Purposes of domestic asset protection trusts

There are as many possible uses of the trust as the imagination of a professional can imagine. The trust relationship is a cross between a bond and a “special property” (but the definition of “qualified heading” is preferable) which can be used for many reasons. Saying trust is like saying legal store. The purpose of the trust must always be considered worthy according to the principles of the relevant legal system.

Among the most frequent uses are those motivated by:

  • domestic asset protection trusts: often the trust is established to protect real estate; for it the use of the term “asset armor” is not infrequent. One of the most appreciated features of the trust is, in fact, the segregation of the assets conferred so that it will be insensitive to any prejudicial event that personally involves one or more protagonists of the trust. Because of this very useful feature, the trust is increasingly used to separate and protect personal assets from corporate assets or to protect all those whose assets can be compromised by risky professional activities (doctors, lawyers, officials, etc.) or, simply, by reckless personal behavior (gambling, use of drugs and alcohol, etc.).
  • Confidentiality: the provisions contained in the trust may be confidential, and this may be a sufficient reason for its creation; confidentiality mainly refers to so-called trusts. ‘opaque’ (in Italy penalized by tax legislation), where the trust can be an excellent instrument for controlling institutions and companies (it is normally employed abroad in tax engineering activities).
  • protection of minors and persons with disabilities: often, as seen, the testamentary dispositions provide that minors have a limited enjoyment of the assets up to the age of majority or that the disabled subjects can enjoy the trust property without being full owners;
  • heritage protection for inheritance purposes: frequently a trust is established in order to protect an asset in the generational shift or waste by persons unable to administer it, addicted to gambling or suffering from excessive prodigality;
  • charity: in many common law systems charities must be established in the form of trusts;
  • forms of investment and pension: pension investment plans and mutual funds are derivatives of Anglo-Saxon trust funds;
  • tax advantages: a trust can give tax advantages. If tax savings is the only reason that led to the establishment of a trust, it can be considered illegitimate and sanctioned. Like any legal institution, elusive or evasive use is contrary to the law and sanctioned.
  • other: the trust, as mentioned, is suitable to realize a vast multiplicity of purposes not easily enumerable.

The trust (literal translation “trust”; the conceptual translation would be “I entrust” meaning custody of movable/immovable property) is an institution of the Anglo-Saxon common law legal system, established within the jurisdiction of equity, which serves to regulate a multiplicity of juridical relationships of a patrimonial nature (isolation and protection of assets, controlled asset management and in matters of succession, pension, corporate and fiscal law).

The term Antitrust has nothing to do with the institution in question, a set of rules/institution guaranteeing effective competition in Willie Stark markets: in this case the English term “trust” is to be understood in the sense of “cartel” or ” agreement “(to the detriment of consumers) between companies (usually oligopoly on a national or international scale) suitable for adversely affecting the normal dynamics of the free and competitive market.

Features

The trust is a legal instrument which, in the interest of one or more beneficiaries or for a specific purpose, makes it possible to structure various “legal positions” based on fiduciary bonds.

There is no rigid and unitary model of trust, but many possible schemes that can be built for a final purpose to be achieved. The subjects of the trust or, more correctly, the “legal positions”, are generally three: one is that of the settlor (or settlor or grantor), ie the one who promotes/establishes the trust. The second is represented by the administrator/manager (trustee). The settlor intends to transfer assets/properties to the administrator, who has the power-duty to manage them according to the “rules” of the trust set by the settlor. The third is that of the beneficiary (beneficiary), expressed or implied. The possible position is that of the guardian (protector). “Positions” and “subjects” may not coincide. The same subject can take more than one legal position (such as, for example, in the “self-declared trust” in which a person is at the same time disposing and trustee), just as more than one person can hold the same position (trust with a plurality of depositors, of administrators, etc.).

Modeling a trust capable of satisfying a specific interest means identifying the most suitable “rules” for the purpose: they are those developed/chosen by the settlor (the subject that establishes the Trust) in the regulatory framework of reference (Hague Convention, foreign laws on trusts, national laws). A valid trust necessarily produces characteristic effects: separation and protection of the assets, heading to the administrator (who does not become the actual owner of it), tied and accountable trust management of the assets. The effects may coincide with the main/final purpose for which the trust was established.

