What to bear in mind when gifting money to children

There are two ways to transfer wealth during your lifetime: gifts and inheritance advances. Gifts can also go to third parties, whereas inheritance advances can only be made to legal heirs, i.e. your own children.

In this article, we will focus on inheritance advances, as it is almost the same for direct descendants as for gifts.

Keeping track of the division of your inheritance

In general, inheritance advances are subject to equalisation. In other words, a benefiting child must compensate its siblings for the value of the gift when the estate is later divided among all of them.

Nevertheless, this doesn't apply to occasional gifts on special occasions, such as weddings or for passing exams. Depending on the canton, allowances of up to CHF 5000 per event apply. If the amount is higher, parents can exempt the benefiting child from its equalisation obligation by means of a will. However, the other siblings must receive their legally stipulated compulsory portion.

Still have enough for your old age?

Before awarding inheritance advances, parents should consider their financial situation carefully and ask themselves if, after deducting the gift, they will still have enough money to maintain their accustomed lifestyle in old age.

People often underestimate how much they will need after retiring. Rising healthcare costs, expensive leisure activities and a lower income play a decisive role in this. The problem is that if you award an inheritance advance, you can only reclaim the money in rare exceptional cases.

Alternatively, parents can support their children with a loan. Should the parents then experience a financial bottleneck, they can cancel the loan and get their money back.

Impact on supplementary benefits

It should also be noted that inheritance advances can reduce supplementary benefits. These come into play when pensions and other income don't cover minimum living costs.

A person who gives away part of their assets is making a "voluntary renunciation of assets". In this case, the supplementary benefits office adds the donated money back to the assets. As a result, the relevant person receives less supplementary benefits – or none at all.

A voluntary renunciation of up to CHF 10,000 per year is permitted.

Note everything down

In general, it's always a good idea to draw up a written agreement when making an inheritance advance. This makes it easier to distribute the inheritance later on, because it's clear how much each child received at different times.

From a fiscal perspective, inheritance advances are considered gifts and thus subject to gift tax. This varies from canton to canton. However, direct descendants pay little or no tax in most cantons, regardless of whether they receive a gift or inherit.

Gerhard Buri is a customer advisor at Migros Bank and a pensions expert.