The tax reform imposed changes on the collection of taxes on inheritances and donations, the ITCMD (inheritance and donation tax), which now has a progressive rate according to the value transferred, limited to a ceiling of 8%.
The amount and progressivity will still be limited by each state in the federation. And it is precisely in this gap that opportunities arise for families to get ahead in their estate planning.
In some states, the ITCMD (Inheritance and Gift Tax) rate is fixed, such as in São Paulo, where it is 4%. However, Bill 7/2024, which is currently under consideration, could make it progressive, potentially raising the tax rate to the maximum for the highest estates.
With this risk in mind, families with large fortunes are now beginning to consider whether it is worthwhile to start transferring part of their assets during their lifetime, or whether it is better to wait and see what will be included in the new law before considering any changes.
“The laws need to have a ninety-day and annual prior notice to be implemented. This gives us until the end of this year or next year to have the opportunity to transfer assets during our lifetime and use the current law,” says Alexandre Braga, partner and director of operations at the multi-family office Pragma, to Wealth Point , a NeoFeed program supported by Banco Master.
The regulatory change also closed a loophole that allowed the transfer of assets abroad without paying ITCMD (Inheritance and Gift Tax). While the tax is now clearly applicable to all assets located abroad, how it will be levied still depends on each state having its own specific law.
The ITCMD tax applies to all movable and immovable property in the event of death or lifetime donations. However, it is still unclear whether it applies to private pension plans or not.
“There’s a lot of discussion. But there’s something that’s somewhat resolved when we talk about VGBL, which is somewhat comparable to life insurance, but for PGBL there’s still a lot of discussion,” says Gustavo Lutfi, partner and head of wealth planning at the multi-family office Turim.
For now, the most plausible option is taxing this type of investment, with Complementary Law 108, which advocates for this, currently being processed in the Chamber of Deputies. However, there is a suggestion that investments with a longer term than five years should not be taxed.
The reform and all its implications are bringing succession planning to the forefront of families' urgent agendas. According to Alexandre Braga, this is an opportunity to address this delicate subject, avoided by many patriarchs and matriarchs.
"Succession planning is very important, and it's necessary to have a conversation about what you want to happen in your absence. What do you want to leave behind, and what do you want done with your assets? And this change has brought urgency to this," says the director of Pragma.
And who needs to be involved in this discussion? Some patriarchs and matriarchs don't want to involve their heirs, and that decision needs to be respected. But what these experienced multi-family offices believe is that, somehow, the descendants should know what will happen if the successors are gone.
“Whenever possible, it is beneficial for the patriarch or matriarch to start familiarizing their children with the family's assets. They need to know what happens if the assets are lost and, most importantly, be prepared to receive these resources in the future and preserve them for their descendants,” says Lutfi.
