Complementary Law 227/26 has changed the level of the brazilian debate on inheritance and gift tax and foreign trusts. Until its enactment, a significant part of the controversy concerned the absence of federal complementary legislation for transactions involving foreign elements, an issue recognised by the Federal Supreme Court in Theme 825. Brazil now has national general rules that expressly refer to trusts, address the transfer of ownership to beneficiaries, and use the settlor's death as one of the tax markers.
Does this mean that every foreign trust automatically became subject to ITCMD when the settlor dies? The most accurate answer is no, not automatically, although the risk has increased substantially. The new statute strengthens the position of Brazilian states and requires every non-incidence thesis to be grounded in the actual facts of the arrangement, rather than in the word trust or in the foreign law selected by the deed.
The starting point is the Brazilian Constitution. ITCMD applies to transfers upon death and gifts of assets or rights. The phrase any assets or rights is broad, but a transfer must still exist. The analysis must identify what left one patrimonial sphere, who acquired it, the juridical cause of the movement, and the value of the right transferred.
The difficulty arises because very different arrangements share the same label. In a revocable trust, the settlor may retain revocation powers, economic access to assets, and decisive influence over administration. Death usually terminates those powers and releases the property for third parties. In this setting, the case for ITCMD is considerably stronger.
The same is generally true of a testamentary trust created or funded because of death. The connection to succession is direct. Property leaves the deceased's estate and enters a structure administered by a trustee for beneficiaries. The trustee's interposition does not erase the transfer upon death.
The position changes with an irrevocable trust that was genuinely funded years earlier and is administered by an independent trustee. Depending on the deed, the settlor's death may not change title to the assets, trigger a distribution, or create a new enforceable right for a beneficiary. The property remains in trust, and a person included in a beneficiary class may continue to hold only an expectancy subject to fiduciary discretion.
This is where the principal constitutional argument appears. Complementary Law 227/26 may characterise trust effects for tax purposes, but death alone should not be converted into a transfer of the entire fund when no one acquires the corpus. Tax law may disregard artificial forms and address abusive arrangements. That autonomy does not authorise a general tax on wealth merely because it is held in trust.
Federal Supreme Court Theme 1,214 helps organise the reasoning. In deciding whether ITCMD applied to PGBL and VGBL proceeds paid after the holder's death, the Court recognised that death can operate only as the trigger of a pre-existing contractual relationship. A trust is not a private pension or insurance contract, and the judgment does not decide the trust question. Its narrower lesson remains useful. Receiving value after death does not by itself prove that the value was inherited.
In practice, the analysis should be divided into three stages. The first is funding, when assets enter the trust. A gift may occur at that stage if the settlor irrevocably disposes of value and creates a present right for another person. If the liberality was completed at funding, the same asset should not be treated as transferred a second time at death.
The second stage is death. The deed must be read to determine what changes. Does a revocation power terminate? Does the beneficiary class close? Does an interest become fixed? Does a person obtain the right to demand income or capital? Does distribution become mandatory? Positive answers strengthen the taxable-event analysis. If nothing changes, automatic taxation becomes materially more vulnerable.
The third stage is distribution. In a discretionary trust, this may be the first time a beneficiary actually receives an individualised asset or right. The delivery must still be characterised. It may be a gift, performance of a previously vested right, a return to the settlor, or a transaction for consideration. The tax base should not exceed the value of the position that was actually acquired.
A practical test helps prevent premature conclusions. Before calculating ITCMD, six questions should be answered: which asset or right was transferred; which event produced the change; what left the prior patrimonial sphere; who acquired the value; whether death or liberality caused the acquisition; and how the particular right should be valued. If those answers cannot be demonstrated, taxing the entire corpus risks using the tax base to invent the taxable event itself.
Discretionary trusts expose the problem clearly. If a broad beneficiary class has no fixed shares and the trustee can decide whether, when, and how much to distribute, who is the taxpayer on the date of death? Which fraction was acquired by each person? Eligibility for a future distribution is not necessarily equivalent to present ownership of all trust assets.
The complementary statute also contains a relevant exception for an acquirer domiciled abroad. The exception may apply in genuine cases, but it should not be confused with a convenience address. Domicile, income-tax residence, nationality, and migration status are distinct concepts, although they may provide reciprocal evidence. Housing, family, work, tax filings, documents, and the person's actual centre of life must form a coherent factual set.
The governing law of the trust matters within limits. Delaware, for example, treats certain purely discretionary interests as expectancies that do not allow the beneficiary to compel distribution. Nevis has its own rules on trusts, foreign judgments, and proceedings against trust property. These rules help explain title and beneficiary rights. They do not prevent Brazil from assessing a person subject to Brazilian jurisdiction or from reaching assets located in Brazil.
A foreign forum clause and protective legislation are therefore not forms of tax immunity. Art. 123 of the Brazilian Tax Code prevents private agreements from changing the taxpayer selected by legislation against the tax authority. Brazilian real estate remains strongly connected to Brazilian jurisdiction. Foreign law may affect direct enforcement against trust property, but it does not eliminate personal liability or replace the tax analysis.
Documentation will be decisive. A trust described as irrevocable loses credibility if the settlor continues to use the assets, directs the trustee, or relies on a side agreement to recover the property. Conversely, documented funding, current registers, an independent trustee, valuations, reasoned resolutions, absence of incompatible powers, and consistent tax reporting make the legal debate concrete and verifiable.
The correct approach is not to promise that a trust does not pay ITCMD. The arrangement must be classified and the first time at which a person acquires value must be mapped. Revocable and testamentary trusts tend to present a clearer taxable event at death. A fixed trust may move the controversy to funding. An irrevocable discretionary trust may support the position that death was neutral, but it must prove independence, absence of acquisition, and the impossibility of allocating the entire corpus to a determinate beneficiary.
Complementary Law 227/26 has made the defensive thesis more demanding, not impossible. The most balanced constitutional interpretation preserves taxation where death or liberality produces a measurable patrimonial acquisition and confines the statutory fiction where no asset or right changed spheres. The central question is not the trust jurisdiction or the sophistication of the deed. It is objective: who acquired what, when, and for which juridical cause?