First, a brief definition: with Trust we mean the legal instrument in which one or more persons – dispatchers – transfer their assets under the responsibility of a third person – Trustee – which assumes the obligation to administer them in the interests of one or more beneficiaries.
The trust can also be placed side by side with the typical tools provided by our legal system for the generational transfer, to try to integrate the effects if they are not fully satisfactory (for example, we are talking about the limited partnership by shares or the most recent family pacts).
Generally, the generational shift of a family business is a rather difficult obstacle to face, especially with regard to its planning and fiscal aspect.
We will see, therefore, in which cases and why it is recommended to use the Offshore Trust Company.
The Trust, the most reliable legal instrument for the generational changeover
Well, Trust is the fourth keyword to remember.
Indeed, if it is true that the generational passage of the company is not only the transmission of the business but also the transmission of the corporate culture, to respond to the lack of answers from the Italian legislator (for example Sapa, ownership and usufruct, pacts of family, will and more), the Trust solution becomes the most obvious and natural .
Before proceeding, however, let us ask ourselves one thing: why is the Trust recommended to the entrepreneur, which is a foreign legal instrument, with respect to the best known legal instruments such as usufruct, fiduciary mandate, family pact or testamentary instrument?
This legitimate question requires us to wear the entrepreneur’s clothes and glasses with the result that, if it is true that the entrepreneur is a business captain, it is equally true that he is a family man and therefore his aspiration is to enter into a generational relay for your business.
As already mentioned, the Trust solution is the most obvious and recommended solution, since it is a flexible legal instrument whose merits can be summarized as follows:
- unity of ownership of holdings
- regulation, through the trust act, of the management methods and the exercise of the rights inherent to the shareholdings
- segregation of the holdings subjected to the Trust with consequent indifference with respect to the events of the individual subjects
The Trust solution allows the entrepreneur to face his fears in time, through the planning of the generational passage and the choice of the Trustee, subject that assumes ownership of the right or ownership of the assets covered by the Trust.
This refers to the American experience of “professional ownership”, where companies have become institutionalized and the Trustee is both guarantor of certain rules and arbitrator, and where the new generations of the family dynasty can also avoid managing the company but nevertheless choose who must do it, in the knowledge that the new generations do not always have the same energies, the same intuition and the same stimuli of the founder.
The generational shift within the family business
The first keyword to remember is a family business.
The family business is that business model in which most of the decision-making process is in the hands of the founding entrepreneur, his relatives/heirs, or the entrepreneur who has acquired ownership of the business.
In this case, the numbers of family businesses in the world and their contribution to GDP allow us to outline the great problem of generational change and its solution through the Trust.
Well, these numbers, which on a superficial reading would reduce the generational shift to a mere problem of setting the appointment by a notary, drag in themselves a question of a macroeconomic nature given by the challenge with which thousands of companies in Italy and Europe are forced to confront.
We can see it from a recent Eurispes-Uil Public Administration survey :
- it emerges how the collapse of many families derives from the failure of the family business , which, in the light of the numbers at stake, leads us to believe that the legislator has not understood the objective of the generational shift and that of the entrepreneur, that is to say, to ensure the stability of the company with respect to that provided by the legislator, or to ensure the stability to the enrichment of the assignee of the company.
- in Europe, we are talking about 600,000 jobs lost as a result of the death of family businesses that have failed the generational shift.
The generational shift within the family business
The second keyword we introduce is the Business Transfer Project or the generational transfer model of the company.
Why do we talk about it? Because we need it to understand the functioning and, above all, the problems linked to the generational shift within the family business.
The generational change model follows certain rules:
- the entrepreneurial activity must take place within limited liability schemes, eliminating positions of unlimited responsibility (for further details refer to Law 231/01)
- the planning of the generational transition must not take place at the first heart attack of the entrepreneur but must be the result of an awareness of the problem
- the awareness of the problem must take place more or less at the age of 50, an age that constitutes the watershed limit for “buying the key to success” of future generational coexistence. Generational coexistence which is the biggest problem of the generational transition, having on the one hand to manage the expectations of the entrepreneur and on the other of his successor or his successors.
On this point, again from the Eurispes-Uil-PA survey, it emerges how the failure of the generational shift derives from the entrepreneur’s failure to plan (USA 44%, Italy 63%).
It is a situation that leads to reflection, considering the effects of globalization and technical and methodological innovations that are leading to inevitable job losses.
The fiscal aspects of the generational shift
After discussing the emotional aspects of the generational shift, we are therefore going to plan its model and identify the most suitable legal instrument for the generational shift, also and above all on the basis of the fiscal impact that this choice will have: we are talking about the fiscal lever.
Not for nothing is the planning of the generational shift often accompanied by a certain interest in the fiscal impact it will have.
The problem is a delicate one.
If it is true that the legal instrument is not only chosen for the tax advantage it can bring, it can nevertheless be said that it will lose appeal or will not be chosen in the event of a tax burden.
And this is also in consideration of the fact that a generational shift must be managed, which translates into the transfer of business competitiveness and risks triggering mechanisms of confrontation or even confrontation.
A little clarification. The European legislator seems to have understood the importance of this generational relay and, with recommendation 94/1069 / EC, urged member states to:
- make the entrepreneur aware of the problems of transfer and encourage him to prepare for such an event in his life
- provide a financial environment that helps with successful transfers
- allow the entrepreneur to prepare effectively for the transfer by offering suitable procedures
- guarantee the continuity of partnerships and individual businesses in the event of the death of a partner or entrepreneur
- ensuring the successful transfer within a family, ensuring that inheritances or donations do not jeopardize the survival of the business
- favor the owner, through fiscal measures, in the sale or transmission of his activity to the employees, in particular when there is no successor in the family
The Financial Administration has affirmed the possibility of applying the tax exemption provided for in Article 3, paragraph 4 ter of Legislative Decree 346/90 to the hypothesis of a segregated company in a non-discretionary Trust.
For the sake of completeness, it should be noted that the tax relief for non-payment of inheritance and gift tax finds application as long as:
- a controlling stake in a company is conferred
- the transfer recipient is a descendant of the settlor or spouse
- these undertake to maintain control and to continue the activity for at least five years.
Note: the Trust is NOT a succession agreement
Talking about successor agreements is never elegant, but in terms of Trusts, it is necessary.
In fact, it is known that in Italy there is still a prohibition of succession agreements as enshrined in article 458 of the civil code: in short, it is forbidden to still dispose of one’s succession or the rights of a succession not yet opened.
One wonders therefore if one incurs the aforementioned prohibition in establishing a Trust for the generational passage.
Well, the jurisprudence is unanimous in excluding the Trust from the prohibition of successor agreements for the following reasons:
- the Trust is a unilateral act and is not a pact
- the death event is not the cause of attribution but an eventual verifiable event during the term of effectiveness of the shop (it is said that the Trust never produces only but also successor effects)
- at the time of the death event the assets do not belong to the hereditary axis, as the property has already been transferred definitively and by inter vivos to the Trustee.
Ultimately, the Trust turns out to be the most appropriate instrument to safeguard the company, compared to other legal instruments for the generational transfer or family pacts, usufruct and bare ownership, destination and Sapa constraints.
If we consider that in terms of inheritance and donation taxes, Italy is considered almost a tax haven, since it enjoys a very privileged tax regime compared to other European countries, the Trust is to be considered an optimal solution for generational changeover by allowing a succession planning in all fields both in the civil and tax fields.