The Trust: an asset management tool for businesses and families

Originating in Common Law countries and welcomed into our country with the ratification of the Hague Convention of July 1, 1985, the Trust is increasingly emerging as a valuable estate and tax planning tool, not only for businesses but also for families.

A trust, in brief, allows the settlor or settlor to bind one or more assets (the so-called “Trust fund”) for the realization of predetermined interests or even for the benefit of specific beneficiaries. By establishing a trust, the settlor (owner of the assets) divests himself of the assets and assigns them to a trustee, who assumes the obligation to administer them according to the provisions of the trust agreement in the interest of the beneficiary identified by the settlor. In addition, the settlor can ensure greater control over the trustee’s actions by appointing a protector, an individual or legal entity trusted by the settlor with the task of supervising and verifying compliance with the directions contained in the trust deed. Assets in trust cannot be attacked either by the settlor’s creditors (because the assets are no longer owned by him) or by the trustee’s creditors (because the assets he administers are segregated in trust) or by the creditors of the beneficiaries, except in the case of a revocatory action.

The Trust is an institution that allows the pursuit of multiple purposes such as real estate transfers, successions, marital relations, corporate liquidations, etc. In addition, assets of any kind can be contributed to the Trust. The tax regime applicable to the Trust should be evaluated on a case-by-case basis, taking into account the content of the transaction resulting from the law regulating the Trust and the contractual clauses recited (see, in this sense, the exemption from inheritance and gift taxes in cases of Trusts established for the generational transfer of the business) and in any case, in addition to direct taxation, the registration tax, inheritance and gift taxes and hypo-catastical taxes apply, when the dispositive acts have as their object real estate or real property rights.

The Trust as a taxable entity, must have a tax identification number or VAT number and file a tax return. Income from assets contributed to TRUST is taxable in the hands of the beneficiaries in the case of a “transparent” Trust, or in the hands of the Trust itself in the case of an “opaque” Trust.

In this regulatory environment, there is a clear need to rely on experts in tax, legal and administrative advice, who are a key variable in estate planning.

The following are some practical applications of the Trust:

• Administration and protection of family wealth
• Separate management of a portion of movable assets
• Management of movable assets by placing the cash in Trust and allowing the purchase of real estate, mutual fund shares, corporate shares or the establishment of companies to be entrusted to the trustee for management
• Protection of minors and incapacitated persons
• Establishment of special purpose estates
• Business succession planning
• Bundling of shareholdings from different ownership groups for more compact and reliable voting at shareholders’ meetings than a voting syndicate