The tax reform text was recently approved by the House of Representatives and has already been submitted to the Senate. It approved the unification of taxes on consumption – PIS, Cofins, IPI, state ICMS and municipal ISS – into two taxes, the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS). Together, they accounted for almost 38% of revenue in 2021.
We may also see another stage in the Tax Reform this year, with the possible implementation of the tax on large fortunes, present in the legislation of many countries. And there is still a serious risk of an increase in the rate of the Causa Mortis and Donation Transfer Tax (ITCMD). We are therefore on the verge of a radical change in Brazilian tax legislation.
The ITCMD, levied by the states, has a rate set by the Senate. It currently varies between 4% and 8%. Last year, the National Finance Policy Council (Confaz) sent the Senate a proposal to raise the rate from 8% to 20%. It is not impossible that this percentage will increase even more, as has been applied in the United States, whose equivalent tax, the State Tax, varies between 18% and 40%.
In view of this, it is clear that it is more advantageous for patriarchs and matriarchs to organize themselves immediately in order to carry out succession planning while they are still alive. By choosing the right legal instruments, such as donating assets to their heirs, it is possible to considerably reduce the amounts that have to be paid, thus preserving a larger portion of the assets accumulated over the years.
With the risk of an increase in the ITCMD, it is necessary to take this step while the legislation is still in force and take advantage of a lower tax rate. If this isn’t done, heirs could face a significant reduction in their assets. It is also worth remembering that lawyers’ fees in judicial or extrajudicial inventories are usually charged as a percentage of the total value of the estate, unlike succession planning, whose fees are usually fixed, as they generally correspond to the time actually spent on the work contracted.
One of the great advantages of donating assets to heirs is that it can be done with a lifetime usufruct reservation for the donors, so that they remain the beneficiaries of all the economic and political rights of the estate until their death.
The transparency of the process is also a favorable point. By anticipating events such as death and illness, it is possible to establish a clear structure for how the assets will be distributed among the heirs. This avoids family conflicts, legal disputes and the dilapidation of assets due to hasty or poorly planned decisions. Proper planning provides security and peace of mind for family members, ensuring that the fruits of hard work and dedication are preserved for future generations.
For families who own their own businesses or enterprises, succession planning during life is even more important. In these cases, one of the objectives is also to prevent the company from falling apart due to succession conflicts or the lack of preparation of heirs. The measure enables the orderly and gradual transfer of management and ownership of the business to the next generations, guaranteeing the continuity and sustainability of the enterprise.