Trust mechanisms

The transfer of assets to the trust fund is bound by a bond between the settlor and the trustee, which is the so-called trust pact; the settlor (settlor) transfers the header (not the property, as it is understood in Italian law) of those assets to be administered by the trustee in the interest of the beneficiaries and within the limits of what is established in the trust act. There are two elements that characterize the trust:

  • a header transfer;
  • the administration of assets, which must be a diligent administration aimed at favoring the beneficiary.

Someone defines the trust (at least the trust in its classical scheme) a sort of “frozen donation” where one can identify, among others, a donor (settler) and a beneficiary. However, it is necessary to point out the objective difficulty of framing the trust in rigid or typical schemes or definitions precisely because of its aptitude to be declined in a myriad of mechanisms, all legitimate as long as within the limits of the Convention, of the regulatory rules referred to and of the system legal system where it is established.

Similarities and differences with the fiduciary mandate

It is commonly said that the trust is the Anglo-Saxon equivalent of the fiduciary mandate of continental law; but the differences are very profound: in the fiduciary mandate, in fact, the ownership of the goods belongs only formally to the trustee, who undertakes to obey all the provisions of the trustee, including an order to return them.

In the trust, on the other hand, the trustee is the full owner of the trust asset bound in the exercise of his right by the provisions contained in the trust deed to be exercised in the interest of the beneficiary. The trustee can sell, exchange, lease, give trust assets to trust (at the disposal of the settlor and if this is functional to the wishes expressed in the trust deed by the settlor himself). Compared to a full owner he cannot destroy the thing (salva substantia rerum). The full ownership of the trustee justifies the use of the instrument for the purposes of protection and succession planning. The counterpart of the protection of the trust property is the compression of the right of ownership suffered by the affixing of a bond to protect legitimate interests. The trust gives a guarantee of jurisdictional protection to a relationship of trust that is typically outside the world of laws.

It should also be noted that the settlor (ie the original full owner of the assets) can establish the trust in a will. The trust, therefore, has many more similarities with the Institute of the fedecommesso than with the fiduciary mandate.

Subjects involved

Settler Natural or legal person who establishes the trust and normally gives it the assets that constitute the trust fund, called settlor. In practice, the taxpayer (s) operate an irrevocable contribution, so that the assets flow into the fund definitively, leaving the material and legal availability (except for usufruct reserves, possession, etc.). Also, the control on the work of the trustee is exercised by subjects other than the settlor (protector, beneficiary) so as to avoid the risk that the trust can be considered simulated and therefore null since in many legislations the power of the settlor on the established trust is provided for the bland scope.

Trustee The trustee can be, as a visa, a natural person, a trusted professional of the settlor, or even a legal person such as a pension fund. The trust deed of incorporation governs the obligations and rights of the trustee and, in the case of multiple trustees, the means of resolving disputes.

Beneficiary The beneficiary can also be a natural or legal person, a group of subjects also determined generically and/or not yet existing at the time of the constitution of the trust, as often happens in trusts set up for charity (eg: “my grandchildren and great-grandchildren “;” the poor of the village X “;” the miners of the well No. 14 “).

Protector Natural person, trustworthy professional of the settlor who guarantees the correctness of the activities carried out by the trustee, eventually, of substitute of the trustee.

Tax problems

The trust envisages the particular circumstance that the owner of an asset can dispossess it, conferring it in a juridical structure distinct from him, different, and administered by a third party. After the dispossession, the taxation will primarily concern the trust (except for the taxation of the income beneficiaries, where provided for), similarly to what happens following the transfer of assets to companies of convenience set up ad hoc [2].

The recent orientation of tax jurisprudence seemed to have brought the trust back to a more appropriate tax regime for the institute, thus overcoming the initial interpretation and consequent taxing practices as outlined by the Circular Revenue Revenue n.48 / E-’07 (proportional tax ); this resulted in the substantial subjection to fixed tax of the trust deed of incorporation and the deeds of conferment in it of goods, except for applying the tax proportional to the actual attribution of the assets to the beneficiaries. However, the last lawsuits of the Supreme Court (among them the order n.3886 / 2015) indicate the way of an overlap and duplication of proportional taxes (to the conferment of trust property and to the attribution of them to the beneficiaries); an orientation that, if consolidated, will have the effect of making the recourse to the Trust in Italy extremely burdensome, nullifying the provisions of L.364 / 89 and making the institution inapplicable. A result that would consolidate an all-Italian practice that sees the tax aspects drastically conditioning the application of the institutions of the Italian legal system.

