Settling an Estate Without Paying ITCMD First: What Changes for Heirs and Partners in Family Businesses

When a partner or owner of a family business passes away, the countdown begins immediately. Articles of association need to be amended, company bank accounts become subject to holds, real estate cannot be sold or pledged as collateral, and in many cases the operational continuity of the business itself is put on hold until the division of assets is formalized. For decades, this entire machinery ran into a single bottleneck: the requirement that the ITCMD, Brazil's state tax on inheritance and donations (Imposto sobre Transmissão Causa Mortis e Doação), be paid in full before any progress could be made on the probate process, whether judicial or extrajudicial.

That understanding, firmly established in notarial practice and in most state courts, has started to be reconsidered. A ruling by the Brazilian Supreme Court (STF) on the summary probate procedure, combined with a recent shift in guidance from the National Council of Justice (CNJ) regarding probate conducted at notary offices, points to a scenario where paying off the tax is no longer an absolute prerequisite for releasing assets. For business owners dealing with family holding companies, equity stakes, and assets tied to business operations, this shift carries real weight for timelines, liquidity, and succession planning.

What the Supreme Court decided on summary probate

In its ruling on ADIn 5,894, the Brazilian Supreme Court upheld the constitutionality of Article 659, paragraph 2, of the Code of Civil Procedure, which governs summary probate (arrolamento sumário), a simplified form of judicial probate available when all heirs are of legal age, legally capable, and in agreement on how the assets should be divided. The Court recognized that approval of the asset division, issuance of the formal partition document, and release of assets to heirs can occur even without prior proof that the ITCMD has been paid.

The reasoning behind this position is not new in Brazilian tax law. The Supreme Court had already established, in earlier binding precedents, a prohibition on so called political sanctions, indirect mechanisms through which the government denies a right or service in order to force payment of a tax, instead of relying on its proper collection tools, such as a tax foreclosure lawsuit. Conditioning the delivery of real estate or the release of an inherited equity stake on full payment of the tax, before any discussion of the amount actually owed has even taken place, comes dangerously close to that kind of indirect coercion.

It is worth stressing that the tax itself remains due. The ruling does not eliminate the obligation to pay the ITCMD, it simply decouples that payment from procedural progress. State tax authorities retain full authority to collect the tax, including through a tax foreclosure lawsuit, with all applicable penalties and interest. What changes is the sequence of events: the asset division can now be formalized first, with the tax collection following its own separate process afterward.

The ripple effect on extrajudicial probate and the CNJ's guidance

Extrajudicial probate, established by Law 11,441 of 2007, allows the division of assets to be handled directly at a notary office through a public deed, as long as there is no will, all heirs are legally capable, and there is consensus among them, always with a lawyer involved. It is the fastest route and the one most used by family businesses precisely because it avoids the usually slower judicial process. Until recently, however, notarial practice and the CNJ's own rules required proof of ITCMD payment as a condition for drawing up the probate and partition deed.

The CNJ's most recent guidance moves toward aligning the extrajudicial procedure with the same reasoning the Supreme Court applied to judicial summary probate: the deed can be drawn up without requiring proof of prior tax payment, while the notary is still responsible for reporting the transaction to the state tax authority so that collection can proceed through the proper channels. This is a meaningful change because it removes notary offices from the role of coercive tax collector, a function that, strictly speaking, was never theirs to begin with.

This convergence between the judicial and extrajudicial regimes does not mean the rules are identical across the country. Since the ITCMD is a state level tax, each state has its own legislation, its own rates, and its own payment deadlines, which creates significant variation from one state to another regarding internal notarial procedures and remaining documentation requirements. Before assuming that probate can simply move forward without any payment at all, it is wise to check the applicable state rules and the guidance issued by the local judicial oversight body.

Direct impact on succession in family businesses

For businesses built around a single individual, whether a limited liability company, an asset holding company, or a sole proprietorship, the owner's death tends to freeze strategic decisions at exactly the moment the business most needs to move quickly. Contractual changes that depend on the asset division being formalized, such as adding heirs to the company's ownership structure or selling shares to third parties, used to remain stalled until the tax was paid in full, which for larger estates can mean substantial amounts and lengthy disputes over the tax base.

With this more flexible approach, it becomes possible, in theory, to formalize the transfer of shares or quotas to heirs and move forward with corporate restructuring without waiting for the outcome of any dispute over the tax amount, for instance when there is disagreement over the assessed value of a property or the valuation of equity stakes with no public market price. This reduces the risk of operational paralysis, of losing contracts due to a lack of properly regularized legal representation, and of asset value eroding simply due to delay.

On the other hand, a faster asset division does not eliminate the tax exposure facing the business and its heirs. The ITCMD liability still exists and can be collected at any point within the statute of limitations, along with monetary correction, interest, and any applicable penalty. Heirs who receive company shares or real estate without having set aside funds for the tax may find themselves, months or years later, facing a tax foreclosure lawsuit against the very asset they inherited or against their personal wealth, depending on the applicable state law. Procedural speed is no substitute for actually planning how the tax will be paid.

Key considerations when structuring the probate process

The first precaution is to confirm that the specific case actually qualifies for the benefits of this new understanding. Summary probate assumes heirs who are of legal age, legally capable, and in full agreement on the division of assets. If there are minors, legally incapacitated heirs, a will, or disputes among heirs, probate follows the ordinary, more formal procedure, where the timing of tax payment may follow a different logic altogether. The same applies to extrajudicial probate, which also requires unanimity and the absence of a valid will as a condition for eligibility.

The second precaution concerns the tax itself. Since the tax remains due regardless, it makes sense for the business and its heirs to assess, from the very start of the succession process, what the likely tax base will be, whether there are disputes worth raising administratively with the state tax authority, and what cash flow will be needed to cover the tax without straining the business's working capital. In many cases, selling off a less strategic asset or distributing accumulated dividends can serve as the planned source of funds for this purpose, preventing the ITCMD payment from forcing a hasty sale of significant equity stakes.

There is also the matter of registration. Even when the probate deed is drawn up without proof of tax payment, real estate registries and state commercial registries may maintain their own requirements for completing the transfer, particularly in states whose legislation explicitly ties registration to tax payment. The sequence of steps needed for the succession to take full legal effect before third parties, banks, and public agencies still calls for detailed technical guidance.

The developments coming out of the Supreme Court and the CNJ mark real progress toward cutting red tape in estate succession, removing tax payment as an absolute barrier to settling inheritances and keeping family businesses running. But assuming that one can simply open probate and move forward without worrying about the tax can create significant hidden liabilities. What this scenario calls for is exactly the opposite of informality: well structured succession planning that takes into account the company's ownership situation, available cash flow, and the particularities of state legislation, so that the business benefits from procedural speed without inheriting, along with the assets, a poorly measured tax contingency.