Estate and succession planning: a comparison between the two instruments
Estate planning refers to the process by which an estate is organized, held, and developed in the interest of its owners and, commonly, of subsequent generations.
It is worth pointing out that the concept of "wealth planning" in recent years is becoming increasingly popular to protect large estates. It finds solutions capable of ensuring generational continuity of individuals and companies to enable the organization of power transitions within large family businesses and intending to protect assets of another nature - including those not of entrepreneurial origin - consisting of real estate, art/car collections, or, more simply, liquid assets.
In this context, wealth planning fits perfectly into the main organizational techniques and interests of professionals involved in strategic, legal, and tax consulting. Therefore, professionals are more than ever called upon to combine the asset and wealth planning issue with the different legal instruments made available by the Italian legal system, such as, for example, insurance, corporate, and trust instruments. In fact, in the last decades, the tools provided by the Italian legal system, used and usable in the field of estate planning, have gradually become more and more widespread, and professionals have supported more entrepreneurs or asset owners to define a correct and efficient financial, tax and estate planning of their assets.
Today more than ever, estate and succession planning practices (and the related application tools) need to be strongly known in their various forms by the different wealth holders since issues such as estate planning, governance, and succession turn out to be essential for proper prospective management of one's wealth. Therefore, this brief paper aims to make a summary presentation of some of the estate planning tools provided in the Italian legal system. It starts from the best-known ones (such, for example, the insurance policy) to the more sophisticated ones (such as, for example, the trust), passing at the same time among those tools capable of combining corporate governance purposes with tax compliance tools, analyzing for each tool a series of valuable aspects for its practical use.
Insurance policiesInsurance policies are wealth protection and segregation tools that have been successful in recent decades. Many advantages can derive from taking out an insurance policy. They range from the choice of beneficiaries to the modalities of redemption and the optimization of the generational transition to confidentiality (by resorting to the fiduciary header of the policy itself). In addition, it is possible for those particularly interested in peculiar investments to use insurance policies to access financial instruments not commonly found on the domestic market.
The simple companyThe simple company is a corporate model characterized by utmost simplicity, significant statutory autonomy, and remarkably flexible governance. It constitutes the most basic prototype of a corporate model by which two or more persons contribute their goods (or services) to carry on an economic activity without carrying on a business. In a partnership status, the simple company is a corporate model characterized by imperfect asset autonomy.
The corporationIn operational practice, corporations find frequent application in the perspective of estate planning in the capacity of holding companies, even though their management and administration are more economically demanding than that which distinguishes partnerships. It appears to be justified by the fact that many believe that the use of a corporation can result in the more efficient management of holdings, better tax planning, and a clear separation of the assets of the corporation and the partners.
The trust originates from Common law countries and is recognized in our country thanks to the Hague Convention of 1.7.85. It is defined as a legal relationship established by a person, the settlor--by an act between living persons or mortis causa--where assets have been placed under the control of a trustee in the interest of a beneficiary or for a specific purpose. In general terms, trust has the following characteristics:
- the assets contributed to and owned by the trust constitute a separate mass and are not part of the trustee's estate;
- the trustee (or another person on behalf of the trustee) has title to the assets in trust;
- the trustee administers, manages or disposes of the property in the manner defined in the deed of trust and the special rules imposed on him or her by law.
The trust must necessarily provide for the following:
- the presence of a settlor (or disponer), i.e., one who disposes of their property and transfers it to the trustee;
- the presence of the trustee who receives the assets to administer them, according to the provisions given to him by the trust deed for additional persons called beneficiaries (beneficiaries) of the trust or for a specific purpose established by the settlor.
Assets placed in trust do not become part of the trustee's assets; in fact, trust assets
- are "segregated" in the hands of the trustee; - are not subject to the claims of the trustee's creditors;
- are also not part of the trustee's family and inheritance assets.
(Article written in collaboration with Dr. Amedeo Cesaro, Certified Public Accountant at Studio Righini)