Italian trust alternatives

Thursday, 01 May 2014
Martina Moscardi takes a tour of Italian structures similar to trusts.

Italy has numerous legal structures that operate in a similar fashion to trusts, some of which are outlined below.

Family purpose fund

This is a separate fund that can only be used to meet a family’s needs and obligations. It can be created by both spouses, by public notary deed, or by a third person by will. Real estate, registered chattels or negotiable instruments/commodities can be assigned to this fund. All property and profit should be used for the fulfilment of the family’s needs during its lifetime. Joint management is usual. Termination of the fund is linked to the family lifetime; in the case of divorce or widowhood the fund will last until any minors reach majority. Personal creditors of the spouses (or of a member of the family) have no claim to the fund.

Private foundation (fondazione)

Unlike the common-law public foundation, the fondazione is a non-profit legal entity primarily used to pursue a social and/or charitable purpose. Beneficiaries are not entitled to profits and do not have management control. The notary deed must be registered in the non-profit Legal Entities Register, and the articles of association kept as a public document.

The natural person founder or founders can assign all kinds of property, estates, registered chattels and even any rights that they may have. Stocks or shares cannot be assigned to the fund.

The fondazione must have a board of directors and a board of auditors. Creditors have no claim to the assets.

The family foundation (similar to the German Stiftung) is a specific type of foundation. As well as preserving and protecting the assets and property of the fund, it has the additional purpose of protecting the family name. Beneficiaries have no claim to the assets in the fund; all profits should be used for the established purpose or purposes.

Registration of restraint or encumbrance on estate or registered chattel

This has recently been introduced in the Civil Code as the ‘poor brother’ of the trust. A natural person or legal entity can protect worthy interests through the registration of a restraint or an encumbrance on real estate or a registered chattel. Such a measure might be employed in the interests of, for example, a less able person for the benefit of whom property and its profits should be employed; or a public entity that aims to protect less able peoples’ interests; or any other legal entity or natural person whose interests are worthy of protection.

In reality, the registration of notarial deed doesn’t create a separate fund, but it does give notice that there is a restraint on the estate.

Personal creditors of the person/entity entitled to register, or of the beneficiary, cannot claim the assets or profits. The restraint should expire within 90 years or the lifetime of the beneficiary.

Separate funds of a limited company

Separate funds of a limited company (no more than 10 per cent of the net assets of the company, as established in the Civil Code) must be used for a specific business, by the assignment of a sum of money, estates or registered chattels.

The board of directors certifies and declares the allocation of the fund and the specific business. It should be registered with the Trade Chamber of Commerce and in the Real Estate Register.

There is no transfer of property; the company remains the owner of the separated assets. The new business can draw directly from the separate income or profit.

Financial statements and audit reports are mandatory for the fund separated from the general assets. Accordingly, creditors of the limited company cannot claim on the assets of the separated fund. The board of directors is jointly liable for the pursuit of the specific business, as stated in the declaration.

When the business is fully completed, or when it becomes impossible to carry on with it, a final statement declares whether or not residual funds will go back to the limited company.

Conflicts of interest may arise for directors involved in the management of the limited company business and the specific business.

Life insurance

The total and final amount is preserved and protected for the policy holder until the final term. Notarial deed is only necessary when real estate is involved.

Foreign insurance companies can use real estate as the insurance premium and the assets are exempt from creditors.

The insurance company owns the property, the gathered amount and its profits for the benefit of the policy holder or a beneficiary, to whom it shall transfer all up to the final term.

The insurance contract can also be used as a method of financial investment.

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Martina Moscardi

Martina Moscardi TEP is an Attorney at law and Barrister for Logos Professionisti Associati in Florence, Italy, and is founder partner of Trust srl (Trustee Company) in Italy.

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