Decision establishes that private pension and life insurance plan benefits are not subject to state inheritance tax
In a binding ruling under General Repercussion Topic 1,214, Brazil’s Supreme Federal Court (STF) declared unconstitutional the levy of ITCMD — a state-level tax on inheritance and donations — on amounts received by beneficiaries of VGBL (Vida Gerador de Benefício Livre) and PGBL (Plano Gerador de Benefício Livre) plans upon the death of the policyholder.
The decision was issued in Extraordinary Appeal (RE) No. 1.363.013/RJ, and will now guide all similar cases across Brazil.
STF’s Legal Reasoning: VGBL and PGBL Are Not Part of the Estate
The Court held that VGBL and PGBL plans have an insurance-like and complementary pension nature, and therefore do not form part of the deceased’s estate. As such, amounts paid to beneficiaries under these contracts are not transferred by succession and do not constitute an inheritance.
- VGBL is legally classified as personal life insurance. Upon the insured’s death, it guarantees a payout — either as a lump sum or annuity — to the designated beneficiaries.
- PGBL, while structured as a private pension product, also functions as a life insurance policy upon the death of the policyholder.
Because the benefits arise from a contractual relationship, and not from ownership of an estate, they are not subject to ITCMD.
Impact on State Legislation and the Insurance Sector
The STF ruling granted a request by FENASEG (National Federation of Private Insurance and Pension Companies), declaring unconstitutional specific provisions in the Rio de Janeiro State Law No. 7,174/2015 that sought to tax VGBL and PGBL benefits upon death.
The Court specifically struck down:
- Article 13, II and its sole paragraph, and
- Article 23 of the law, which extended ITCMD to these plans.
However, the STF upheld the constitutionality of Article 42, which deals with the deferral of ITCMD in cases of donation with usufruct reservation — where the donor retains use of the asset until death.
What Changes with This Ruling?
The decision carries general binding effect, meaning all Brazilian states must follow the same interpretation:
- ✅ ITCMD cannot be charged on amounts received from VGBL or PGBL plans upon the policyholder’s death;
- ✅ States must adjust their tax legislation and cease collection on such benefits;
- ✅ Beneficiaries gain legal certainty and are shielded from improper tax demands.
This reinforces the principle that only property transferred by inheritance or donation — not by insurance or pension contract — is taxable under ITCMD.
Final Thoughts: A Win for Legal Clarity and Succession Planning
The STF’s decision brings much-needed clarity to succession-related taxation in Brazil, clearly distinguishing contractual insurance benefits from traditional inheritance. It benefits not only taxpayers and families but also enhances legal predictability for the private pension and insurance sectors.
Individuals involved in estate or financial planning should take note of this precedent, especially when structuring beneficiary designations in pension and insurance plans to avoid unnecessary taxation.