Corporate & commercial Law

Trust Companies and Corporate Trustees

Serving as a financial institution, a trust company provides fiduciary services for individuals, families, businesses, and organizations. They manage trusts, estates, and other assets, acting as trustees, executors, administrators, and guardians. A trust company is also commonly known as a corporate trustee.

Why Establish a Trust

There are many scenarios where it is necessary or beneficial to set up a trust. These circumstances include, but are not limited to:

  • Protection of family assets
  • Inability to handle assets
  • Transfer assets when settlor is dead
  • Transfer assets when settlor is alive

Who is the Trustee of a Trust?

The trustee of a trust is the individual that manages assets in the best interest of the beneficiaries. Trustees are essential in making investment decisions, supervising trust property, and guaranteeing that the trust’s objectives are successfully carried out. When you are appointing your trustee, it is important to ensure they are trustworthy with a good reputation. While you can choose almost any adult to appoint as your trustee, it is important to consider the benefits of employing a trust company or a corporate trustee to manage your trust. 

trustee company

How do Trust Companies Work?

Trust companies are financial institutions that have been authorized by regulatory authorities to act as trustees. A trust company can be part of a larger financial institution, or it could be a separate entity. 

Trust companies must follow and comply with laws and regulations, with government agencies overseeing their operations. They offer a variety of services, such as trust administration, estate planning, and investment management. They tailor their approach to the needs and goals of the clients. 

An important aspect of trust companies is to foster strong relationships with clients. By remaining transparent and building trust, trust companies develop relationships and offer personalized guidance. 

In addition to creating strong relationships with clients, trust companies also have relations with industry professionals. Experts in law, finance, and accounting are often employed by trust companies to ensure maximum success when providing advice and services to their clients.

Finally, trust companies obey strict rules about confidentiality and privacy. Protecting information and assets of their clients is paramount, so trust companies uphold strict and secure systems to ensure privacy.

Corporate Trustee Duties

Corporate trustees have many duties to fulfill when handling trusts. Some key duties include: 

Fiduciary 

A corporate trustee holds the fiduciary duty to act in the best interest of the beneficiaries. They must manage assets with impartiality and prudence, and they must act under the conditions of the trust agreement.

Administrative

It is the duty of a corporate trustee to perform any administrative tasks related to the trust. Administrative tasks include paying bills, receiving income, and filing tax returns. 

Compliance

Corporate trustees not only must comply with the trust agreement, but also with the laws and regulations. They always remain informed on any modifications that are made to legislation and the best industry practices. For example, in October 2022, when the Italian Revenue issued a new taxation law regarding trusts, known as the Circular Letter n. 34/E, corporate trustees immediately adjusted procedures.

Reporting

Corporate trustees are responsible for recording trust transactions. They must keep records of incomes, expenses, and distributions. In addition, they regularly share these reports with beneficiaries. On January 1, 2024, the Corporate Transparency Act went into effect, mandating that trustees report themselves and any beneficiaries when the trust holds at least 25% ownership interest and control of a reporting company, the beneficiary is the only receiver of the trust’s income, or the grantor has the right to revoke the trust. 

Risk Management

It is important for corporate trustees to manage risks regarding trusts and assets. From investment risks to legal risks to compliance risks, corporate trustees must execute the correct risk management strategies in order to protect assets. Some of the strategies include implementing good corporate governance and conducting and assessing risk management plans.

Communication

Corporate trustees must effectively communicate with beneficiaries. They must share information about the trust, and they should resolve any concerns that arise. Keeping an open line of communication is crucial to establish trust with the client.

Trust Company Services

Italy was one of the first countries to sign the “Convention on the law applicable to trusts and on their recognition,” which concluded in the Hague in 1985. Ratified in 1989, this outlined and characterized the preliminary laws of trusts. Trust Companies are required to comply with these rules, while offering the following services:

Administering Trusts

Trust companies must manage the trusts that have been established. These trusts can serve different purposes, from asset protection to estate management. Trust companies are obligated to manage investments of assets, allocate income in correspondence to the trust agreement, and follow legal regulations.

Managing Investments

Managing investments is an important service offered by a trust company. Trust companies provide investment management services, including retirement planning, financial planning, and portfolio management. When providing these services, they consider risk tolerance, timeline, and specific goals to achieve success for their clients.

Settlement of Estates

Estate settlement requires trust companies to act as an executor of an estate. They collect and distribute assets, pay taxes and/or debts, and resolve conflicts between beneficiaries. 

Corporate Trustee Services

Trust companies should act as a trustee, complying with trust agreements, protecting assets, and acting in the interest of beneficiaries. 

Guardianship

If an individual cannot manage their own assets because of incapacity or disability, a trust company may serve as their guardian or conservator. This means they must act in their best interest, which may include making decisions about their living situations and overseeing finances.

Why Choose a Corporate Trustee

While you have the ability to appoint essentially any adult as the trustee of your trust, it is important to consider selecting a corporate trustee to manage your trust. They may charge an annual fee of around 0.5% to 2% of your trusts assets, their professional services make corporate trustees worthwhile. In addition, the annual charge incentives them to maximize trust income. 

Experience

A corporate trustee likely has experience with various types of trusts, and they are extremely familiar with the legalities regarding trusts and trustees. Corporate trustees spend each day managing trusts, so it is expected that they have dealt with many different types of assets, from real estates to international investments. 

Protection

Since corporate trustees are supervised by federal and state agencies, your assets are in good hands. Corporate trustees also are held to a higher standard, as managing trusts is their job, and they are professionals in the field. 

