Brazil’s Supremo Tribunal Federal (STF), in Extraordinary Appeal No. 1,363,013 (originating from the State of Rio de Janeiro), recently held that amounts received by heirs from PGBL (Free Benefit Generating Plan) and VGBL (Life Benefit Generating Plan) are not subject to the levy of ITCMD (tax on inheritance and gifts).
The STF found that PGBL and VGBL plans have a legal nature similar to life insurance policies. Pursuant to Article 794 of the Brazilian Civil Code, life insurance is not considered part of the estate, meaning that amounts paid to beneficiaries do not form part of the deceased’s estate. Instead, they are transferred by means of a contract with the insurer, thereby excluding the application of ITCMD. In addition, the Court grounded its decision on Article 35 of the National Tax Code, which establishes that causa mortis transfers are linked to inheritance and legacy, reinforcing the understanding that PGBL and VGBL proceeds do not fall within this concept.
The decision is also supported by Article 79 of Law No. 11,196/2005, which provides that, upon the death of the participant or insured, beneficiaries may choose to redeem the amounts or receive a continued benefit, without the need to initiate probate proceedings. Based on this understanding, the STF declared unconstitutional the levy of ITCMD provided for under the legislation of the State of Rio de Janeiro on amounts received from PGBL and VGBL plans. Furthermore, the decision was rendered with recognized general repercussion, meaning it must be followed by all courts in the country in similar cases.
Accordingly, this decision is highly relevant for individuals who use private pension plans as part of their estate planning. It encourages the use of private pension instruments as a means of family financial protection, offering reduced bureaucracy and a lower tax burden.