The trust originated in the legal culture and practice of Common Law countries such as the United States and is now widely used in Civil Law jurisdictions as well, including Italy.
A trust is fundamental for asset protection, tax planning, and intergenerational wealth transfer. It is based on a relationship of confidence between the settlor and the trustee. The settlor transfers legal title (not “ownership” as defined under Italian law) to the trustee so the trustee can manage the assets for the benefit of the beneficiaries and within the limits set out in the trust deed.
Trusts can be used by individuals with estates of any size. Prudent individuals protect their assets from potential creditors, costly litigation, and burdensome inheritance taxes. Provided that a trust is established solely for lawful purposes, it can govern a wide range of legal relationships related to asset management, succession, and taxation.
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What a Trust Is and How It Works
A trust is not a legal entity and it is not a bilateral contract, since there is no synallagmatic exchange. It is better understood as a legal arrangement centered on fiduciary management, with “trust” at its core.
There are various types of trusts , each with specific legal and tax features. Examples include the self-declared trust, where the same person is both settlor and trustee, which is viewed with caution by the Italian Revenue Agency, and the self-benefiting trust, where settlor and beneficiary coincide. Other common forms include discretionary trusts, commercial and non-commercial trusts, transparent and opaque trusts, liquidation trusts, blind trusts, and more. A classic example is a trust set up by parents for the benefit of their children.
Contrary to common belief, trusts are used not only for large fortunes but also for ordinary movable and immovable estates. Typical goals include organizing the transfer of assets to children, shielding family wealth from unforeseen risks, and maintaining privacy over one’s holdings.
Revocable vs. Irrevocable Trusts
Many misunderstand the distinction between revocable and irrevocable trusts. In Ruling No. 111 of 2020, the Italian Revenue Agency addressed revocable trusts, namely trusts that include a clause allowing the settlor to dissolve the trust at any time and have the assets returned. Such revocability may render the trust ineffective against the tax authorities, with the trust’s income attributed to the settlor.
There is no absolute ban on revocable trusts, but they must rely on a foreign law that permits them, since the Italian framework is based on the Hague Convention of 1 July 1985, ratified by Law No. 364/1989. In practice, if the settlor wishes to retain some control, options include reserving the power to replace the trustee or change beneficiaries, allowing limited amendments in the trust instrument, or setting up a fixed-term trust with reversion clauses instead of full revocability.
In short, an irrevocable trust provides stronger protection against claims and excessive taxation. A revocable trust offers more flexibility but less protection from creditors.
Living Trust vs. Testamentary Trust: Which to Choose?
The key difference is timing.
A living trust is established during the settlor’s lifetime and takes effect once created and funded. It avoids probate and enables faster transfer of assets to heirs. A testamentary trust is created by will and becomes operative only upon the settlor’s death. The trustee, appointed in the will, takes over management after death and can distribute the estate gradually rather than in a single lump sum.
The choice depends on the need for an efficient, dispute-free generational transfer. For immediate management and greater flexibility, a living trust is preferable. For a controlled and deferred transfer through the estate process, a testamentary trust is more suitable.
Why Use a Trust for Asset Protection?
With increased automation and data-driven systems, individuals face more frequent asset-related exposure than in the past.
A lawfully established trust—particularly in the interest of children and without any fraudulent intent—provides financial security and mitigates legal risks.
Compared with a fondo patrimoniale (family asset fund), the difference is substantial. Although assets in a fondo patrimoniale are shielded from enforcement for debts unrelated to family needs, the burden of proof lies with the spouses to show that creditors knew the debts were not for family purposes. By contrast, the trust’s segregative effect provides comprehensive protection.
Protection from Creditor Claims
An irrevocable trust (or, with careful structuring, a revocable trust) can safeguard assets in the event of litigation or financial distress.
Trust assets are segregated and are not subject to claims by: (a) the trustee’s personal creditors, since the assets do not fall within the trustee’s personal, marital, or succession estate; (b) the settlor’s creditors, since the assets no longer form part of the settlor’s estate (subject to ordinary or bankruptcy claw-back actions); and (c) the beneficiaries’ creditors until distributions are made to them.
Trust assets constitute a separate fund and—although titled to the trustee—do not belong to the trustee’s personal estate.
Streamlined Estate Planning
When properly structured, a trust avoids lengthy and costly probate and enables the direct transfer of assets to heirs.
Many successions without a trust result in disputes. A trust reduces conflict and ensures that assets are managed according to the settlor’s wishes, minimizing taxes and future disputes among heirs over asset distribution.
In this regard, it is highly recommended to use the trust tool to plan your succession so as to eliminate taxes and avoid future disputes between heirs over the distribution of assets.
Tax Benefits and Tax Optimization
Trusts reduce, and in some cases eliminate, the tax burden on inherited assets because, upon the settlor’s death, the assets are not formally owned by the settlor but by the trustee, who manages them for the beneficiaries in accordance with the settlor’s instructions. In Ruling No. 359/2022, the Italian Revenue Agency clarified that assets owned by a trust are not included in the settlor’s estate declaration since they are not the settlor’s property.
Want to know how to reduce or eliminate your inheritance taxes? Talk to an expert today.
Article 4-bis of the Consolidated Inheritance and Gift Tax (introduced by Legislative Decree No. 139/2024) adopts the “taxation upon distribution” principle. Proportional inheritance and gift tax is applied when assets are transferred to beneficiaries, not when assets are contributed to the trust.
Common Mistakes to Avoid When Setting Up a Trust
Underestimating the Importance of Tax Planning
A frequent mistake is assuming that trusts are too expensive or opaque.
The instrument is lawful, recognized by extensive case law from the Italian Supreme Court, and accessible when properly structured. Poor planning can trigger unexpected taxes and loss of benefits. A trust creates a destination constraint over assets, with taxes calculated on a fixed-rate basis as provided by law.
In this regard, a poorly structured trust could later lead to unexpected taxes and the loss of tax benefits, but it should always be kept in mind that it creates a destination constraint on the assets for which the taxes to be paid are calculated at a fixed rate.
Proceeding Without a Specialized Lawyer
Trusts remain relatively underused in Italy not because they are unlawful or prohibitively expensive, but because few practitioners are truly experienced in trust law.
Competent legal assistance is essential to tailor the trust to the client’s asset-management goals.
Relying on experts in succession and tax law is the key to protecting wealth while avoiding legal risk.
Protect Your Wealth with a Secure Trust
In conclusion, the advantages of creating a trust are numerous and primarily include complete segregation of the assets, confidentiality, protection of assets for inheritance purposes, and tax savings.
Book a consultation to create a trust tailored to your needs, as every individual client has different interests, expectations, and goals.
Do you want to protect your assets intelligently? Talk to an expert today.
