The ITCMD – the Brazilian tax on transfers by death and donation – has caused great concern among heirs. Last month the Confaz – National Council for Financial Policy – approved the submission of a proposal to the Senate, which would increase the maximum ITCMD rate from 8% to 20%. A final draft of the proposal has not yet been crafted, but its many characteristics are expected to model existing ITCMD rules of some states, such as implementing a progressive tax with exemption ranges, and in some cases, the possibility of total exemption.
Given the current economic situation and a likely increase of the tax burden on donations and inheritances, the prudent individual should plan and structure for succession prior to the change in the law in order to enjoy significant tax savings.
Faced with the uncertainty of a possible ITCMD increase, one way to ensure the current rates will apply is anticipate succession via donation of assets. The donation should be well planned in order to provide effective taxation under the code or to ensure that donors retain the income and decision-making power over the assets, even after donation is complete.
It is therefore recommended that families interested in avoiding higher taxes because of the proposed changes to ITCMD rates, and to further bypass the probate process in Brazil, which may take many years to conclude, should consult their tax attorneys and advisors to plan accordingly.
Frequently, founders develop a complex set of rationalizations and compromises that prevent them from engaging in succession planning. The most destructive maneuver is used by the founder who repeatedly goes through the motions of choosing successors only to undermine their authority and fire them alter a given period on some capricious pretext.