Giving money to children: how to avoid making mistakes

For Christmas or birthdays, many parents, grandparents, godmothers and godfathers would like to pass on a nice sum of money or other assets. But beware: first you should clarify what the inheritance law and tax consequences are.

Giving money to children: how to avoid making mistakes

Renato Sauter

Many children, grandchildren and godchildren will be delighted to receive an envelope with "Notli". The donee can decide for himself what to do with the money: Save for later – or finally fulfill a wish? However, anyone who wants to pass on significantly larger amounts, such as for their first car, or other assets, must be careful and look carefully. Otherwise, high taxes may be incurred and problems may arise later when the inheritance is divided. These are the most important questions and answers about making gifts to children:

Are there restrictions?

Basically, you can do what you want with your money, even give it away.

Giving money to children: how to avoid making mistakes

Giving assets to children

Anyone making a gift of money or other assets should clarify the tax and inheritance consequences beforehand. This fact sheet summarizes the most important ones.

In the case of larger sums, real estate, collections, valuables or shareholdings, this does not apply without restriction. Such generous gifts must be compensated for by the children who receive them when the inheritance is divided, and they must be credited against the inheritance. Payments for education or occasional gifts of a few thousand francs, on the other hand, are usually unproblematic.

What applies to grandchildren?

Grandparents must clarify in good time whether their children’s compulsory shares will be violated by the donation. An important factor is whether the gift was made more than five years before the death of the donor or only later. A compensation obligation exists nevertheless, provided that the grandchildren come to the inheritance as heirs.

Tip: Larger gifts and inheritances can create bad blood. To avoid disputes, the donors should consult with all those entitled to the inheritance. Record the desired arrangement in an inheritance contract. The children can, for example, waive their compulsory share in the inheritance contract. This rules out the possibility of a grandchild having to repay part of the money given after the death of his or her grandparents.

What must parents pay attention to?

Gifts and inheritances to minors count as part of the so-called child’s assets. Parents have to take care of this and must manage it carefully until the child reaches the age of majority. Parents can use the income from the estate for the maintenance, upbringing and education of the child. If, on the other hand, they want to use up a part of these assets, for example for the child’s education, the parents need the permission of the child and adult protection authority (KESB) to do so.

Do taxes accrue?

Most cantons treat gifts like inheritances. Whether and how much tax is due depends on the canton, the degree of relationship and the amount given as a gift. In most cantons, direct descendants pay little or no tax on gifts.

Non-relatives, on the other hand, sometimes have to pay high taxes on inheritances and gifts. Godmothers and godfathers who want to give their godchildren larger gifts should be careful, as an example shows: A godmother from the canton of Zug wants to give her godchild 35,000 Swiss francs for a trip around the world. The two are not related. There are no consequences under inheritance law, as long as the compulsory portions of the legal heirs are not violated.

However, the gift has consequences for taxes: In the canton of Zug, gifts to godchildren are tax-free up to CHF 10,000. But since the amount is above that, the child receiving the gift must pay 3500 francs in taxes (see table).

What tax rate applies varies from canton to canton. In almost all cantons, the percentage tax burden increases with the amount inherited or given as a gift. No taxes at all in the cantons of Obwalden and Schwyz.

You want to do everything right when you give money as a gift? Order the free fact sheet on giving assets to children. Or reserve a free appointment at the VZ in your area.

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