Advantages of Family Succession in Brazil – a comparison to the United States

After the death of a person, a process must start to allow the transfer of that person’s property to those who are entitled to receive them, who are the heirs or beneficiaries of the inheritance.

This process, however, may be different depending on the country where the death took place because each place has its own laws and specificities.

In this article, we are going to establish a comparison between the proceeding of family succession in Brazil and in the United States, as well as highlight the advantages which Brazil offers for the succession process started in its territory.

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Author: Lucas Gomes Furtado

How much is the inheritance tax rate in Brazil and in the United States?

In most countries, after the death of a relative, it is necessary for the heirs and beneficiaries to pay the inheritance tax for them to be able to inherit the property of the deceased.

In Brazil, the inheritance tax is named ITCMD (Imposto sobre transmissão causa mortis e doação) and must be paid whenever there is the transfer of goods or transfer of rights, in case of death or donation.

In our country, each federative state determines its inheritance tax rate and how it will charge it, but the percentage must not be higher than 8% of the market value of the property.

In other words, we can say that the inheritance tax rate in Brazil may reach a maximum of 8% on the value of the transferred property, in accordance with Brazilian law.

When it comes to the United States, there is no unique percentage of inheritance tax that is valid for the whole country.

Thus, each American state is free to create, or not, this kind of tax, which currently exists in six states: Iowa, Nebraska, New Jersey, Pennsylvania, Maryland, and Kentucky. These are the maximum tax rates determined by each state:

State	Percentage
Nebraska	18%
Kentucky	16%
New Jersey	16%
Pennsylvania	15%
Iowa	10%
Maryland	10%

Besides that, there is also another tax in the United States named estate tax, which is quite similar in essence to the inheritance tax but with a small difference.

As opposed to being paid by the heirs for them to have access to inheritance, the estate tax is paid directly from the estate left by the deceased, as it is levied on the actual property.

The estate tax

The estate tax is currently in effect in twelve American states, aside from the District of Columbia, and the tax rates can achieve 40% depending on the amount of property.

There are also cases of exemption of taxes, especially when the total amount of inheritance is low or, in some situations, when the degree of kinship to the deceased is quite close.

These exemption cases are usually one for American citizens, legal residents, and Green Card holders, and another one for foreigners, which is usually less extensive.

Therefore, with all these nuances, it is essential for one to know the national rules and also the specific laws of each state for succession in the United States to be done correctly.

How does the division of property work in these countries?

In comparison to Brazil, the succession and division of property in the United States happen in quite different ways.

That is mostly because a considerable portion of the population opts to plan their estate while they are still alive, whether through a will, beneficiary designations, powers of attorney, etc.

In these cases, the succession process occurs in a quicker way and the division of the property left by the deceased can be decided according to their wishes, without much bureaucracy.

However, when a person passes away without this kind of estate planning, a lawsuit must be filed at the probate court for the division of property to be done.

The rules for this lawsuit vary considerably in each American state, although there are some similarities among them.

Normally, the court will choose an administrator that is going to be responsible for the property and is usually one of the heirs or a public representative, according to the decision of the judge.

It is also common for the surviving spouse and the children to have preference over other relatives of the deceased. If there are no surviving spouses or children, the next relatives are usually the parents, and after that, the siblings.

Family Succession in the Estates

In the state of New York, for instance, the surviving spouse receives the first 50,000 thousand dollars plus half of what is left of the property, and the remaining amount will be received by the children.

In California, however, the surviving spouse will inherit all the community property and will also receive one-third of the separate property of the deceased, with the remaining two-thirds belonging to the children.

Finally, in Florida, if the surviving spouse and the deceased have common children, and if they do not have children with other people, the estate will be divided in half between the spouse and the children.

It’s possible to conclude, therefore, that each American state is autonomous and free to define its rules regarding the division of property, which will come into force if there is no previous estate planning.

Are there any obstacles or prohibitions to inheriting in these countries?

In Brazil, there are occurrences where the heirs may lose their right to inherit, in specific situations, such as unworthiness, disinheritance, and the existence of debts.

An heir will be considered unworthy if they commit any act against the life or the honor of the owner of the estate, or even against their freedom to make a will. For this to happen, an unworthiness lawsuit must be filed in court.

Besides that, an heir can also be disinherited for the same situations mentioned above, or if they have physical offenses, serious injury, have illegal relations with a stepparent, or fail to assist their ascendants in case of disease.

On the other hand, heirs may also be prevented from inheriting in case of debts made by the deceased, if the payment of these debts uses all the property left by them and there is nothing left to inherit.

In the United States, this type of prohibition to inherit also exists, although in a somewhat different way.

There is a rule commonly known as Slayer Rule, which prevents an heir from receiving any sort of property from someone whom they have murdered, for instance.

Despite being present in some way in the vast majority of American states, this same rule is also slightly altered from state to state.

Arizona, Illinois, and Washington

In Arizona, the crime of manslaughter, or killing without the clear intention to kill, also makes the list of homicides that prevent the heir from inheriting any estate in these situations.

In Illinois and Washington, a person found guilty of crimes such as financial exploitation, abuse, or neglect may also prevent the perpetrator from receiving any property from the victim.

Finally, succession in the United States usually happens in a more unlimited way because a person can leave their property, in most cases, to anyone they wish through a will, even if they are not related or close to each other.

What are the advantages of starting a family succession in Brazil?

To summarize, there are many advantages that may appear for the people who choose to start their family succession in Brazil.

The legal limitation of 8% in relation to the payment of ITCMD on the market value of the property of the deceased allows for the heirs to pay less taxes in order to receive what they are entitled to.

This is especially true in comparison to the United States, where the estate tax may reach a percentage of 40%, depending on the total value of the estate of the deceased.

Besides that, as it was mentioned before, it is not uncommon for the law to have a differentiation between rules for citizens and legal residents, and for foreign people, which are usually much more rigorous.

Another benefit of the Brazilian law is the possibility for any person to get a private pension plan, in order to guarantee better sustenance after they retire.

That is because the private pension plan holder can define how the division of this money will happen after their death by naming any person they want as a beneficiary to receive them.

The Brazilian Law

According to Brazilian law, most federative states do not charge ITCMD on the amount of money left in private pension plans because it is not part of the inheritance and does not need to be included in the inventory proceeding.

In other words, this amount of money related to private pensions can be received by the beneficiaries irrespective of the course and the conclusion of the inventory proceeding.

Another interesting possibility to be considered is the creation of a holding company by the owner of the estate.

In this kind of company, it is possible to plan the management of property and/or other companies by the company partners.

There, particular goods belonging to natural people will be gathered and start belonging to the holding company, although still managed by the partners.

An advantage of holding companies is having more safety and better planning of the property that belongs to it, which will also be divided according to the owner of the estate’s wishes, after their death.

Another positive aspect of this kind of company is related to the taxation on the holding, which is usually considerably lower than what the law determines on natural people.

In both scenarios, a holding company allows for a less expensive, less bureaucratic, and more simplified way to conduct the succession family process, as everything has been planned in advance.

Finally, bringing property from other countries to Brazil with the intention of planning a family succession may be an attractive decision for whoever owns property abroad, given these benefits of Brazilian legislation.