Irrevocable Inter Vivos Trust: Italian Supreme Court Interpretation
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The Decision here concerned states that: «in the event of a trust set up during the lifetime of the settlor, even if the legal position of the beneficiary was transferred (or in any other way altered) as an effect of the decease of the settlor, the properties held in trust will not be part of the estate plan, as they had already been irrevocably given by the settlor». According to the Court’s opinion, in fact, such a legal instrument (the setting up of an irrevocable inter vivos trust) is to be classified as an “indirect donation” under Italian law.
In the case judged by the Court, Mr. A, an important entrepreneur in the pharmaceutical sector, set up a trust in which he placed the shares of the holding company of his chemical-pharma group, while appointing himself as the beneficiary of the trust. A company named “Intrust Trustees”, was entrusted with the management of the properties. Mr. A was an Italian national, but he agreed that the trust would be regulated according to the laws of New Zealand. He had also set a condition written in the Deed of Trust (“DT”), whereby upon his death the trust would not end, and instead the beneficiary position would be inherited by his heirs, Mr. B and Mr. C.
Therefore, after the decease of the settlor-former beneficiary, the beneficiaries (B, C) and the trustee (Intrust Trustees) entered into a “Deed of Agreement, Indemnity, Release and Covenant not to sue” (“Deed”), in order to divide the co-ownership shared between B and C. As a result and with the trust being still open, B received € 81 million (the estimated value of half of the chemical-pharma Group), while C remained the sole beneficiary of the properties still placed in trust. The Deed was subject to the laws of the New Zealand and all disputes concerning its validity, were to be settled by arbitration in Switzerland.
Eventually, some years after the Deed, the beneficiary (C) decided to sell his legal position (i.e. properties placed in trust) to a company which paid him about € 400 million in total consideration. In other words, C received far more than B had by virtue of the stipulation of the Deed (which was supposed to assign him a sum of money accounting for half of the estimated value of the shares placed in trust). Therefore, B sued C before an Italian judge contesting the Deed for alleged fraud (article 761 of the Italian Civil Code) as well as “unfair assessment diminished of more than a quarter” (article 763 of the Italian Civil Code), and claimed his right to part of the consideration received by C. C demanded that the Supreme Court deny jurisdiction to the Italian Tribunal, based on the arbitration clause.
The Supreme Court declared the exclusive jurisdiction on this matter of the Swiss arbitration, but the Court also stated that in any case whatsoever, Italian succession law and regulations (including articles 761 and 763 of the Italian Civil Code) would not be applicable neither to the Deed nor to the DT, as neither of the two would base its initial effectiveness on the decease of the settlor:
«This Court believes that, considering the way the allegations were stated, the object of this judgement does not fall within the inheritance legal matters. […] This Court shares the opinion supported by the most part of the academics, which deems such operation (where the settlor sets up a trust not as a result of the execution of its will, but as a living trust to which he transfers the shareholdings of the Group […], by which he was aiming to leave his financial assets to his two descendants) as an indirect donation falling under art. 809 Italian Civil Code. [..]
The future transfer of the assets from the trustee to the beneficiary is not a “mortis causa” transaction, as the decease of the settlor would not be linked to the “consideration” of such transaction.»
Although the Decision does not directly deal with the issue of the so called “contract to make a will” (which are forbidden in Italy), we may observe that the Court does not treat the aforementioned DT as a “mortis causa contract” just because it includes a clause regarding the inheritance of the beneficiary position. In fact, the Court states that such a trust will come under a different category, “non-donative transactions” (or indirect donations). As a result, some Italian attorneys suggested that such living trust could eventually act as if it was a “contract to make a will”. However, these considerations go beyond the matter dealt with by the Court.