Brazil: Strategic developments in Brazil
Know the succession planning instruments Talking about the transfer of assets to heirs is usually a topic met with discomfort, resistance, and often even as a taboo in the family environment. After all, planning succession means thinking about one's own absence. However, more than talking about death, succession planning means talking about organization, asset protection, and peace of mind for the family. Succession planning is the early organization of how assets will be transferred to successors, either during life or after death, taking into account the family reality, the composition of the assets, and the legal, tax, and, where applicable, business aspects involved. Lawyer Carla Veiga, a specialist in succession planning, by Carla Vieira/ Personal Archive The lawyer specializing in succession planning and tax law, Carla Veiga, second vice-president of the Commission for Legal Education of the Brazilian Bar Association – Rio de Janeiro section, highlights that it is precisely because of the variables that there is no single answer on the best way to plan an inheritance during life. The choice will depend on the particularities and objectives of each family. According to Carla, on one hand, there is the person who decides to anticipate the transfer of assets through a lifetime gift, possibly reserving for themselves the usufruct of the assets. On the other hand, there is the person who keeps the assets in their name and organizes their will through a will, thus leaving the effective transfer to the time of succession, when it will be necessary to carry out the inventory. “These are different paths, and to compare them, it is necessary to look at the taxation, the notary costs, the bureaucracy involved, the moment when these costs will be borne, and the degree of control that the owner intends to maintain over their assets during life,” states the lawyer. Photo: Art/Agência Brasil - Art/Agência Brasil Based on these aspects, it is possible to better understand how each of these alternatives works in practice: Lifetime gift with reservation of usufruct This is the anticipation of asset transfer made during the owner's life to a beneficiary (donee) so that the owner of the assets does not lose control and security over the assets until their death. There is the possibility of including restrictive clauses, such as incommunicability (protection in case of divorce or dissolution of stable union of the donee), inalienability (prohibition for the donee to sell, exchange, or donate the received property), non-attachability (prohibition for the asset to be subject to seizure), and reversion (the donated asset returns to the donor's assets if the donee dies before them). Main advantages: a) Anticipates and organizes succession; b) Preserves the use and income of the asset for the donor; c) Prevents the donated asset from having to be shared in the future inventory; d) Allows the inclusion of protection clauses. Main disadvantages: a) Anticipation of costs and taxes: ITCMD (inheritance and donation tax) and expenses with deed and registration; b) Loss of full ownership; c) Irrevocability of the donation, except in specific cases provided for by law; d) Need to respect half of the assets, the so-called legitimate part. Data from the Brazilian Notarial College revealed a record in the drafting of public deeds of real estate donation throughout the country “Many families opted to anticipate succession planning, given the new ITCMD rules (inheritance and donation tax). However, caution is needed: anticipating a donation solely due to taxation, without adequate planning that considers aspects such as governance, usufruct, and liquidity to pay the tax itself, can generate other problems,” ponders Carla. Will Unlike a donation, which is made at the present time and produces immediate effects, a will is made at the present time but produces its effects only after death, in the future. “It is an important instrument of succession planning through which a person expresses their will regarding the destination of their assets after death, observing the limits set by law. It can be used to confirm asset projects and declare specific wishes,” points out the specialist. Main advantages: a) Fully preserves ownership of assets; b) Allows the organization of asset distribution; c) Avoids family conflicts; d) Possibility of revocation at any time by the testator; e) Can also cover non-asset matters. Main disadvantages: a) Does not avoid inventory; b) The drafting of a public will involves notary costs whose criteria vary according to the legislation of each state; c) Possibility of judicial challenge; d) Need to reserve the legitimate part, which is half that necessarily goes to the legal heirs. In addition to the classic forms of succession planning, other instruments can be used to organize and transfer assets. Among them are life insurance, open private pension plans VGBL, and the establishment of a family holding company. Life Insurance According to Carla, life insurance provides liquidity to beneficiaries after the policyholder's death. In situations where part of the assets remains in the policyholder's name and an inventory will be required, the insurance payout will ensure that the costs associated with this inventory are covered, thus alleviating the financial burden on the heirs. Main advantages: a) No incidence of Income Tax (Law No. 7713/1998); b) The compensation paid to beneficiaries will not be subject to the insured's debts, is exempt from inventory, and there is no need to respect the legitimate part (Art. 794, Civil Code); c) No incidence of transfer tax; d) The capital is guaranteed immediately, conditional on death, and is