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Trusts and Executors in Italian Wills
It might be tempting to include all your worldwide assets in one Will, as this may seem at the time like the cheaper and easiest option.
However, writing a Will which includes Italian assets, without giving any consideration to Italy’s inheritance laws or administrative procedures, could adversely affect your chosen beneficiaries.
For example, let’s say that you would like to create a Trust within your Will, naming trustees who will administer the estate on your chosen beneficiaries’ behalf. Whilst it’s common to include a Trust in an English Will, this is very uncommon in Italy and even the simplest of Trusts could create difficulties in the administration of an estate in Italy.
A Trust is considered a separate legal entity in Italy. Accordingly, if a Trust is created in a Will, it must be registered with the Tax Agency in Italy and a separate Italian tax code must be obtained for it. It may be taxed at a higher rate than the intended beneficiaries would have been taxed (which in most cases defeats the point of creating the Trust itself).
Rather than the assets being transferred to the beneficiaries, these may be transferred to the Trust, or to the Trustees, who again may be viewed by the Italian Tax Agency as the holders of the assets and taxed in accordance with their relationship to the deceased. This may be detrimental to the estate, for example, where the beneficiaries were the children and wouldn’t be required to pay any taxes on the value of the estate inherited up to €1 million, whilst a Trustee who is not related to the deceased will be taxed at 8%.
The Tax Agency may also query the use of the Trust, asking questions and delaying the administration process even further. This may also incur more fees if a professional instructed to assist.
Many banks are also unfamiliar with the concept of Trusts, especially if these are included within a foreign Will. Those institutions can therefore cause severe delays in the succession process by asking for many more documents than would be required in an ordinary succession.
What was meant to be an instrument created in order to assist the beneficiaries, and potentially lower their taxes, could therefore become complicated and expensive in Italy.
On numerous occasions, the Trustees named are also named as executors in the Will. Naming an executor is again common practice in England, given that this is needed in order to obtain Probate.
This is not, however, common practice in Italy. An executor will be appointed there only if deemed necessary, as the beneficiaries of an estate are automatically considered the administrators of the estate.
If the English Will does not specify that English law is to apply to it, Italian authorities will consider Italian law to apply to the inheritance of the Italian assets within said Will. According to Italian law, if an executor is named in a Will, the executor will have to accept their role before an Italian Court and pay substantial fees for this acceptance to be registered.
The executor/trustee also does not have the same powers in Italy as in England. For example, they will not be entitled to sell shares held by the deceased without a Court Order authorising them to do so.
Obviously, this will create inevitable complications and delays. To illustrate, we have had experience of a case where the deceased died in 2007 but the matter will only culminate this year. Had an executor not been named in the Will or, better yet, had the testator chosen English law to apply to his succession and to his Will, the administration of the estate would have been concluded years ago.
Whilst the use of Trusts is becoming more common practice in Italy, and the Italian authorities are getting used to their existence and how to handle (and tax) them, they are not to be used in the same way as they are in England, as the laws, procedures and taxes will be different in each country.
Before considering the creation of a Trust which is to include assets in Italy, it’s advisable to contact an Italian expert on this subject. Equally, before signing a Will which contains provisions as to your Italian assets (with or without a Trust), you should speak to a legal professional who will be able to advise you on the most tax efficient and simple way for you to leave your assets to your beneficiaries in Italy, ensuring that the Will is carefully worded in order to avoid any problems in the future.
You may also find some more useful information about Trusts and Italian law in this podcast that I have produced in conjunction with The Spectrum IFA Group.