Introduction
A trust is a tool for protecting personal and family assets: it allows assets — property, shareholdings and cash — to be segregated by transferring them to a trustee, who manages them in the interests of the beneficiaries. Once transferred, those assets cease to form part of the settlor's estate and, in principle, cannot be pursued by the settlor's creditors.When asset segregation through a trust is genuinely effective
For a trust to fulfil its protective function fully, three fundamental conditions must be met:- The settlor must relinquish actual control of the assets. If the transfer is merely apparent — if the settlor in practice continues to dispose of the assets — the trust is void and has no segregating effect.
- The trust must be established in the absence of pre-existing debts (or, in any event, without prejudicing existing creditors). A trust established when the settlor is already insolvent or has significant debts is a prime target for an avoidance action.
- Its purpose must be lawful. The law (art. 2740 c.c.) provides that a debtor is liable with all their present and future assets. A trust cannot be a device for removing assets from the general pool available to satisfy creditors' claims.
Avoidance actions: when creditors can ‘pierce’ a trust
An ordinary avoidance action (art. 2901 c.c.) is the means by which creditors can obtain a declaration that a transaction through which the debtor has depleted their assets, making recovery of the debt more difficult or impossible, is ineffective against them.The Italian Supreme Court (Corte di Cassazione) has clarified that:
- A contingent claim is sufficient for an avoidance action — the claim need not already be established and quantified when the assets are transferred into the trust.
- The settlor's awareness of the prejudice to creditors may be inferred from the circumstances (for example, pending litigation or enforcement proceedings).
- The instrument establishing the trust and the transfer of assets are inseparable: avoidance affects the entire arrangement, not merely the individual transfer of assets.
- If the settlor becomes bankrupt, the bankruptcy trustee (curatore) may bring both a bankruptcy avoidance action (art. 67 l.fall.) and an ordinary avoidance action, subject to different time limits and burdens of proof.
In short: a trust established to defraud creditors not only fails to achieve its purpose but also exposes the settlor — and, in certain cases, the trustee — to civil liability and, in the most serious cases, criminal liability.
How to structure a trust to endure over time: good practice
The robustness of a trust depends directly on the quality of the initial planning. The following are the key factors that an experienced law and tax firm must assess:- Timing: the trust must be established when the settlor's financial position is stable, not when a crisis or litigation is imminent.
- Choice of governing law: trusts governed by the laws of England, Jersey, San Marino or other jurisdictions have different characteristics in terms of flexibility, asset segregation and international recognition.
- Independence of the trustee: the trustee must be genuinely independent of the settlor.
- Detailed trust instrument: the objectives, beneficiaries and powers of the trustee and protector must be set out precisely to avoid future disputes.
- Taxation: every transfer of assets into a trust has tax implications — gift tax, IVIE/IVAFE and trust income — which must be planned with a tax adviser.
Marzo Associati's assistance with trusts and asset protection
Marzo Associati – Law and Tax Firm assists individuals, business owners and family offices in structuring trusts, family foundations and other asset protection and planning arrangements. Our experience combines civil law and tax expertise, with a focus on the robustness of arrangements, compliance with Italian and international law, and their ability to endure over time.We operate throughout Italy, with a particular presence in Tuscany, providing tailored advice on:
- Establishing and administering domestic and international trusts
- Succession planning and intergenerational transfers
- Defence against avoidance actions and tax assessments
- Asset protection for business owners and professionals
Conclusions
📞 Do you have assets to protect, or have you been served with a writ of summons? Confidential advice from our specialists is available on request.
