Properties in inheritance: How to prevent the mortgage from becoming a burden

Joint liability of the community of heirs

Under Swiss inheritance law, with the death of the testator not only the assets but also all debts are transferred to the community of heirs. This means that the heirs become jointly liable for the mortgage. After the inheritance, the bank reviews the financial situation of the new owners. If the heirs' income does not meet the bank’s strict affordability criteria, the institution may demand a partial repayment of the mortgage or, in extreme cases, terminate the loan.

Preserving family values versus liquidity shortages

An inheritance case offers the opportunity to preserve family values across generations, but also entails risks for family harmony.

• Early planning: Tools such as anticipated inheritance or gifts allow you to make optimal use of tax allowances and to organize succession in an orderly manner.
• Financial compensation payments: If there are several heirs, those who do not take over the house often have to be compensated. This often means that the mortgage needs to be increased, which in turn may jeopardize affordability.

Valuation and latent tax burdens

For inheritance financing, the current valuation of the property by the bank is crucial. A significant increase in value since the original purchase indeed increases the amount that can be lent, but also simultaneously raises the sums needed to pay out co-heirs. For taxes, bear in mind that inheritance taxes are regulated at the cantonal level. While spouses and direct descendants are often exempt, high rates can apply to more distant relatives.

A frequently underestimated point is the property gains tax. This is usually deferred in the event of inheritance, but remains as a latent tax liability. The person who takes over the property bears this burden alone in the event of a later sale. This should definitely be considered when calculating compensation payments to ensure a fair division of net assets.

Affordability as the foundation for taking over

Whether it is worth taking over a property with an existing mortgage depends primarily on whether the heirs can cover the monthly costs from their own income. A property should never be kept for emotional reasons alone if the interest burden and upkeep restrict the financial flexibility of the heirs. Timely safeguards through life insurance policies or adjusting the mortgage type during the testator’s lifetime can help ensure a smooth transition.

Advice & support for your plans

Are you faced with the challenge of taking over or distributing a property as part of an inheritance? Do you want to ensure affordability for the next generation or avoid tax pitfalls? Take advantage of our free 15-minute check for a professional initial assessment of your project and learn how we can support you on a fee basis.