Trust in Italy
How a trust works
Trust laws and rules on Settlor, Trustee, Protector, Beneficiary in Italy
The trust has been operating also in Italy since 1992, the year in which Italy ratified the Hague Convention of 1985 on the recognition of this institution and on the law applicable to it, therefore, the application of the trust in Italy requires the reference to the law of trust applied by a foreign country among those signatories of the Hague Convention.
Article. 2 of the Hague Convention defines the incorporation of the trust, it can take place with:
- a unilateral act or
- by testament;
by a subject called settlor who transfers a specific asset which he owns to another, called trustee.
Written form is required for the proof of the trust which can be:
- a public deed of notary or
- private writing.
The transfer to the trust of real estate, registered goods, company shares must necessarily be transcribed in public registers.
It is essential that there is a statement by the settlor that expresses the will to establish a trust, the simple will to transfer the assets to another entity is not enough.
Following this operation, the trustee:
- can enjoy all the rights that the settlor had on that heritage;
- manages the trust as if he were the owner for a specific lawful purpose;
- manages the to the advantage of one or more subjects who benefit from it.
The assets of the trust are distinct and do not form part of the trustee's assets (both in the case in which they are registered to him and in the case in which they are registered to another person).
The trustee has the power-duty to administer or dispose of the assets in accordance with the articles of incorporation or the law.
It is allowed that the settlor reserves some prerogatives or that some rights are recognized as beneficiary to the trustee.
The identification of one or more beneficiaries is envisaged, which can also be selected by the trustee; acceptance by the beneficiary is not a necessary requirement for the validity of the trust, in fact, the incorporation of the trust may not even be communicated to the beneficiary by the settlor.
However, the trust may not necessarily have a beneficiary, since there may be so-called purpose trusts, in which the assets are destined for a purpose deemed worthy of protection by the law of the country whose trust has been chosen to be regulated; in this case the trust resembles what Italian law regulates with the name of foundation contract.
Trusts can have a specific or indeterminate beneficiary (determined later by the settlor).
The beneficiaries can be:
- immediate beneficiaries: who have immediate benefit from the trust's assets, enjoying the benefits;
- mediated or final beneficiaries: which may not coincide with the immediate recipients.
Duration of the trust
The duration of the trust is determined by the settlor, but in principle it cannot be perpetual (except for the purpose trusts, in the systems that admit them), for example in the English system the maximum duration is eighty years.
The trust is also, as a rule, irrevocable by the settlor, unless otherwise stated in the articles of association.
Trust can be a:
- bilateral act: in this case the case law admits that the settlor can appoint himself as a trustee (so-called "self-declared" trust), since he binds some of his assets to the trust;
- quadrilateral act: this occurs when the role of the “protector” who carries out surveillance over the work of the trustee or his deputy is also included in the trust relationship.
Object of the trust
The object of the trust can be:
- real estate;
- registered goods;
- unregistered goods;
Future or non-existing assets at the time of its establishment cannot be conferred to the trust.
The settlor can be one or more subjects, natural or legal persons,
If the powers of the settlor were aimed to the continuation of the management of the assets through a trustee, who would actually be a trustee of convenience, it would render the trust null and void for undue maintenance of the control powers.
The powers of the settlor can however be limited in the incorporation act by inserting specific clauses for the duration of these powers.
The appointment of the trustee
The trustee is a subject with broad powers, he:
- administers and manages right in rem on movable or immovable property;
- satisfies the will of the settlor by bringing a benefit to one or more third parties.
The trustee is identified:
- according to the will of the settlor who appointed him in the articles of association;
- in a separate deed stating the purpose of the trust by the settlor;
- by court order.
The trustee expressly or tacitly accepts his appointment and complies with the provisions of the settlor identified in the trust act.
There is no legal definition of the trustee, nor of the powers attributed to it; in practice the emerging forms of trust are of various type, therefore the powers of the trustee must be assessed on a case-by-case basis.
The powers of the trustee must be indicated in the articles of association and also in relation to any powers due to the settlor.
The typical powers of the trustee
- application of the provisions contained in the founding act, acting in good faith;
- keeping of trustee assets clearly separated from those conferred in the trust property;
- possibility of entrusting the trust assets to a third party, if this corresponds to needs for better asset management;
- possibility of being assisted by a technical professional in the management and administration of the assets;
- possibility to act legally or to represent the trust assets in court;
- possibility to modify, maintain or appoint new beneficiaries, extend or reduce the duration of the trust.
Duties of the trustee
- application of the utmost diligence;
- safeguarding of the physical and economic integrity of the trust also through judicial and economic initiatives;
- use of any data useful for asset management;
- keeping the accounts of the economic and financial movements affecting the assets of the assets;
- personal and unlimited liability to third parties for acts carried out in excess of the powers attributed to it (except for the possibility of action to claim reimbursement to the trust's assets).
The trustee is never responsible if the beneficiaries had given him their consent to a specific operation to do or if he had received instructions to act so from the protector or the court.
The beneficiaries of the trust
- the power to remove the appointment to the trustee who was defaulting or abusive in using its powers and didn’t respect the rules that regulate the trust, and replacing him with a new trustee;
- the right to exercise control over the activity carried out by the trustee, but within certain limits, in fact, they cannot compromise or interfere in the management of the assets that are in charge of the trustee;
- have the possibility of intervening in advance on an act of disposition of the trustee that could cause damage to the trust;
- the possibility of requesting the intervention of the court;
- the power to intervene when the trustee proves indolent to carry out the necessary acts;
- the power to end the trust.
There are several types of beneficiaries:
- those identified by the settlor;
- those who have qualities to the have this role;
- those who receive a periodic profit;
- those who obtain a revenue only upon expiry of the trust.
The status of beneficiary is not always definitive if the settlor has given the trustee the power to replace them.
The protector is more present in commercial trusts, he is usually a member of the settlor's family or of people with whom he shares values.
Its powers are described in the founding act:
- they can be of an ordinary or extraordinary nature;
- can replace the trustee, or
- can make the project for the distribution of earnings and property shares among the beneficiaries;
- may decide to transfer the operating unit to another location.
The Hague Convention in article 8, paragraph 2, letter f), expressly prescribes the identification of a term of the trust, leaving the task to the law chosen by the settlor who constitutes it.
As a rule, an annual (one or more years) basis term of the trust is established or the final term is identified when a certain event occurs.
The trust act can also provide that the trust is terminated before the final deadline established, on request of the trustee or protector, for example, if:
- the aim pursued has been achieved in advance;
- the purpose is no longer achievable.
The trust may cease for reasons other than the expiration of the term, for example:
- for specific reasons established in the founding act;
- when the goal is realized or becomes impossible;
- if all beneficiaries so wish;
- when the trustee leaves the appointment and is not replaceable.
In all cases of termination of the trust, the remaining assets are liquidated and distributed among the beneficiaries according to the provisions of the founding act.