Trust Advisory in Brazil — International Structures

Brazil does not recognize trusts as legal entities. There is no trust law, no trust registry, and no statutory framework for the fiduciary relationship that Anglo-American trusts depend on. If you hold assets in a US, UK, or offshore trust and become a Brazilian tax resident — or if your trust holds Brazilian assets — you face a regulatory environment that treats your trust as either transparent (taxing you directly on trust income) or as a foreign entity making taxable distributions. Lei 14.754/2023 and LC 227/2026 have closed the remaining gaps that trust holders previously exploited, making professional restructuring advisory essential.

Why Brazil Cannot “See” Your Trust

The Brazilian Civil Code (Lei 10.406/2002) is built on the Roman-Germanic legal tradition, which separates ownership into a binary: you either own an asset or you don’t. The common-law concept of splitting legal title (trustee) from equitable title (beneficiary) has no analog in Brazilian law. Courts and tax authorities have struggled with trusts for decades, producing inconsistent rulings until the legislature finally acted in 2023-2026.

Before Lei 14.754/2023, the Receita Federal (Brazilian IRS) had no clear mechanism to tax trust income. Some taxpayers reported nothing. Others reported trust distributions as foreign-source income. A few reported the underlying trust assets on their DIRPF (annual tax return) and DCBE (declaration of foreign capital). The lack of uniformity created both risk and opportunity — but the opportunity window has closed.

Lei 14.754/2023: Income Tax on Trusts

“Lei 14.754/2023 and LC 227/2026 together ended the era of trust invisibility in Brazil. If you have a US revocable trust and live in Brazil, your trust assets are now explicitly included in your estate for both income tax and ITCMD purposes — the planning window to restructure is measured in months.” — Zachariah Zagol, Founding Partner, OAB/SP 351.356

Lei 14.754/2023, enacted in December 2023, established Brazil’s first comprehensive framework for taxing trusts held by Brazilian tax residents. The key provisions:

Transparency Regime (Art. 8-12)

For revocable trusts where the settlor is a Brazilian tax resident, the trust is treated as transparent. This means:

• All trust income (dividends, interest, capital gains, rental income) is taxable to the settlor in the year it is earned — regardless of whether it is distributed
• The tax rate is 15% on trust income, applied annually
• Trust assets must be reported on the settlor’s DIRPF at market value

Distribution Taxation (Art. 13-16)

For irrevocable trusts, the taxation model differs:

• Trust income is not taxed to the settlor (since the settlor has legally relinquished control)
• Distributions to Brazilian-resident beneficiaries are taxed as foreign-source income at 15%
• Upon the death of the settlor, the transfer of trust assets to beneficiaries triggers both income tax (on accumulated gains) and potentially ITCMD (inheritance tax)

Comparison: Revocable vs. Irrevocable Trust Treatment in Brazil

Feature	Revocable Trust	Irrevocable Trust
Income taxation	Annual, to settlor, 15%	At distribution, to beneficiary, 15%
Asset reporting (DIRPF)	Required by settlor	Required by beneficiary upon distribution
DCBE reporting	Required (trust assets count toward threshold)	Required for beneficiaries receiving distributions
ITCMD exposure	Yes — on death, assets transfer to beneficiaries	Yes — distributions treated as donation or inheritance
Control retained	Yes	No
US estate tax inclusion	Yes (IRC §2038)	Possibly not (depends on trust terms)

LC 227/2026: ITCMD on Trust Transfers

LC 227/2026 introduced specific ITCMD provisions targeting trusts in Arts. 147-151. These provisions take effect on January 1, 2027, and address the gap that existed when trust distributions were arguably not “donations” or “inheritances” under Brazilian law.

Art. 147: Taxable Events

The following trust-related events now trigger ITCMD:

• Transfer of assets to an irrevocable trust (treated as a donation from settlor to trust)
• Distribution from any trust to a beneficiary (treated as donation if settlor is alive, inheritance if settlor has died)
• Death of the settlor of a revocable trust (treated as inheritance to all beneficiaries)

Art. 148: Valuation

Trust assets are valued at fair market value on the date of the taxable event — not at book value, not at historical cost. For US securities held in trust, this means the current market price in USD converted to BRL at the PTAX rate.

