Holding, Trust, or Offshore? Succession Effects and Alternatives to Traditional Judicial Probate

This article provides a comparative analysis of the succession effects of using three structures — the family holding company, the international trust, and the offshore company — highlighting their main impacts when compared to the traditional judicial probate process in Brazil.Given a succession system that is often slow and costly, these mechanisms have emerged as viable, lawful, and efficient alternatives, though they require technical evaluation regarding their limits, obligations, and potential risks.

Unplanned succession is frequently marked by family conflicts, high costs, significant taxation, and years of court proceedings.

The traditional probate process, especially judicial probate, often compromises both the value and continuity of the estate being transferred.

In this scenario, alternatives such as family holdings, foreign trusts, and offshore structures have been adopted by families and entrepreneurs seeking a faster, safer, and more efficient asset transition. However, the legality, effects, and risks of each structure differ substantially.

2. Traditional Judicial Probate: Limitations and Costs

The succession process in Brazil follows the procedure established by the Code of Civil Procedure (Articles 610–667), which may take the form of:

·         Judicial probate: mandatory when there is a will or an incapacitated heir;

·         Extrajudicial probate: permitted when all heirs are legally capable and in full agreement.

Even in the extrajudicial route, the process involves:

·         Payment of ITCMD (Inheritance and Gift Tax, ranging from 4% to 8%);

·         Expenses with deeds, registrations, and attorneys’ fees;

·         Delays in approval and formal partition of assets;

·         Exposure of estate assets, which remain in the deceased’s name until the conclusion of the process.

3. Family Holding as a Succession Mechanism

A family holding company, when properly structured with specific clauses, allows for advance and organized succession during the founder’s lifetime.

Main advantages:

·         Transfer of assets through quota assignment with usufruct and lifetime management clauses;

·         Avoidance of probate for assets held by the company;

·         Clear contractual rules regarding succession, voting rights, profit distribution, and partner withdrawal.

Limitations:

·         ITCMD still applies, even with restrictive clauses;

·         Need for ongoing accounting and tax maintenance;

·         Assets may remain subject to judicial execution if the structure is poorly implemented.

4. International Trust: Succession Based on Common Law

The trust is widely used in countries such as the United Kingdom, the United States, Switzerland, and Portugal. It involves transferring assets to a trustee, who manages them in accordance with the settlor’s instructions.

Succession advantages:

·         Flexibility: assets can be distributed by shares, age brackets, beneficiary profiles, or timelines;

·         International asset protection;

·         Avoidance of probate in Brazil when assets are held abroad.

Limitations and risks:

·         The trust is not regulated in Brazil, though it is recognized for tax purposes;

·         May be disregarded if fraud, simulation, or omission is proven;

·         Subject to advance taxation under Law No. 14.754/2023.

5. Offshore Company: International Succession Planning

An offshore company can be used as a succession mechanism, particularly when assets are located abroad or when there is an intention to diversify legal and tax exposure.

Advantages:

·         Shares or quotas of the offshore can be transferred during the founder’s lifetime, with potential tax savings;

·         Ensures continuity of ownership without the need for international probate;

·         Enables tax-efficient planning under certain jurisdictions.

Disadvantages:

·         Mandatory declaration to the Federal Revenue Service (DCBE and DIRPF);

·         From 2024 onward, offshore profits will be taxed annually in Brazil;

·         Improper or simulated use may constitute tax evasion or money laundering.

6. Comparative Overview: Alternatives vs. Traditional Probate

Criterion	Traditional Probate	Family Holding	International Trust	Offshore Company
Procedure	Judicial / Extrajudicial	Anticipated during lifetime	Anticipated via private contract	Anticipated through share transfer
Taxation	Full ITCMD	ITCMD on quotas	Depends on jurisdiction	ITCMD and IRPF on shares/gains
Cost & Duration	High and time-consuming	Controlled and preventive	Medium / high, depending on jurisdiction	Medium (structure-dependent)
Risk of Conflict	High	Low, if rules are clear	Low, if properly established	Low, but requires clear governance
Post-mortem Control	Heirs directly divide assets	Lifetime management clauses apply	Trustee manages per directives	Heirs inherit company shares

7. Conclusion

Succession planning is not optional — it is essential.

Depending on the complexity of assets, family composition, and presence of foreign holdings, adopting a holding company, trust, or offshore structure may be the key to avoiding litigation, reducing taxes, and ensuring continuity of management.

However, each structure has specific risks, limitations, and compliance obligations.Improper or simulated use can lead to annulment of acts and civil, tax, or even criminal liability.

Therefore, succession planning must be multidisciplinary, tailored to each family or corporate group, ensuring that its legal, fiscal, and human outcomes are positive, lasting, and sustainable.