Urs Feller and Marcel Frey of Prager Dreifuss provide an overview of the rights of heirs when identifying c
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|Heirs are frequently faced with the challenging task of trying to ascertain the exact composition and scope of a deceased's estate to enforce their rights under the prevailing inheritance laws. With a view to Switzerland, heirs may become aware of funds of the deceased deposited with and managed by banks in Switzerland. |
This article gives an overview of the information rights of heirs in such a situation and the challenges they might face when approaching Swiss banks, in particular where their heirship rights are based on foreign law and their level of information is rudimentary.
Heirs are frequently faced with the difficult situation of needing to deal with the passing of their loved one, whilst at the same time managing a number of administrative and organisational tasks. This at a time when many might rather be honouring the legacy of the deceased. Nevertheless, statutory timelines frequently start running upon death and heirs are well advised to commence efforts to obtain a clear a picture as soon as possible about the composition and global location of the estate they have stepped or are bordering on stepping into. Rights of disclaimer and to request an inventory commence to run with the passing of the deceased, deadlines for claims based on inheritance law start and tax returns become due. At the same time there may be a level of uncertainty about the worldwide location and exact nature of estate assets.
Heirs are thus regularly faced with the question of how to go about obtaining information about funds located in global financial centres, with Switzerland being no exception.
Basis for information rights of heirs
Private law statues typically cover either a direct passing of the rights and obligations of the deceased to the heirs by operation of law (universal succession) or alternatively by means of a legal procedure that firstly identifies both heirs and the estate and then passes the latter to the entitled heirs after proceedings that deal with certain inheritance issues first (probate proceedings).
Under both systems heirs or executors, tasked with ascertaining the composition of the estate, will frequently come to a position where they will be knocking on the door of a bank with a request for information on the number and balances of accounts held by the deceased with the relevant institution. How do they go about this quest in Switzerland?
With bank client confidentiality still a criminally protected obligation under Swiss law, Swiss banks are frequently cautious when being approached by third parties after the passing away of one of their clients. Accounts are usually frozen upon knowledge of the client's death and even spouses may find accessing funds difficult if the account was in the sole name of the deceased, at least until the rightful entitlement of the heirs or representatives of the estate has been legally established. However, once the person seeking information has demonstrated their legitimacy, either as a certified heir (heir certificate) or as a court mandated representative (executor/personal representative), the question as to the extent of the information rights of this person arises.
Rights of information against banks
Information right based on Swiss inheritance law
Contrary to most common law jurisdictions, Swiss inheritance law is based on the concept of universal succession. Heirs step into the legal position of the deceased upon death by operation of law with no further statutory or administrative action required to grant them their position as legal heirs. Article 560 para. 1 of the Swiss Civil Code (CC) simply states:
'On the death of the deceased, the estate in its entirety vests by operation of law in the heirs… Subject to the statutory exceptions, the deceased's claims, rights of ownership, limited rights in rem and rights of possession automatically pass to the heirs and the debts of the deceased become the personal debts of the heirs.'
Swiss inheritance law in addition has extensive information rights and obligations among the heirs themselves (article 610 para. 2 CC). Heirs must disclose to each other any circumstances concerning their relationship with the deceased insofar as such details may impact the just and equitable division of the estate among the heirs. This includes any information an heir might have about bank accounts, also if these may not have been declared or are unknown to the other heirs. Marital property rights also do not permit withholding information from heirs, since financial operations under martial property law may well have inheritance consequences. The Swiss Federal Tribunal has, in an application of the piercing of the corporate veil, also protected demands for information by heirs against a company, controlled by an heir, on transactions that had earlier been concluded between the deceased and the company.
Under Swiss law, the rule of universal succession leads to the legal consequence that heirs of a person whose estate is governed by Swiss law immediately upon death also become fully entitled and obliged under all of the contractual arrangements of the deceased. This is valid also for agency and deposit contracts, which form the basis of most modern day banking arrangements in Switzerland.
Although one might believe that it would be beyond doubt that the concept of universal succession in Switzerland would include banking contracts without any limitations, Swiss courts initially were restrictive with giving information to heirs beyond the last account statement. The past decades have seen a remarkable swing of the pendulum to a more heir-friendly approach ushered in by the jurisprudence of the Swiss Federal Tribunal acting as the highest national court instance. The banks' argument that client confidentiality limited the rights of information of heirs was finally reversed. This is of particular importance in instances where the deceased had given an asset management mandate to a bank (or an independent asset manager).
It may now be considered settled legal position that banks owe the heirs the same advisory and warning duties, as existed towards the deceased client, though adapted to the new composition of heirs. Furthermore, it has been accepted that the heirs also become the beneficiaries of the confidentiality duties previously owed to the deceased.
Jurisdiction and applicable law
Heirs of foreign clients who were last domiciled abroad and who entertained banking relations in Switzerland, will commonly find that the contracts with the Swiss banks of choice of the deceased are subject to Swiss law and not the law governing the estate itself. In most instances, banking agreements by Swiss banks will contain a choice of law provision making Swiss material law applicable to the banking relationship. As regards the status of a person as heir to the estate, the scope of the estate and the rights of the heirs to enforce their claims, the applicable law will often be determined by the last domicile of the deceased.
