Offshore Asset Protection Trust: What It Protects in Brazil

An offshore asset protection trust is a foreign-law trust to which the settlor transfers assets in order to separate them from future risks. It does not protect on its own. In Brazil, Law No. 14,754/2023 (Lei 14.754/2023) keeps the assets with the settlor for tax purposes, and a creditor can ask for the transfer to be annulled for fraud.

What is an offshore asset protection trust and who are the parties?

The name "asset protection trust" describes the purpose, not a type of trust provided for in Brazilian law. The law defines a trust as a "contractual arrangement governed by foreign law" that organizes the relationship between settlor, trustee and beneficiaries over the assets indicated in the deed (Law 14,754/2023, art. 12, I).

The word "offshore" only indicates that the trust's law and, as a rule, the assets are outside Brazil. For Brazil's Federal Revenue Service (Receita Federal), this does not take the settlor out of the reach of Brazilian law. To learn how a trust works in general, see the guide trusts: settlor, trustee and beneficiary.

How does Brazilian law treat assets placed in a trust?

For the purposes of Law 14,754/2023, the trust's assets and rights remain under the settlor's ownership after the trust is created. They pass to the beneficiary only on distribution or on the settlor's death, whichever comes first (art. 10, I and II).

Three consequences appear in the text of the law:

• •Income and capital gains are considered earned by the holder and subject to individual income tax (IRPF) under the rules that apply to the holder (art. 10, § 3).
• •If the trust has a controlled company abroad, it is treated as held directly by the holder, under the rules on taxation of controlled companies (art. 10, § 4).
• •The change of ownership of the trust's assets is treated as a gratuitous transfer: a donation, if it occurs during life, or a transfer causa mortis (art. 10, § 2). If the settlor irrevocably gives up the right over part of the assets, the transfer may be considered to have occurred before distribution (art. 10, § 1).

This rule is a tax rule ("for the purposes of this Law"). It does not decide on its own whether a creditor can reach the assets, but it shows that Brazilian law does not treat the trust as another person's property. For the full tax view, see offshore trust: is it worth it for Brazilians.

Does the trust protect assets from creditors in Brazil?

It only protects if the transfer cannot be undone. The Civil Code (Código Civil) lets creditors annul transactions by the debtor that harm them, and the Code of Civil Procedure (CPC) makes a sale ineffective against the enforcing party if it was made while a lawsuit capable of driving the debtor into insolvency was already pending.

There are two different mechanisms, and it is worth knowing both:

For a gratuitous transfer, art. 158 applies "even if the debtor is unaware": the debtor can be reached even without knowing they would become insolvent. If the transaction is onerous, art. 159 requires the insolvency to be notorious or the other contracting party to have reason to know of it. Once the transaction is annulled, the benefit reverts to the pool of creditors (art. 165).

The deadline to request annulment for fraud against creditors is a four-year forfeiture period, counted from the day the transaction was made (art. 178, II). Art. 792 does not work with that deadline: what matters is whether a lawsuit was pending at the time of the sale. That is why the timing of the transfer weighs more than any clause in the deed. The topic is covered in more depth in protecting assets from creditors.

Do duress clauses and loss of control solve the problem?

Not on their own. Trust deeds usually provide mechanisms that depend on the law of the chosen country, such as clauses for the trustee not to follow orders given under judicial pressure and the figure of a trust protector. How well each one works is a matter of foreign law, which should be checked in that country's official legislation with a local lawyer.

On the Brazilian side, three points limit what a clause can do:

1. •The Brazilian judge acts on the debtor. Fraud against creditors and fraud on enforcement are argued in a proceeding in Brazil, between creditor and debtor, and do not depend on the trustee accepting the decision.
2. •Retained control weakens the separation. The more power the settlor keeps over the assets, the more the trust looks like the settlor's own property. Law 14,754/2023 itself starts from the premise that the assets remain with the settlor.
3. •A Brazilian decision abroad depends on the country where the assets are. A foreign decision is only valid in Brazil after it is ratified (CPC, art. 961). The reverse path, enforcing a Brazilian order abroad, follows the law of the country where the assets are.

Those studying the design in specific jurisdictions will find details in trust in the Cook Islands, trust in Nevis and DAPT in the United States. To compare jurisdictions, read asset protection jurisdictions.

What does a Brazilian need to declare when holding a trust?

There are two fronts: the Federal Revenue Service and the Central Bank.

• •Federal Revenue Service. Law 14,754/2023 requires the holder to declare the trust's assets and rights directly in the DAA, at acquisition cost (art. 11, in relation to the base date of December 31, 2023). The settlor or the beneficiary must ask the trustee for the resources and information to pay the tax and meet the obligations in Brazil (art. 10, § 5). If the trustee does not comply, the obligation remains with the settlor or the beneficiary (art. 10, § 8).
• •Central Bank (CBE). The annual Brazilian Capital Abroad declaration is mandatory for residents whose assets abroad total US$ 1,000,000.00 or more on December 31 (BCB Resolution 279/2022, art. 10). The deadline for the annual declaration runs from February 15 to April 5 of the following year, and the penalty for not declaring ranges from BRL 2,500.00 to BRL 250,000.00, according to the BCB page.

Deposits held abroad and not declared to the competent federal agency also appear in the sole paragraph of art. 22 of Law 7,492/1986, which deals with currency evasion. Each case depends on the facts, and the analysis is for a lawyer or accountant.

When is an asset protection trust not the right tool?

It is worth reconsidering when there is a collection demand, a lawsuit or a concrete, foreseeable risk. In that situation the transfer can be annulled or declared ineffective, and the four-year period of art. 178 will not yet have run.

It also makes no sense when the assets are small compared with the costs of keeping a trustee and meeting ancillary obligations, or when the goal is only to pay less tax: Law 14,754/2023 taxes the holder normally. For succession and protection within the country, a holding company may be the choice, and the comparison between trust, LLC and holding company helps decide. If the structure combines an LLC and a trust, see LLC inside a trust.

What should you check before signing the deed?

1. •Liabilities and pending lawsuits. List debts, guarantees and proceedings, including foreseeable ones. This determines whether the transfer can be attacked for fraud.
2. •Share of the assets. Assess whether the settlor keeps enough assets for their debts. Insolvency caused by the act is the trigger of art. 158.
3. •Law and trustee. Ask for the chosen law, the text of the deed and the trustee's license. Ask in writing what the trustee will provide for the IRPF and for the CBE.
4. •Art. 10, § 6 clause. Law 14,754/2023 requires the deed or the letter of wishes to include wording that irrevocably and unalterably obliges the trustee to comply with Brazilian law. Confirm that the document provides this.
5. •Costs. Ask for a written proposal from the trustee and the adviser. This article does not estimate amounts.
6. •Opinion from a Brazilian and a local lawyer. The design has to work under both laws.