adjusted annually until payment to the beneficiary. One of the simplest forms of succession planning is the implementation of private pension plans in which the founder defines the beneficiaries, states Carla. Private Pension Plan The Vida Gerador de Benefício Livre (VGBL) pension plan, an open private pension modality, which, in addition to its pension purpose, has an attached life insurance, will facilitate the transfer of resources to the designated beneficiaries. Main advantages: a) Upon the policyholder's death, the amounts transferred to beneficiaries will not enter the inventory; b) Income tax is levied only on profits at the time of withdrawal; c) Possibility of accumulating resources over time; d) No ITCMD incidence on the transfer of amounts to beneficiaries due to the policyholder's death, according to the understanding established by the STF (topic 1214). Main disadvantages: a) There is a deduction in Income Tax; b) High administration fees; c) Low liquidity. Family Holding Company The specialist points out that the family holding company has been used as an instrument for asset and succession planning, due to a series of advantages it offers to individuals and families who wish to organize, protect, and optimize their assets. “However, it is necessary to keep in mind that the instrument is not applicable to every situation or family, and a correct evaluation of costs and benefits is essential to determine if the tool is indeed the most suitable.” Its establishment involves the creation and registration of the legal entity, the integration of assets into the share capital, and, when there are real estate properties, the analysis of the incidence or exemption of ITBI (tax on the transfer of real estate). The organization of succession will occur through the donation of quotas to successors, including with reservation of usufruct, encumbrances, and restrictive clauses. Main advantages: a) organization and management of family assets; b) early organization of succession and conflict prevention; c) possibility of adopting asset and heir protection mechanisms; d) possibility of tax efficiency; e) preservation of family business activity; f) segregation of business and family assets. Main disadvantages: a) constitution and registration costs; b) maintenance costs; c) need for planning and specialized advisory services; d) tax burden on constitution and succession. “The important thing is to anticipate and organize succession planning, seeking to prevent family conflicts, preserve assets, and reduce costs and bureaucracy. A well-structured plan allows for the assurance of the policyholder's will and the future transfer of assets to heirs. Planning succession is an act of responsibility, family protection, and love,” completes Carla Veiga. Photo: Art/Agência Brasil - Art/Agência Brasil Professor of Private Law at the Federal University of Ceará, Sidney Guerra. Sidney Guerra/ Personal Archive According to Professor Sidney Guerra, from the Department of Private Law at the Faculty of Law of the Federal University of Ceará, in succession planning, the best solution is rarely a single isolated instrument. In Brazilian law, the organization of asset transfer must respect the legitimate part of necessary heirs — which corresponds to 50% of the assets — and the disposable part, which can be freely disposed of by the owner through a will or other procedures. “From a legal perspective, the best succession plan is one that combines security, economy, control, and respect for the legitimate part. When the objective is to reduce future bureaucracy and keep the owner in control of the assets, donation with usufruct tends to be the most efficient solution; when the intention is merely to order succession and preserve flexibility, a will is more appropriate; and when there has been no prior planning, inventory will be inevitable,” explains the professor. Guerra also highlights that it is important to remember that succession planning cannot be used to defraud creditors, circumvent the legitimate part, or mask asset transfer that is incompatible with the law. “In other words, saving time and costs exists, but it must be built within the limits of the Civil Code and applicable tax legislation.” The decisive legal point is that half of the assets, the so-called legitimate part, belongs to the necessary heirs and cannot be freely set aside. “Therefore, the best succession plan is one that combines security, economy, and respect for legal limits, including tax ones, such as ITCMD,” Guerra concludes. Photo: Art/Agência Brasil - Art/Agência Brasil Inventory Another scenario to consider is when there is no anticipation of asset transfer. In this case, an inventory will be necessary to assess the assets and subsequent division of property. The inventory can be judicial or extrajudicial, and will involve expenses such as ITCMD payment, lawyer fees, and, depending on the route taken, court costs and appraisal expenses for judicial inventory, or notary costs for extrajudicial inventory. These costs are concentrated at the time of succession. When there is consensus among the heirs and the legal requirements are met, the extrajudicial route tends to be faster and less bureaucratic. Carla Veiga explains that, especially when there is disagreement among heirs, judicial inventory can drag on for years. "The delay in defining and dividing the assets can accentuate the conflict among those involved, in addition to contributing to the deterioration of the assets and generating maintenance expenses. Thus, judicial inventory can become more burdensome due to its greater complexity, duration, and the conflicts involved,” warns the lawyer.
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