Charitable Trusts: Inheritance Tax Upon the Transfer of Assets from the Settlor/deceased party to the Trust

In the pages of Il Fisco no. 2/2025, a weekly publication on tax issues by Wolters Kluwer, Maria Lucia Di Tanna, Giulia Sorci and Davide Greco discuss the recent judgment by the Tax Court of Lombardy (no. 2356 of September 12th, 2024), relating to a case involving a charitable trust.

The judgment is particularly interesting as it addresses the long-standing issue of taxation on initial contributions to the so-called "purpose trusts" for the purposes of inheritance and gift tax. Up to now, there appeared to be no consensus between administrative practice and jurisprudence on this issue, as widely discussed by legal scholars over the years.

In the judgment under review, the judge considered it correct that the tax liability arises when the assets are transferred into the trust and the actual beneficiary of this transfer is the trustee. According to the court, which seems to follow the position of the involved Italian Revenue Agency, "the transfer occurs solely in favor of the trustee, while for determining the tax rate and related exemptions for the inheritance transfer, reference must be made to the relationship between the deceased and the beneficiary, as well as their degree of kinship."

The conclusions drawn by the judge once again highlight how the taxation issue of the purpose trusts remains not totally unresolved. Recently, the topic was also addressed by Assonime’s Circular no. 22/2024 dated November 27th, 2024, which provides valuable insights into the matter. The Association seems, at least initially, to adopt a "substantialist" approach—consistent with what was stated by the Italian Tax Authorities in the circular no. 34/E/2022—taking into account the objectives that the trust is intended to pursue in the various situations in which it is used. According to Assonime, this approach is certainly more "respectful of the legal framework of the trust" and avoids the indiscriminate application of the tax to situations that fall outside the scope of the legal provisions in question, according to which- please see article 4-bis of the TUS – “the trusts and other binding purposes are relevant for the application of inheritance and gift tax, where they result in free of charge enrichments for the beneficiaries."