Italy, trusts, and succession planning: a modern and competitive framework

Italy has long been recognised as a business-oriented jurisdiction, supported by a legal and tax system historically designed to facilitate wealth preservation and the orderly transfer of assets across generations.

Italy's inheritance and gift tax rules is among the most competitive in Europe, combining modest tax rates with generous exemptions for transfers within families. This has fostered a well-established culture of succession planning among entrepreneurs, family-owned enterprises, and private wealth holders.

In recent years, Italy has strengthened its position by modernising its legal and tax framework to embrace international wealth planning tools, aligning domestic rules with global best practice.

As Italy's wealth planning framework evolves, trusts have emerged as one of the most versatile and effective tools for families, private clients, and family offices seeking legal certainty, tax efficiency, and long-term governance solutions.

Italy as a trust-friendly Jurisdiction

Although Italy does not have a domestic civil law regime governing trusts comparable to common law jurisdictions, it is widely considered a trust-friendly jurisdiction. This reputation stems from Italy’s ratification of the Hague Convention, which guarantees full recognition and enforceability of trusts established under foreign laws before Italian courts.

Far from being a limitation, the absence of a stand-alone domestic trust law is often seen as a strategic advantage: Italian law recognises trusts governed by foreign legal systems, allowing settlors to select the governing law that best suits their planning objectives, without needing to adapt the structure to a rigid domestic model to ensure enforceability.

A new era of tax certainty and planning opportunities

The most significant progress has come in the area of taxation. Legislative Decree No. 139 of 2024, effective from 1 January 2025, marks a decisive step towards clarity and predictability in the Italian tax treatment of trusts under inheritance and gift tax rules.

The reform introduces a clear, systematic framework within the Consolidated Inheritance and Gift Tax Code, resolving years of uncertainty caused by conflicting administrative practice and case law.

Under the new rules, inheritance and gift tax applies only when beneficiaries receive an actual economic benefit, namely when assets are distributed and an actual economic benefit occurs. This formalises the principle of 'taxation on the way-out', meaning neither the creation of a trust nor the segregation of assets triggers a taxable event.

In addition, the reform offers a strategic alternative: an optional “entry taxation” regime. Settlors can elect to pay inheritance or gift tax at the time assets are transferred into the trust, rather than upon distribution to beneficiaries. This option allows families to lock in the current Italian tax rates and exemption thresholds, mitigating exposure to future legislative changes. 

The flexibility to choose between entry and exit taxation significantly enhances planning flexibility, enabling families and advisors to determine the most efficient approach from both a fiscal and financial perspective. 

Direct tax treatment of trusts

Italy's direct tax framework has achieved greater consistency following the Italian Tax Authorities’ 2022 Circular on trust taxation. Under this guidance, trusts are generally treated as separate taxable entities.

For Italian resident trusts, income generated within the trust is subject to Italian Corporate Income tax at a rate of 24%, while distributions to Italian resident beneficiaries are typically not subject to further taxation. 

A similar approach applies to beneficiaries of foreign resident trusts, provided that the level of taxation applied at trust level abroad is considered adequate by Italian standards, generally interpreted as at least 50% of the tax that would have applied in Italy.

Exceptions arise where there is no effective segregation of assets, such as when the settlor or the beneficiaries retain extensive control over the trust fund. In these cases, the trust may be treated as tax-transparent, and income is taxed on a look-through basis in the hands of the relevant party.

While this outcome may seem disadvantageous, it often becomes economically neutral for individuals relocating to Italy under the Italian flat tax regime for new residents. Under this regime, foreign-source income is subject only to a substitute tax, allowing the trust to remain tax efficient while enabling the relocating individual to retain a degree of control over the underlying assets.

Trusts as a strategic tool for relocation

Under Italy's flat tax regime for new residents, trusts play a pivotal role in relocation planning. Whether established before or after the move, trusts integrate seamlessly with this regime thanks to the interaction between trust taxation rules and the exemptions available to flat tax applicants.

Settlors and beneficiaries relocating to Italy may benefit from a combination of advantages, including:

• exemption from Italian taxation on foreign-source income
• exemption from inheritance and gift tax on foreign assets 
• exemption from foreign asset reporting obligations.

When properly structured, trusts offer internationally mobile families a robust planning solution – combining asset segregation and governance with long-term succession strategies that comply fully with Italian and international law.

Looking ahead: why expert guidance matters

Italy is increasingly positioning itself ahead of many European jurisdictions that continue to struggle with trust recognition and tax certainty. The evolution of its legislative and administrative framework reflects a clear commitment to aligning with international wealth planning standards. 

However, the interaction between trust law, tax rules, residency regimes, and cross-border considerations remains complex.

In this opportunity-rich environment, expert legal and tax advice is essential. Guidance not only ensures compliance with Italy's nuanced framework but also enables clients to fully leverage the strategic potential of trusts, turning regulatory progress into a tangible competitive advantage.