Trusts Between Jurisdictions: The Most Widely Used Instrument by Brazilians in the U.S. Is the Least Recognized Under Brazilian Law

There is a sentence I heard, in a firm meeting, from an American estate planning attorney with whom we had been coordinating a case. After an hour of walking me through the revocable living trust he had structured for a Brazilian client based in California, he looked at me with the plainspoken candor of someone who already knows the other side and said: "João, on my end everything is perfect. The problem is Brazil. Brazil doesn't know what to do with this."

The sentence is blunt. It is also accurate.

The trust — the central succession instrument of the common law tradition, the foundation of Anglo-American wealth planning, present in virtually every American family of relevant means — is, at the same time, the instrument most widely used by Brazilians residing in the United States and the least recognized under Brazilian law.

This contradiction is not academic curiosity. It is the origin of roughly half of the binational succession disputes that reach the firm.

I. What a Trust Is — and Why Translation Kills

A trust is not a holding company. It is not a foundation. It is not a power of attorney. It is not a usufruct. It is not a will. And it is, at the same time, a little of each of those figures — without being reducible to any of them.

Technically, the trust is a tripartite fiduciary relationship, in which a settlor (or grantor) transfers formal ownership of assets to an administrator (trustee), with the legal duty to manage them for the benefit of specified third parties (beneficiaries), according to rules established in an instituting document (trust deed).

The peculiarity that Brazilian civil law tradition has difficulty absorbing is this: within the trust, ownership of the assets is split between formal legal title (held by the trustee) and beneficial title (held by the beneficiaries). Brazilian law does not recognize this split. In Brazil, property is unitary. In the United States, property is dual.

That is the source of the friction. It is not a translation flaw. It is a structural difference of concept.

II. Essential Typology — Three Distinctions That Orient Everything

Before any technical conversation about Brazilian recognition, three distinctions must be established, as they define the entire applicable regime:

First distinction — Revocable or Irrevocable.

The revocable trust can be modified, revoked, or terminated unilaterally by the settlor at any time. It is the most popular instrument in the United States for individuals — the well-known revocable living trust, created during lifetime, with the settlor typically serving as initial trustee and lifetime beneficiary, and with third parties designated as beneficiaries upon death. Its principal function, in American practice, is to avoid probate (state-level succession proceedings).

The irrevocable trust, once created, cannot be undone by the settlor. The settlor definitively surrenders control and ownership of the assets. It is used for asset protection, more aggressive tax planning, and definitive intergenerational wealth transfer.

Second distinction — Living or Testamentary.

The living trust (or inter vivos) is created during lifetime, by unilateral act of the settlor, with assets transferred immediately. It operates from the moment of creation.

The testamentary trust is created by will, taking effect only upon the settlor's death. It does not avoid probate — it passes through it.

Third distinction — Grantor or Non-Grantor Trust (for U.S. tax purposes).

The grantor trust is one in which, for IRS purposes, the settlor retains sufficient powers over the trust that he is treated as though he still owns the assets (rules of §§ 671–679 of the Internal Revenue Code). Income is taxed at the settlor's individual level.

The non-grantor trust has independent tax existence. Income is taxed at the trust entity level or at the beneficiaries who receive distributions.

This third distinction, obscure to those who work exclusively with Brazilian law, is the pivot of the entire American tax architecture. And, by reflection, of what Law 14.754/2023 did in Brazil.

III. Why Brazil Does Not Recognize the Trust as an Autonomous Entity

Brazil is not a signatory to the Hague Convention of July 1, 1985 on the Law Applicable to Trusts and on Their Recognition. This Convention is the international instrument that standardizes, among signatory countries, the reciprocal recognition of trusts constituted in foreign jurisdictions.

Without such accession, and without domestic Brazilian legislation regulating the institute, the foreign trust — when it arrives before Brazilian jurisdiction — encounters a normative vacuum. And a normative vacuum, under Brazilian law, does not mean autonomy. It means recharacterization.

The practice of superior courts, when confronted with assets held in foreign trust in situations involving a Brazilian spouse, forced heir, or creditor, has typically followed one of three postures:

Posture 1 — Complete disregard. The trust is ignored. The assets are treated as direct property of the settlor (if still living) or of the estate (if deceased). This is the most frequent treatment in partition and probate actions.

