Succession and Tax Planning: Organizing Your Assets During Your Lifetime

This page is a translation of the original Portuguese text, provided for convenience. It deals with Brazilian law. If there is any discrepancy, the Portuguese version prevails. Read the original in Portuguese

Succession planning is no longer a subject reserved for large fortunes. It is now part of the asset strategy of families of many different profiles. Tools such as a gift with reserved usufruct, a family holding company, and a will let you transfer assets ahead of time and lawfully reduce the tax burden on inheritances and gifts.

The tax cost of passing on your assets

Transfers of assets by inheritance or gift are subject to the Causa Mortis and Gift Transfer Tax (ITCMD), a tax levied by the states and the Federal District. Each one sets its own rate, up to a ceiling of eight percent established by a resolution of the Federal Senate. In many states, the rate currently applied is still below that ceiling, which opens a significant planning window.

Constitutional Amendment 132 of 2023 made progressive ITCMD rates mandatory, so larger estates tend to be taxed at higher rates. Against that backdrop, making succession decisions while rates remain lower has become a real concern for anyone who wants to preserve the family’s wealth.

Beyond the tax itself, probate carries its own costs. The procedure may be judicial or extrajudicial, and it involves fees, court costs, and often years of proceedings. Until the estate is divided, the assets remain unavailable, which makes it harder to sell, renovate, or otherwise manage the property. Without advance organization, dividing the estate often becomes a source of disputes among heirs, which increases expenses and delays access to the assets.

Gift with reserved usufruct

A gift with reserved usufruct is one of the most widely used tools in succession planning. The owner transfers to the heirs what is known as nua-propriedade (bare ownership) of the asset but keeps the usufruct, meaning the right to use the asset and to receive its fruits, such as rent or other income, for as long as he or she lives.

The main advantage is control. The donor continues to manage the assets and enjoy the income they generate, while ownership has already passed to the next generation. When the donor dies, the usufruct ends and the heirs hold full ownership, with no need for another probate proceeding for that particular asset.

From a tax standpoint, each state’s legislation defines how the ITCMD applies to this transaction. It is common for part of the tax to be paid when the bare ownership is donated and the rest when the usufruct ends. That is why reviewing the applicable state rules is an essential step before structuring the gift.

Another aspect that is often overlooked is capital gains. When an asset is transferred at a value higher than its declared acquisition cost, income tax may apply to the difference. Deciding which value will be used to formalize the gift, market value or historical cost, directly affects the total cost of the transaction.

Even so, a gift calls for caution. Brazilian civil law protects the legítima, the portion of the estate reserved for forced heirs, and prohibits a gratuitous transfer from exceeding the share the donor is free to dispose of. Gifts that ignore this limit can be challenged and annulled in court.

The procedure may be judicial or extrajudicial, and it involves fees, court costs, and often years of proceedings.

The family holding company as a tool

A family holding company is a business entity formed to consolidate the family’s assets, especially real estate and equity interests. Instead of owning the assets directly, family members own shares or membership interests in the company, which becomes the formal owner of the family’s property.

Succession then no longer applies to each asset individually but to the company’s shares or interests. The parents can donate those interests to their children, again with reserved usufruct, while keeping decision-making power over the company’s management through provisions in the articles of organization.

The advantages include the ability to organize family governance, set rules for partners joining and leaving, protect the assets against certain risks, and, in many cases, reduce the tax on rental income compared with taxation of an individual. Dividing the estate in the future tends to be simpler and less contentious, because the rules governing the relationship among the partners are already set out in the company’s articles.

One additional point of caution concerns contributing real estate to the company. The Constitution provides ITBI (the municipal real estate transfer tax) immunity for transfers of property made to pay in a company’s capital, but that immunity does not extend to companies whose main activity is buying, selling, or leasing real estate. Overlooking this exception can turn an expected saving into an unexpected cost.

Setting up a holding company, however, is not an automatic solution. It involves costs to create and maintain, accounting and tax obligations, and it produces real savings only when it is sized to the family’s assets and circumstances. Structures created without a legitimate purpose, merely to disguise transactions, are exposed to tax assessments and to being disregarded by the tax authorities.

The role of a will

A will is often underestimated in succession planning, yet it serves a function the other tools cannot. Through it, the owner expresses his or her wishes for the disposable portion of the estate, always respecting the legítima of the forced heirs.

A will does not, by itself, reduce the ITCMD owed on the succession. Its strength lies in organization and in preventing conflict. It allows you to leave specific assets to particular heirs, to provide for people outside the statutory order of heirs within legal limits, and to avoid the disputes that tend to make probate more expensive and slower. The document can also be revised whenever the family’s makeup or the estate changes, keeping pace with changes over the owner’s lifetime.

In practice, these tools complement one another. A gift with reserved usufruct brings forward the transfer of the main assets; the holding company organizes governance and ownership; and the will takes care of whatever remains and of final wishes. A balanced combination, tailored to each family’s circumstances, is what delivers tax efficiency and legal certainty.

For the professional advising on these decisions, the central point is individual analysis. There is no single formula. The size of the estate, the makeup of the assets, the number of heirs, the state of residence, and the family’s goals determine the most suitable strategy. In every case, the aim is a lawful reduction of the tax burden, never sham transactions or fraud.

Frequently Asked Questions

Does a gift during your lifetime always cost less in tax than an inheritance?

Not necessarily. Gifts and inheritances are subject to the same ITCMD. The advantage of a gift lies in making the transfer ahead of time, while state rates are still lower, and in spreading the tax over time, especially given the progressive rates made mandatory by the tax reform. The actual savings depend on each state’s legislation.

Is a family holding company right for every family?

No. A holding company pays off when there is a significant estate, a variety of assets or heirs, and a need to organize governance. For modest estates, the costs of setting up and maintaining it may outweigh the benefit. The decision calls for a comparative calculation between the corporate structure and traditional succession, made case by case.

Is it possible to plan succession without harming the forced heirs?

Yes, as long as the legítima is respected. The law reserves half of the estate for forced heirs, such as descendants, ascendants, and the spouse. Planning works on the disposable portion and on the way assets are transferred. Going beyond that limit exposes the gift or will to annulment in court.

As informações deste artigo são de caráter informativo e não substituem consulta jurídica individualizada. Cada caso possui particularidades que exigem análise específica.