In the United Kingdom, trusts are anonymous structures but subject to taxation. The Liechtenstein trusts, on the other hand, are not taxed. Its use to conceal the actual beneficiaries of sums of money coming from crime as well as being criminally prosecuted is often ineffective and in the jurisdictions that have known the trust for centuries the case law shows that it is no longer used by joint stock companies, anonymous companies, Anstalt, Stiftung, or other forms of fiduciary bodies. On the contrary, the greatest assets (such as the English crown) are in trust, demonstrating that a legal institution does not in itself have a propensity to commit an offense.

European jurisprudence demonstrates the favor of tribunals for the recognition of the trust (legitimate and worthy) and among the more than sixty Italian sentences (in favor of the recognition of the trust) none is of condemnation or even covertly of money laundering. For tax purposes, since 2006, trusts have been a taxable person for IRES. It should be noted that, in the event that the beneficiaries of the trust are identified, the income earned by the trust is in any case attributed to the said beneficiaries in proportion to the share of participation, or, failing that, in equal parts. This is the so-called “transparency” regime. If the beneficiaries are natural persons the income attributed to them is qualified as capital income (Art. 6, TUIR) and therefore falls within the IRPEF taxation sphere. A beneficiary means “identified” when he is entitled to receive the income of the period from the trustee regardless of the actual exercise of the right. In the absence of “identified beneficiaries” the income of the trust is subject to IRES and is determined by different rules depending on whether the activity carried out by the trust is commercial or not.

Homologies with Italian law

The lack, in Italian civil law, of a system of equitable rules, is not an obstacle to the use of the trust. On the contrary, the institute finds legitimate entry into the Italian legal system following Italy’s accession to the Hague Convention of 1 July 1985, made enforceable and effective from 1 January 1992. There are now numerous sentences by Italian courts of varying degrees that recognize the effects of the trust, with particular regard to the so-called internal one, meaning the trust that presents the regulating law as the only element of extraneousness with respect to the Italian legal system, which must necessarily be foreign (generally English), given the lack of specific rules on the matter in the Italian legal system. For the first time in Italy, the institute was taken into consideration from a fiscal point of view by the 2007 financial law and by some circulars of the Revenue Agency, first of all, n.48 / E of 2007, for the sole purpose of regulating it with the fiscal and tax aspects are clear.

In Italian law, the institution of the trust can be widely applied for the most various purposes (fiduciary management, generational passages of family assets and companies, destinations of goods for charitable purposes, asset protection [3], etc.). The advantages are evident above all with reference to the flexibility of the institution with respect to the traditional and well-known instruments of Italian law as well as to the possible Willie Stark advantages. Due to this characteristic, the trust well would lend itself to mass use even in place of more traditional and widespread legal instruments. However, it is necessary to highlight the current lack of knowledge of the trust among Italian jurists that does not facilitate the establishment of the institute and its dissemination.

The 2010 Community law has delegated the Government (Chapter II, article 11) to introduce and regulate the institution of the trust (trust) in the Italian legal system. Bill No. 2284 presented by the Minister of Justice Alfano (not yet begun) examines the Government to make changes to the civil code in matters of trust regulation and the autonomous guarantee contract. The discipline of trust aims to fill a gap in our legal system which – despite the entry into force of the convention on the law applicable to trusts and their recognition (adopted in The Hague on 1 July 1985, ratified and enforced by the 16 October 1989 No. 364) does not contain a complete positive discipline of the trust institution. Community law and the 2284 bill draw inspiration from the French model of the institution of “trust”. In fact, through the 2009-2011 Ordinance of 2009, France extended to individuals and legal entities not subject to corporation tax, the ability to constitute a “trust”, also allowing lawyers to act as trustees. Italy, in the wake of the French reform, is, therefore, seeking through its own legislation on trust (trust) to implement a modernization and greater legal attractiveness of its domestic law [4].

It is useful to underline that, as specified below in the specific section, from 2015 the applicability of the institution in question in Italy is expected to be particularly difficult due to the tax regime that is emerging due to certain recent legitimacy jurisprudence.

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