Aloysio Vasconcellos*

The search for new structures aiming at the betterment of estate planning through alternative forms of asset management has increased significantly over the last quarters. The main reason for this sudden rise was the uncertainty regarding estate taxation and fortune management in Brazil. The fear is that the legislator's efforts for social justice may affect the tax legislation and, consequently, it could have an effect on how individuals and companies should manage their assets.

Although the House of Representatives rejected an increase of up to 15% for the Death Transfer and Donations Tax (ITCMD), that currently ranges from 1% to 8% of the estate depending on the state laws, the possibility of a tax increase should not be discarded. Succession planning, together with tax planning, can provide an effective economy of ITCMD and other taxes for companies and individuals.

To keep family asset transfers in secrecy, or to seek a more economically attractive result, succession and estate planning often entails the formation of holdings, companies and/or foreign trusts and foundations. In specialized offices, be them law firms or not, around 30% to 40% of asset restructuring encompasses the creation of off-shore operations.

The establishment of trusts, foundations or companies abroad may result in significant tax gains and greater efficiency of estate management. Transfer of asset ownership to a trustee, usually a financial or fiduciary institution, under the condition of transferring dividends and results sheets to the heirs, may significantly reduce the current incidence of ITCMD and other taxes.

The best option, when it comes to offshore operations in cases of international planning, is the transfer of assets in Brazil (whether real property, personal property, tangible or intangible goods) to a holding or to another legal entity in another country in order to distribute the stocks between the heirs and to help the investor, owner of the capitalized funds, to protect hers or his assets, keeping them away from the country's fiscal madness. Some professionals, certainly with less international experience, have proven themselves unaware of the National Tributary Code and have been using similar instruments in succession planning to only maintain the current tax value, missing the potential gains to be explored. In fact, no Transfer Tax ( Imposto de Transmissão ) whatsoever is collected over the company's capitalization abroad, thus also making the transfer during the investors' lifetime perfectly adequate and advisable to those who wish to protect themselves of possible mishaps that may affect their fortunes. In any case, if there are profits and subsequent income, via dividends or results sheets, the heir or beneficiary is bound to pay Income Tax over everything received from abroad, as legal or natural person.

The operation of transferring assets abroad is lawful, being duly processed at the Central Bank. When a person or a company transfers their assets to a foreign holding it licitly avoids the collection of Property Transfer Tax (ITBI) or other Brazilian taxes, as the transfer itself does not generate any tax ; additionally, he /she will thereafter be exempt from the payment of any Brazilian tax because the operations of the entity so created to hold the assets are now under a different jurisdiction. Therefore, the transfer, as structured, prevents greater taxation over the assets by transferring them ad aeternum to a foreign legal entity. This type of operation can only be considered as tax evasion if the holding belongs to the individual donor and he or she fails to file the income generated by that company in his or hers tax return. Therefore, it is strongly recommended, depending on the case, to combine the formation of a holding with the transfer of the ownership to a trustee or a wealth management institution. There is always a possibility and temptation of reducing the amount of taxes to be paid through less sophisticated overseas operations, but the customers should be aware that this might create enormous legal problems , given the risks involved.

Current uncertainties or the lack of trust in the future stability of a country also play an important role for an individual or company to protect, plan and manage their investments by transferring their assets abroad. Overseas investments are more a consequence from globalization and increased professionalism in estate management than a reflection of tax increases. In cases of succession, the transfer of Real Estate properties to a holding is beneficial thanks to the possibility of distributing the shares of the company to the heirs instead of dividing the properties between them. Therefore, although the division of property might seem complicated, a successful operation can be attained through the use of competent advisors.

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*Head Researcher Westchester International Corporation