Jurisdictional questions regarding claims for information against Swiss banks are governed by the Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters wherever an heir's information right is based on the assumption of the deceased's contractual rights (contrary to a right based on inheritance law). As such, an heir's claims against a Swiss registered bank will need to be brought against the bank at its registered domicile in Switzerland.
Basis for information rights
As noted above, Swiss banking contracts are usually premised on the Swiss law of agency, to which special contracts have added other statutory types of obligations and rights. Nevertheless, the common ground for most bank agreements is the law of agency (mandate law).
Since agents are frequently entrusted with sensitive and important tasks and in the case of banks, given management of significant funds, Swiss agency law knows strict reporting duties and hand-over obligations by the agent to the principal. According to article 400 para. 1 of the Swiss Code of Obligations (CO), the agent is obliged to give an account of his agency activities to the principal and to hand over anything received for whatever reason as a result of such activities, either from the principal himself or from third parties. This provision is the core pillar of the information rights of heirs.
Since heirs enter into the legal position of the deceased who enjoyed the rights under article 400 para. 1 CO up until their passing away, the agent has the same duties towards the heirs from the moment of the client's death. Heirs are not required to demonstrate any legitimate interest to obtain the information and they may request the information even if the bank is of the view that the same information may be available from a different party.
Scope of the information right
Frequently, the extent of such information will be limited by the statutory record-keeping periods which require banks – as commercially run companies – to keep company records for a minimum period of 10 years. After a decade, banks are entitled, and frequently do, destroy older client records. Equally, rights under a bank contract that was terminated by the principal lapse after a statutory period of 10 years. Thereafter, no rights may be enforced against the bank based on the contract.
Heirs are entitled to full reports on the account as well as replies to specific inquiries and also with regard to individual transactions, irrespective of whether the bank considers such information of any importance or whether the same information has already been given at an earlier point in time. Although it may be argued that third parties, in particular in instances where heirs request information about transactions to persons not linked to the estate, thus seeking ie the name of a recipient of funds and the amount and timing of such a disposal, are also protected by bank client confidentiality rules (even if these persons do not themselves entertain a banking relationship with the respective bank), the interest of the heir seeking information shall be deemed more worthy of protection than the opposing interest of the third party to keep this information secret. The heirs should thus prevail in such a situation.
Under Swiss law, the appointed executor/personal representative is equally entitled to information, whilst this does not limit the right of information of an individual heir. As regards foreign executors, the scope of their competences will be defined by the foreign rules governing their mandate.
While the heirs can only jointly dispose over the banked assets until the division of the estate, the right to information vests in each entitled heir and the bank is obliged to give information requested to each heir individually. This is in contrast with the duty to render account, which the bank needs to fulfil vis-à-vis all of the heirs together, however only once. It should be noted in this regard, that heirs are frequently not only entitled to information, but dependent on the bank's cooperation in this regard so as not to run afoul of statutory duties to draw up estate and tax inventories. Under Swiss law, the Federal Act on Direct Federal Tax provides that third parties, such as banks, which hold on account assets of a deceased or managed such assets, are obliged to give the requisite information to authorities at the request of the heirs. Under Swiss law, the bank is however not obliged to act by itself in this regard.
Limits to the information right
Although the scope of the information right has been systematically extended, banks may still refuse certain information. These areas of confidentiality concern the so-called absolute personal rights of the deceased client. This is not a rule specific to banks but rather a general consequence that only rights capable of passing to heirs may be invoked by them. Swiss law excludes a small number of rights from this array of entitlements, which due to their nature, are not practicably or plausibly inheritable.
As noted above, bank client confidentiality does not constitute a valid reason for a bank to withhold information from the heirs. A contentious point however is whether banks are obliged to provide information on matters that the deceased expressly ordered not to be shared with one or all of their heirs. The bank is then faced with the difficult decision as to whether the information right of the heirs includes this piece of information. To the degree that such information pertains to transactions that impact the forced heirship rights of the information requesting heirs, it is accepted that they become unbinding on the bank. However, the heirs must plausibly demonstrate why the sought information is critical for their forced heirship rights. Suggestions on how to deal with such contradictory situations range from depositing the information with a court and having the heirs plead their entitlement to informing an uninvolved third party who would then give the information on a need-to-know basis.
From a practical point of view, in principle, no additional fees can be requested from heirs or their representatives for their information inquiries. Only in instances of significant additional requests may the bank levy a charge for the administrative workload.
Rights of information vis-à-vis third parties in general
Swiss inheritance law does not have a general right to information towards third parties. The Swiss Federal Tribunal has confirmed that the mere need for information does of itself not constitute a legally protected right to obtain such information.
However, where third parties may be the target of abatement claims or claims for restitution of estate assets, these parties are considered to have an information duty based on an analogous reading of article 607 para. 3 CC dealing with the information duties of co-heirs who are either in possession of estate property or debtors of the deceased. Under such circumstances, third parties may become liable to provide information.
