In Brazil, the Donation, Gift and Inheritance Tax (known as ITCMD) is levied by each state. This tax covers transfers of property, money, equity holdings or assets in general.
In such context, estate planning from a tax standpoint must consider legal discussions and precedents:
1. Right of Usufruct. It is possible to discuss in Court if the tax is due or not when there is transfer of usufruct. It depends, but transferring the right of usufruct instead of ownership rights might avoid taxes – which can benefit generations to come. That is because the tax will be levied when there is transfer of property, but not necessarily when there is transference of the right to use and enjoy real or personal property.
2. “International Inheritance”. It is being discussed if the Donation/Inheritance Tax can be charged on a donation of a nonresident to a Brazilian company or subject. The Brazilian Supreme Court (STF) has already started the trial on this subject, but it is not yet finished. The first Associate Justice ruled that the tax is exempt from now on. Therefore, it is important to follow the trial to know if it is better to file a lawsuit in advance or just wait.
3. Equity rights. Virtually, the tax authorities levy Gift Tax/Inheritance Tax over equity right transfers. But their rating is set depending on the evaluation method, which varies depending on the state. The set value by the state might be unreasonable, much higher than reality. To avoid this sort of discussion, it is important to act in advance, tax planning to find more effective ways to transfer this kind of asset.
Anyone who transfers money, equity or assets in general must pay attention to the State Donation Tax/Inheritance Tax. Not only as a donor, but also as someone who wants to act in advance to make sure that the transmission of assets to heirs happens in a more effective way.