Art. 149-150: Jurisdiction and Rates

ITCMD on trust distributions follows progressive rates set by each state, up to the 8% ceiling. The competent state is determined by:

• Real property in trust — state where the property is located
• Other assets — state of the beneficiary’s domicile

Art. 151: Anti-Avoidance

Restructuring a trust specifically to avoid ITCMD (e.g., revoking a trust and re-settling assets in a new jurisdiction) may be challenged under general anti-avoidance principles. The burden shifts to the taxpayer to demonstrate business purpose.

When Trusts Create Problems in Brazil

Scenario 1: The American Who Moved to São Paulo

You created a standard US revocable living trust in 2015 to avoid US probate. It holds your brokerage account ($1.2M) and your rental property in Florida ($600K). You moved to Brazil in 2022 and became a tax resident. Under Lei 14.754/2023, all income earned inside that trust — dividends, capital gains, rental income — is now taxable to you in Brazil at 15%, annually, whether distributed or not. If you failed to report trust income on your 2024 DIRPF, you face multa de ofício of 75% plus SELIC interest. See our case study on this exact scenario.

Scenario 2: The Foreign Heir of a Brazilian Estate

Your father, a Brazilian resident, settled assets into a trust in the Cayman Islands. Upon his death, the trust distributes R$5M to you (a US resident). Under LC 227/2026, this distribution triggers ITCMD in the state of the deceased’s last domicile. The state will assess progressive rates up to 8% on the market value. You may also owe US income tax on the distribution, with no foreign tax credit for ITCMD (it’s a transfer tax, not an income tax).

Scenario 3: The Dual-Citizen Trust Beneficiary

You are a Brazilian-American dual citizen living in Brazil. Your American grandfather’s irrevocable trust distributes $200K/year to you. Under Lei 14.754/2023, each distribution is taxed at 15% in Brazil. Under LC 227/2026, ITCMD may also apply if the distribution is characterized as a doação (gift). You are paying tax in both systems with limited treaty relief — Brazil and the US have no estate or gift tax treaty.

When Trusts Are Still Useful

Trusts are not universally harmful for Brazilian tax residents. They retain value in specific circumstances:

• Irrevocable trusts with no Brazilian-resident beneficiaries — If all beneficiaries live outside Brazil, Brazilian tax law has limited reach (though CRS reporting may still apply)
• Trusts holding only US-situs assets for US estate tax planning — The trust may still be necessary to manage US estate tax exposure for non-US-domiciliaries with US assets exceeding $60,000
• Special needs trusts — For beneficiaries with disabilities, the protective structure may justify the tax cost
• Trusts established before the settlor became Brazilian-resident — Transitional rules under Lei 14.754/2023 Art. 20 may provide partial relief for pre-existing structures, depending on timing

Alternatives to Trusts for Brazilian Estate Planning

“Most American expats created their revocable trust to avoid US probate — a problem that costs $5,000 to solve in the US. But maintaining that trust as a Brazilian tax resident now costs $15,000-40,000 per year in compliance and taxes. The math no longer works.” — Zachariah Zagol, Founding Partner, OAB/SP 351.356

For most clients, we recommend restructuring away from trusts toward instruments that Brazilian law actually recognizes:

Holding Companies

A Brazilian holding company (holding patrimonial) achieves many of the same goals as a trust — asset consolidation, succession planning, management continuity — within a framework the Brazilian legal system fully supports. Share transfers can be structured as donations with usufruct, providing the settlor retained control similar to a revocable trust. See our detailed trust vs. holding company comparison.

Doação com Reserva de Usufruto

A donation with reserved usufruct (usufruto vitalício) under CC Arts. 1.390-1.411 transfers bare ownership to your heirs while you retain the right to use and profit from the asset for life. This achieves the “control during life, transfer at death” goal that revocable trusts serve in the US, but within Brazilian law and at known ITCMD rates.

Life Insurance

Life insurance proceeds are exempt from ITCMD under CC Art. 794 and are not subject to inventory proceedings. For liquidity planning, a life insurance policy can replace the “pour-over” function that trusts serve in US estate plans.