Rights of information about assets held on behalf of a beneficial owner
An important, though heavily contested and as yet unsettled point in Swiss law is whether heirs can approach a bank with an information request not pertaining to the deceased as the bank's earlier contractual partner (ie based on the passing of the contractual rights to the heirs), but regarding funds held by a third party on behalf of the deceased who was only the beneficial owner of assets held by the bank (ie the deceased as the shareholder of a company or as beneficial owner of a trust controlled by them).
Swiss jurisprudence has regularly denied access to information about beneficial ownership, stating the lack of transferal of the rights under contract between the bank and the company/trustee to the heirs as reason for such refusal. Banks have in such cases sought refuge in informing the heirs about the person of the formal owner of the funds and requesting the heirs to contact these persons directly.
Since such round-about proceedings frequently prove frustrating, Swiss courts have in parts agreed that where an information right may be based on (domestic or foreign) material inheritance law, in particular for heirs with mandatory heirship rights, such information requests of heirs about assets of beneficial owners should be honoured. The argument being, that the correlation to the right to claim abatement or recovery must be, that potential claimants can obtain a full picture of the actual extent of the estate and their respective share in it and whether transactions by the deceased have had a detrimental impact on such legally protected rights.
Demonstrating an information right based on foreign (non-Swiss) inheritance law may pose a challenge to overseas litigants in Switzerland since the claimants will need to show their entitlement under the foreign law to the satisfaction of the Swiss court. Since a claimant would be requesting the court to do away with the confidentiality obligation of the bank (or other agent), the picture painted by the claimant about the beneficial ownership of the deceased needs to be sufficiently clear and also satisfy the applicable foreign law on which the claimant is basing his entitlement.
This matter is compacted in its complexity since the wrong interpretation of foreign law by a Swiss court can only be brought before the Federal Tribunal for review for manifestly wrong or irrational application and thus with a very limited scope of review.
Rights of information about transfers into trusts or foundations
Following on from the right of an heir to be informed about all of the actions of the agent, this includes the rendering of account about payments executed to third parties such as trusts and foundations which may be of particular relevance to heirs with forced heirship rights who wish to ensure that their statutory entitlements have not been unlawfully undermined by the deceased. Based on the inherited contractual right to information, the bank is obliged to give the heir the details about transactions involving the establishment or funding of structures such as trusts or foundations.
As noted above, Swiss courts have accepted that the general right of an heir to receive information, extends to third parties such as foundations and trusts in certain instances. This approach is supported by the fact that actions in abatement (article 527 CC) or recovery actions based on inheritance law (article 589 CC) presuppose that information about the scope of earlier transferals and the location of estate assets may be obtained.
Rights of information against attorneys in particular
Under Swiss law, client attorney privilege is protected by criminal law. Breaching this secrecy may lead to criminal prosecution of the attorney disclosing confidential information (fine or up to three years' imprisonment). Since attorneys are frequently consulted when it comes to estate planning, heirs are frequently interested in approaching the law firms of the deceased in order to find leads as to assets not known to them.
The Swiss Federal Tribunal has however held that the confidentiality right of attorney clients do not pass over to heirs upon the death of the attorney's client in as far as the activity of the attorney pertains to the typical exercise of the work performed by an attorney; this may not include work related to mere asset management. Where the respective supervisory authority thus does not agree to absolve the attorney from his duty for the sake of higher-ranking public or private interests, heirs may counter unsurmountable resistance in their attempt to find clues as to further assets. It should be noted that this approach by the Federal Tribunal has been met with notable criticism by scholars.
To sum up, although Switzerland has undergone a strong evolution towards a more information-friendly stance towards heirs as regards the accessibility of information about deceased bank clients, obstacles still remain. In particular where foreign heirs face the challenge of requesting information from Swiss banks based on non-mandatory foreign inheritance law, hurdles put in place by a deceased may frequently pose significant formal and procedural challenges.
|About the author|
Urs Feller is a partner and head of Prager Dreifuss' litigation & arbitration group. He has vast experience in all forms of dispute resolution, including mediation, and regularly advises clients on contractual and commercial disputes, in particular relating to banking, insurance and compliance, as well as administrative and judicial assistance. Other areas of expertise include insolvency, restructuring and asset recovery. He is a member of the executive committee of the International Bar Association's litigation section. Urs Feller is also a member of STEP and regularly advises clients on trusts, foundations and inheritance matters including disputes in that area.
Recent publications and contributions include Sovereign Immunity – Switzerland, IFLR Dispute Resolution Guide 2017 with Marcel Frey and LexisNexis Dispute Resolution Guide 2018, December 2017, with Nina Lim and Marcel Frey.
|About the author|
Marcel Frey is a member of Prager Dreifuss' dispute resolution and private clients teams. He represents local and foreign clients in court and arbitration proceedings. He is regularly involved in mutual legal assistance matters and asset recovery, advising clients with regards to corporate law and enforcement matters. Marcel Frey is a member of the management committee of the Swiss South African Chamber of Commerce.
Recent publications and contributions include Sovereign Immunity – Switzerland, IFLR Dispute Resolution Guide 2017 with Urs Feller and LexisNexis Dispute Resolution Guide 2018, December 2017, with Urs Feller and Nina Lim.