Tax changes trigger race for succession planning
The approval of tax reform in Brazil is prompting taxpayers to rush into making lifetime gifts and planning for succession this year. The year 2024 is viewed as the last opportunity to benefit from the current rules on the Tax on Causa Mortis Transfer and Donation of Any Type of Property or Rights (ITCMD) before the changes already approved by Congress come into effect. On average, large law firms have witnessed a 40% increase in inquiries during the first two months of the year.With the approval of the reform, the ITCMD, which is levied on inheritances and donations, will be subjected to a progressive rate across the country. In practice, this rate will increase according to the value of the estate, causing particular concern among the wealthiest. The outcome could be a doubling of the tax rate for estates valued over R$9.9 million in São Paulo, for example.Law firms are also abuzz with activity as the tax reform has enabled states to levy the ITCMD on donations or inheritances from abroad. "These tax disputes are driving demand precisely because they have a direct impact on clients’ pockets," stated lawyer Rafael Stuppiello de Souza from Machado Meyer Advogados.The ITCMD rate continues to range between 2% and 8% nationwide. However, states such as São Paulo, Alagoas, Amapá, Amazonas, Espírito Santo, Mato Grosso do Sul, Minas Gerais, Paraná, and Roraima, which currently maintain a fixed rate, will be required to pass new legislation for progressive taxation.Against this backdrop, Martinelli Advogados, for example, in January and February of this year alone, has already been involved in 36 planning transactions—31% of the total number of transactions carried out last year. In 2023, the firm was involved in approximately 117 planning transactions. Trench Rossi Watanabe recorded a 40% increase in workload at the start of the year and had to bolster its team by hiring another attorney and taking on two trainees to keep up with demand.At Machado Meyer, the start of this year has already surpassed demand for the entire first half of 2023. That represents an increase of 40% compared to the same period last year. At Velloza Advogados, comparing the first two months of this year with those of 2023, demand has quadrupled. There are 11 plans in progress.The rush for succession planning and donations has been most significant in São Paulo. Today, the state has a low ITCMD rate, compared to others, of 4%. It is fixed. However, at the beginning of...
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