The Risk of ‘Misusing’ Trusts: Some Lessons from the Italian Experience

Abstract

In the course of the past decade, several European legislatures have introduced devices into their legal systems that are functionally similar to trusts, including the Czech Republic, which has inserted a new set of provisions into its new Civil Code. Such developments are sometimes accompanied by fears that trusts might be misused or abused. Some of the concerns commonly raised about trusts are that trustees could misappropriate trust property to the detriment of beneficiaries, or that trusts could be used to shield assets from creditors, spouses or forced heirs of the settlor. Other fears are that trusts can be used for money-laundering purposes or to hide assets from tax authorities, and that third parties dealing with trustees may be unaware of the trust’s existence. This article discusses Italy’s experience with trusts, where they have become a popular instrument used in a variety of contexts, often to make up for shortcomings of domestic laws. Its aim is to provide a brief overview of the nature of the trusts employed in Italy, and their purposes, and to discuss whether and to what extent some of the concerns mentioned above have materialized in legal practice, and how they have been addressed. The Italian experience demonstrates that not all concerns that are generally voiced against trusts necessarily arise in practice. It further shows that where issues have arisen concerning, for instance, creditor protection, the legal system is well equipped to tackle or mediate risks of misusing and abusing trusts. Italian courts have reacted effectively even though there is no national legislation providing Italian courts with special powers.