendant tax free, but it could be messy and they can’t be forced to do it)

I doubt 3a can be staggered, the account were in the name of the deceased.

Edit: btw I think declining inheritance is all or nothing, if you accept it the will has to be respected.

3

Thanks for your reply, much appreciated!

You’re right. Based on two articles from finpension (here and here), 3rd pillar and 2nd pillar are treated the same. They are not part of the inheritance.

Das Säule-3a-Guthaben einer verstorbenen Person fällt nicht in den Nachlass. Es wird direkt an die Anspruchsberechtigten als Kapital ausgezahlt. Das passiert ausserhalb des regulären Erbgangs und ohne Zustimmung der übrigen Erben.

Was mit dem Pensionskassenguthaben der verstorbenen Person passiert, ist nicht im Erbrecht geregelt, sondern im Gesetz der beruflichen Vorsorge (BVG)

This means that only the man’s liquid assets will be taxed inheritance tax. 2nd and 3rd pillar will be taxed the withdrawal tax with probably little room for maneuvering.
One difference between 2nd pillar and 3rd pillar: 3rd pillar is used to calculate the Pflichtteil of the inheritance. From the finpension article:

Obwohl die Säule 3a nicht Teil des Nachlasses ist, wird ihr Wert zur Berechnung der Pflichtteile zum Nachlass hinzugerechnet (Art. 476 ZGB).

2nd pillar is not part of the Pflichtteil. In the current case, the whole 3rd pillar goes to the girlfriend. If there is a high amount in 3rd pillar and low amount in the inheritance, there is a chance to ask for a higher payment to the kids so that their Pflichtteil is respected.

Yes, that’s also my understanding.

Another point, it seems that KESB needs to be involved in any case to make sure the rights of the kids are granted, since the mother has a conflict of interest.

Da der überlebende Ehegatte an der Erbschaft selber beteiligt ist, kann er im Erbteilungsverfahren wegen Interessenkollision nicht gleichzeitig die eigenen und die Interessen der unter seiner elterlichen Sorge stehenden Kinder wahren. Art. 306 Abs. 2 und 3 ZGB schreiben daher vor, dass die Kindesschutzbehörde in solchen Fällen für die minderjährigen Kinder einen Vertretungsbeistand zu bestellen hat oder die Angelegenheit selber regelt.

(Source)

I assume that any declining of the inheritance by the girlfriend (and thereby giving it all to the kids) would also need to be discussed with KESB.

4

Sidenote: a good reminder that 2nd/3rd pilllar are not impacted by a will, if you want to change the order of beneficiary (or the percentages), you’ll need to fill out a form with your provider(s).

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5

except if you have a 3rd pillar with one of the much beloved mortgages and life insurance policies. Then you find the 3rd pillar is no longer even yours to inherit, but the the life insurance is there but will be shared between inheritors/children. Which then just deems to defeat a large part of the purpose of life insurance if the spouse will not get half of the amount , then it does a lot less to help protect income.

6

Thanks for pointing this out. I don’t think this is the case in this situation, but I’ll definitely make sure to check the details of the man’s 3rd pillar.

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