Coordinated Cross-Border Wills

A properly drafted Brazilian testamento público coordinated with your US will can address succession for Brazilian assets without the tax complexity of maintaining a trust. The key is ensuring neither will revokes the other — which requires an attorney who understands both systems.

Our Trust Advisory Process

Phase 1: Trust Impact Assessment

We analyze your existing trust structure against both Lei 14.754/2023 and LC 227/2026 to quantify your current and projected tax exposure. This includes:

• Review of trust deed, amendments, and schedules of assets
• Identification of all Brazilian-resident settlors, trustees, and beneficiaries
• Calculation of unreported trust income and potential penalties
• ITCMD exposure modeling under current and post-2027 rates
• Comparison of restructuring options with projected savings

Deliverable: Written trust impact report with recommendations.

Phase 2: Restructuring Execution

If restructuring is recommended, we coordinate with your US estate attorney and CPA to:

• Revoke or modify the trust as appropriate
• Transfer assets to alternative structures (holding, direct ownership, insurance)
• File voluntary disclosures with the Receita Federal if prior reporting was deficient
• Update DCBE/FBAR filings to reflect new structure
• Draft or update your Brazilian will

Pricing

Service	Investment
Trust Impact Assessment	$3,000 - $5,000
Full Restructuring (trust dissolution + alternative structure)	$10,000 - $30,000
Annual Compliance Support (post-restructuring)	$2,000 - $5,000/year

Pricing depends on trust complexity, number of beneficiaries, asset types, and jurisdictions involved. Request a consultation for a specific quote.

Frequently Asked Questions

Can I just keep my US trust and not report it in Brazil?

No. CRS (Common Reporting Standard) means Brazilian authorities receive automatic information from most financial centers. Lei 14.754/2023 created specific penalties for failure to report trust structures. Non-compliance risks multa de ofício of 75-150% plus criminal exposure under Lei 8.137/1990 (tax crimes). Voluntary disclosure before detection significantly reduces penalties.

My trust is irrevocable — does Brazil still tax me?

Yes, but differently. If you are a beneficiary receiving distributions, those distributions are taxed at 15% as foreign-source income under Lei 14.754/2023. If the settlor dies and trust assets pass to you, ITCMD applies under LC 227/2026. The irrevocable nature may reduce your income tax exposure (since you’re not taxed on undistributed income), but it does not eliminate transfer tax exposure.

Should I revoke my revocable trust?

It depends on your US estate tax exposure. If your worldwide estate is below the US estate tax exemption ($13.61M in 2024, scheduled to drop to ~$7M in 2026), the US probate avoidance benefit of the trust may not justify the Brazilian tax cost. If your estate exceeds the exemption, or if you hold significant US-situs assets, the trust may still serve a purpose. This requires cross-border analysis — exactly what our consultation provides.

Will revoking my trust trigger a taxable event in Brazil?

Revocation of a trust by the settlor (who is a Brazilian tax resident) is generally not a taxable event for ITCMD purposes, since the assets return to the settlor rather than transferring to a third party. However, there may be income tax implications on accumulated but untaxed trust gains. Under Lei 14.754/2023 transitional rules, proper timing of revocation can minimize the tax impact.

How does the US-Brazil tax treaty affect trusts?

Brazil and the US have an income tax treaty (Decreto 85.985/1981), but it does not specifically address trusts. More critically, there is no estate or gift tax treaty between the two countries. This means ITCMD and US estate/gift tax can both apply to the same transfer with no automatic relief. Manual foreign tax credit planning is essential — and requires an advisor who understands both systems.

Why ZS Advogados

Trust advisory at the intersection of US and Brazilian law requires genuine dual competence — not a Brazilian firm guessing at US trust law, and not a US firm guessing at Brazilian tax rules. Zachariah Zagol, the first American admitted to the Brazilian Bar (OAB/SP 351.356), holds an LL.M. from USC Gould School of Law and has advised on trust restructuring for over a decade. We work directly with your US estate attorney and CPA to ensure the restructuring works across both jurisdictions, not just one. Every engagement includes a written analysis, quantified tax modeling, and a clear implementation roadmap — because trust restructuring decisions are irreversible, and the stakes are too high for generic advice. Schedule your trust impact assessment today.