Posture 2 — Recharacterization as an inter vivos gift. When the settlor transferred assets to the trust and named specific beneficiaries, the operation is treated as a gift — subject to ITCMD (the Brazilian state-level inheritance and gift tax), subject to collation (the equalization mechanism among forced heirs), subject to reduction for violation of the forced heirship share.

Posture 3 — Recharacterization as fraud. In extreme cases, when the trust was constituted with evident intent to defraud creditors, a spousal community property share, or forced heirs, Brazilian jurisprudence applies Brazilian doctrines of fraud against creditors, simulation, and violation of mandatory law.

In none of these three postures does the trust preserve its original function. It is translated into a Brazilian category — and that translation, almost always, destroys the purpose for which the trust was created.

IV. January 2024 — Law 14.754/2023 Changed the Game

For decades, the dominant strategy among Brazilians with foreign trusts was, essentially, do not report and wait. Brazilian taxation, under the regime prior to Law 14.754/2023 (the 2024 Brazilian Offshore and Trust Tax Reform), depended on effective distribution of income to the Brazilian-resident settlor or beneficiary. As long as the trust retained income internally, taxation was deferred — in many cases, indefinitely.

Law 14.754, enacted December 12, 2023, and effective January 1, 2024, ended that logic.

Article 5 of the Law establishes, for trusts constituted abroad:

(a) Fiscal transparency regime. Assets and rights held in a foreign trust are treated, for Brazilian tax purposes, as belonging to the settlor while the settlor is alive — regardless of whether the trust is revocable or irrevocable. Upon the settlor's death, the assets are treated as belonging to the beneficiary — even if no effective distribution occurs.

(b) Annual taxation of income. Income generated by trust assets is taxed annually at the individual level of the settlor (or beneficiary, after death), on an accrual basis, at a 15% rate (the general rate for foreign investments).

(c) Expanded reporting obligations. Brazilian-resident settlors, beneficiaries, and trustees became subject to specific reporting duties on the individual income tax return, with detailed disclosure of trust assets.

The practical effect is significant. The trust that was "invisible" to the Brazilian tax authorities became fully visible. Deferral is over. Annual taxation has arrived. And — the most delicate point — the transparency regime means that, for Brazilian tax law, trust assets continue to belong to the settlor. This reinforces, by analogy, the succession-law interpretation that these assets also continue to belong to the settlor for purposes of partition, forced heirship share, and inheritance.

Law 14.754/2023 is tax law, not civil law. But it produces systemic effects on the legal perception of the trust. Structures established prior to January 2024 must, in most cases, be reviewed.

V. Five Typical Scenarios — and Their Pitfalls

Scenario 1 — The revocable living trust of a Brazilian resident in the U.S. A classic situation. Brazilian green-card holder, residing in California for ten years, establishes a revocable living trust, transfers the house and accounts. Beneficiaries upon death: American children, American spouse. Pitfall: if residual assets remain in Brazil (a house in Cotia, an interest in a family business), the Brazilian succession completely ignores the American trust — and the American children, if forced heirs under Brazilian law, become entitled to their forced heirship share over the Brazilian assets, regardless of what the trust provides.

Scenario 2 — The irrevocable trust created by a Brazilian for asset protection. Brazilian resident in Brazil, entrepreneur, with pending labor liability exposure. Creates an irrevocable trust in the Bahamas, transfers assets, names children as beneficiaries. Pitfall: the operation is viewed as fraud against creditors; the trust may be disregarded; the assets return to the estate for creditor satisfaction. Nothing is more fragile, under Brazilian law, than a trust created with the manifest purpose of shielding from identifiable creditors.

Scenario 3 — The testamentary trust under an American will. A dual-national Brazilian dies with an American last will establishing a testamentary trust for minor children, with a professional trustee. Pitfall: if there are assets in Brazil, the American will must be recognized by the Superior Tribunal de Justiça (STJ) — Brazil's court of exclusive jurisdiction for foreign judgment recognition; the testamentary trust will likely be disregarded as to the Brazilian assets; the Brazilian forced heirship share resumes operation; the children may receive Brazilian assets outright — while in the U.S. they receive only trustee-controlled distributions. A dual succession logic.

