Navigating Swiss-US Estate Planning: What You Need to Know

 By Matthew Ledvina, JD, LLM (US Taxation) 

If you have connections to both Switzerland and the United States, managing your estate—basically, what you own—can be like walking through a maze. Both countries have their own rules, and they don't always play well together. Let's break down some of the tricky areas you might encounter, so you can avoid unpleasant surprises for you and your heirs.

Different Rules for Different Lands

In Switzerland, if you pass away, the laws of the last place you lived will usually govern what happens to your stuff. This includes both your bank accounts and your real estate, whether they are located in Switzerland or elsewhere. But the United States takes a different approach. The place where real estate is located will have its own set of rules, separate from the rules governing personal property like bank accounts. This can create confusion when estates have assets in both countries.

Inheritance:

A Tightrope Walk
Switzerland has strict rules about who gets what after you die. Even if your will says otherwise, a portion of your estate must go to certain close family members like spouses and children. The U.S. is more flexible, usually respecting your wishes as laid out in your will. When you're connected to both countries, this creates a conflict. One country says, "You have to give some of your estate to these relatives," while the other says, "It's your choice."

The Swiss-US Treaty: A Double-Edged Sword

There is a treaty between Switzerland and the United States that is supposed to clarify these matters. But the problem is, both countries interpret it differently. In simple terms, Switzerland often applies its laws based on where a person last lived, while U.S. courts sometimes ignore the treaty and apply their own rules. This lack of consistency makes planning even more difficult.

Pick Your Law, Maybe?

A big question is whether you can choose which country's laws will apply to your estate. In the United States, some cases suggest that you might have that choice. In Switzerland, the legal experts are still debating this point. If this becomes clear one day, it could make things a lot simpler for people with estates in both countries.

Beware of Taxes

Taxes are another hurdle. Both Switzerland and the U.S. tax estates, but they do it differently. Switzerland's cantons (like U.S. states) have their own inheritance taxes. The U.S. has a federal tax that could apply to everything you own, worldwide. There are some treaties to prevent double-taxing the same assets, but they're old and not always effective.

Trust Issues

In the U.S., trusts are commonly used to manage how your assets will be distributed. However, Swiss law is unclear about how it treats American trusts. If you're considering using a trust as part of your estate planning, you'll need to be cautious about how it might be treated in Switzerland, especially when it comes to taxes.

Wrapping Up

Estate planning between Switzerland and the United States is a complicated puzzle. It involves navigating different legal systems, interpreting unclear treaties, and avoiding possible tax pitfalls. If you have assets or family in both countries, you should seriously consider getting advice from legal experts who understand the intricacies of both systems.