16 Mag What is a Trust: definition, functioning, and key stakeholders
What is a Trust? Introduction
What is a trust? The trust is a legal institution of Anglo-Saxon origin, which has gradually spread to civil law countries, including Italy, through external recognition by the Hague Convention of July 1, 1985, ratified in Italy by Law No. 364/1989. Despite the absence of specific domestic legislation, the trust is widely used in Italy for purposes of estate planning, asset protection, inheritance management, and fiduciary administration.
This article provides a brief overview of what a trust is, how it works, and the roles and responsibilities of the parties involved.
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What is a Trust?
A trust is a fiduciary legal relationship whereby one party, known as the settlor, transfers assets to another party, the trustee, who manages them according to the provisions set forth in the trust deed, for the benefit of one or more beneficiaries or to pursue a specific purpose.
The key element of a trust is asset segregation: the assets placed into the trust no longer belong to the personal estate of the settlor, nor do they become part of the trustee’s personal estate. They form a separate and autonomous estate earmarked for a specific purpose and are generally protected from the personal creditors of the involved parties (subject to anti-fraud laws and certain exceptions).
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Parties to a Trust
a) The Settlor
The settlor is the person who creates the trust by transferring specific assets to the trustee, to be managed according to the rules laid out in the trust deed.
The settlor’s involvement can vary: they may retain specific powers of control or direction, or they may play a passive role, merely transferring the assets with no further participation.
b) The Trustee
The trustee is the manager of the trust property. This can be an individual or a company who accepts the duty of managing the assets under the terms of the trust deed and in accordance with applicable law.
The trustee has full and discretionary authority over the trust property, but must act in the interest of the beneficiaries or the specified purpose. The trustee is bound by fiduciary duties and may be held civilly liable for mismanagement.
In Italy, trustees are often independent professionals but may also be family members, provided they meet impartiality standards.
c) The Beneficiaries
Beneficiaries are those who benefit from the trust. They can be individually named or identified by objective criteria (e.g., “my legitimate descendants”).
Beneficiaries may have:
- Fixed rights (e.g., the right to receive income from a trust-held property), or
- Future expectations in the case of discretionary trusts, where the trustee determines who receives benefits and to what extent.
Example: In a trust for minors, the settlor’s children do not directly receive the assets but are maintained and educated with the income generated by the trust until they reach adulthood.
d) The Protector
The protector is an optional yet increasingly common figure. A third party, the protector oversees the trustee’s conduct and may have powers of approval, revocation, or supervision. This role is particularly useful in family trusts to maintain balance between administration and beneficiary interests.
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How to Set Up a Trust
A trust is created through a unilateral act that specifies:
- The assets involved;
- The parties;
- The duration;
- The purpose (e.g., family, succession, charity, business);
- The governing law.
In practice, trust creation and the asset transfer to the trustee usually occur simultaneously in a single document.
Asset transfer must comply with Italian legal formalities applicable to each asset type.
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Practical Purposes and Advantages of a Trust
The trust is a highly flexible tool suitable for a wide array of uses, including:
- Asset protection from creditors, marital breakdowns, or future incapacity.
- Structured inheritance planning, particularly for minor or disabled heirs.
- Protection of vulnerable individuals.
- Business management.
Conclusion
The trust is a powerful and flexible legal instrument that can address complex asset management or protection needs, provided it is properly established with professional assistance and in compliance with applicable law.
Although foreign in origin, the trust is now fully compatible with Italian law, as long as legal and fiscal structures are adopted that respect its fiduciary nature.