Scenario 4 — The grantor trust that became visible to Brazilian tax authorities. A Brazilian who was settlor of a U.S. grantor trust with substantial retained financial income now — since 2024 — must annually report those earnings to the Brazilian Federal Revenue Service and pay tax on retained undistributed income. Pitfall: many Brazilians in this position are unaware that Law 14.754/2023 applies to them; the Brazilian tax authority began cross-referencing FATCA data in 2025.

Scenario 5 — The Brazilian beneficiary of a foreign trust who ignores the rules. A Brazilian resident in Brazil is beneficiary of a trust created abroad by a deceased relative (an American uncle, a Portuguese grandmother). Receives an occasional distribution. Does not report it. Pitfall: the distribution is taxable in Brazil in the year received. And — after the settlor's death — the trust's underlying assets themselves must be reported as belonging to the beneficiary, even absent any distribution.

VI. When the Trust Effectively Works for a Brazilian Client

Not everything is a pitfall. There are scenarios in which the trust operates with relative efficiency, even under Brazilian law:

(i) Trust for beneficiaries already residing outside Brazil, over assets located outside Brazil, with no succession-law connection to Brazilian forced heirs — the instrument performs its function fully.

(ii) Trust for protection against future, non-identifiable creditors (not against a debt already constituted or imminent), structured with years of anticipation, with rigorous compliance — may withstand challenge.

(iii) Trust as an accessory instrument within a broader architecture, coordinated with a Brazilian holding company, a coherent Brazilian will, and active compliance — functions as one piece, not as a stand-alone solution.

(iv) Trust for specific purposes — such as a special needs trust for a disabled child, or a charitable trust for philanthropic ends — encounters more tolerant reception even in Brazilian courts, given the protective function.

VII. Alternatives When the Trust Is Not the Right Path

For many Brazilians who currently hold — or are being advised to establish — trusts in the United States, the correct instrument may be another:

Brazilian holding company coordinated with a U.S. LLC — an architecture that offers much of the patrimonial organization the trust would seek, with full compatibility under both Brazilian and American law.

Foundation in a neutral jurisdiction (Liechtenstein, Panama, Curaçao) — for cases where legitimate asset-protection logic justifies the structure, and the country of constitution offers internationally recognized protection.

Family Investment Company (FIC) in Delaware or Wyoming — an LLC with a sophisticated operating agreement that replicates trust functions through corporate ownership more legible to Brazilian law.

International will combined with corporate governance — a traditional, tested, predictable solution that resolves most cases without recourse to the trust.

The Final Point

The trust is not a villain. It is a sophisticated instrument that fulfills a relevant function in jurisdictions that recognize it. The error lies not in the trust — it lies in the presumption that it operates universally.

For Brazilians who genuinely live between Brazil and the United States, the trust must be treated for what it is: an American instrument with unpredictable Brazilian effects. Adopting it without full awareness of these asymmetries is to mistake sophistication for solution.

A binational family between Brazil and the United States that has a trust — or is being advised to establish one — must, before anything else, answer three technical questions:

First — how will this trust be viewed in Brazil? As a gift? As property still belonging to the settlor? As an anticipated inheritance?

Second — does this trust respect the Brazilian forced heirship share of any forced heirs residing in Brazil, or does it operate on a collision course with it?

Third — is Brazilian tax compliance under Law 14.754/2023 being maintained? Or has the trust become a hidden fiscal liability?

Without clear answers to these three questions, the trust ceases to be an instrument of planning and becomes a source of future conflict.

That, in the end, is the operational lesson of all cross-border practice: the foreign instrument is only useful when its Brazilian reception has been anticipated. Without such anticipation, it is merely one more problem added to the others.

Trusts do not translate. They must be architected — in two jurisdictions, at once.

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Insight informed by (i) Article 5 of Brazilian Law 14.754/2023; (ii) IRC §§ 671–679 (grantor trust rules); (iii) Uniform Trust Code (in adopting U.S. jurisdictions); (iv) Superior Tribunal de Justiça (STJ) case law on partition, succession, and enforcement involving foreign trusts; (v) Hague Convention of 1985 (international reference, not ratified by Brazil).

Andrade & Cintra Advogados · Sintra Legal & Partners. Informational institutional content, in compliance with Brazilian Bar Association Rule 205/2021. Does not constitute legal advice for any specific matter.

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