Reliability

A corporate trustee will be more reliable than a nonprofessional trustee. This is their job and their primary focus, unlike the family or friend you may otherwise appoint as your trustee. 

Impartiality

Corporate trustees are obligated to objectively follow the guidelines of your trust. They will remain impartial and act in the best interest of beneficiaries. Your family member or friend cannot guarantee this objectivity. 

Professional Advice

Corporate trustees have valuable relationships with various industry professionals, like attorneys. They can leverage these relationships to manage your trust, and they can also connect you with those individuals.

Return On Investment

Since corporate trustees devote themselves to management of trusts and have plenty of experience and resources at their disposal, they normally perform better than the average person would. This ensures that you will achieve a greater return on investment. 

With these benefits in mind, it is clear that choosing a corporate trustee to manage your trust will lead to the best results.

When to Use a Corporate Trustee

A corporate trustee is very beneficial in a variety of situations. First, a corporate trustee is advantageous to use in a situation where you set up an irrevocable trust. However, you can also benefit from naming a corporate trustee in a revocable trust.

An example of a situation in which you may set up an irrevocable trust is to protect assets in case of a divorce. It is important to establish an irrevocable trust so no creditor can argue the terms of the trust. Selecting a corporate trustee to manage this trust will ensure impartiality, conflict resolution, and experience.

When using a corporate trustee in a revocable trust, they can help you in a few ways. They can serve as a trustee, co-trustee, investment agent, or successor trustee.

Trustee

This option gives the corporate trustee the entire responsibility of managing your trust assets. If you do not have anyone you can rely on to manage your trust, and you have no time or experience to do it yourself, utilizing a corporate trustee is very beneficial.

Co-trustee

You may be apprehensive about managing your own trust due to lack of experience. Luckily, you can choose to appoint a corporate trustee as a co-trustee. This allows you to be more involved, ensuring they understand your goals, objectives, and fears regarding your trust and assets.

Investment Agent

An investment agent allows you to grant them as much responsibility as you prefer. This is different from a co-trustee, as each party has equal responsibility. Your investment agent can only provide you advice, or they can manage an aspect of your trust.

Successor Trustee

If you decide you would like to be your own trustee, you can select a corporate trustee as your successor trustee. This individual would get involved in the event that you become incapable of managing your trust. You may be wondering: can a successor trustee change a trust? In many cases, successor trustees assume their role after the original trustee’s incapacity or death. While successor trustees have the authority to manage and administer the trust, altering its fundamental terms may be subject to limitations specified by the grantor. 

An example of when you may use a successor trustee is for a business. In Italy, 80,000 entrepreneurs confront generational succession every year. Only a fourth of these entrepreneurs finish the first transition. 14% do not pass the second phase, with 5% of companies reaching the third phase. 63% of companies do not pass the fifth year (information from “Outlet Italia. Cronaca di un Paese in (s)vendita”).

In businesses, the most common problems faced in family succession are:

  1. Premature death of the entrepreneur, leaving heirs that are not ready to manage the company
  2. Multiple heirs, but they are not all able or interested to run the business, and the entrepreneur wants to ensure all heirs receive the wealth from the business

Considering these problems, it would be beneficial to appoint a corporate trustee. Company shares can be transferred to the trust, and the trust can distribute the income to the heirs as beneficiaries until they want to take over the business. 

Many solutions have been tested, from tax breaks to regulations to assist the generational transition, but utilizing a trust has seemed to prove the most effective.

Trust Companies vs Trustees

Trust companies and trustees are similar when discussing fiduciary services, but they are different in the realm of managing trusts.

A trustee is an individual that will manage the assets and affairs of a trust on behalf of its beneficiaries. They undertake fiduciary duties, acting in the best interests of the beneficiaries and administering the trust based on the terms of the trust agreement and applicable laws. Trustees can be individuals, like family members or trusted advisors, or they may be corporate entities, like trust companies. Trustees have direct responsibility for making decisions regarding the management and distribution of trust assets.

A trust company is a financial institution that specializes in providing fiduciary services, including managing trusts, estates, and other types of financial arrangements. They serve as a trustee for a trust that is established by an individual or institution, while assisting in investment management, estate planning, and other matters. Trust companies can be part of a larger financial institution, or they can be a completely separate and independent entity. In 2019, trust divisions in banks made up about 84% of trust companies, but the number of independent trust companies is growing. Usually, trust companies employ industry professionals to assist their clients in law, finance, investments, and more. 

In summary, trustees are individuals chosen to manage trusts, while trust companies are specialized financial institutions that provide fiduciary services, which include acting as trustees for trusts. 

Understanding the difference between fiduciary vs trustee is very important, but people tend to use the terms interchangeably. While every trustee is a fiduciary, not every fiduciary is a trustee. The term fiduciary captures a larger group, as it simply describes someone who is legally obligated to act in the best interest of another party. In contrast, a trustee is the person that is delegated to manage a trust.

In 2015, the 3,733,146 SMEs constituted 95% of the enterprises in Italy and employed nearly 11.3 million people, about 79% of the workforce (Annual report on Italian SMEs 2016). The prevailing business model is a family-owned company where most of the decision-making process is in the hands of the founding entrepreneur.

Out of 80,000 entrepreneurs facing generational succession in Italy each year, only a quarter make it through the first transition, 14% do not make it through the second, and only 5% of companies remain standing by the third. Moreover, 63% of companies that overcome generational transition do not go beyond the fifth year (report “Outlet Italia. Cronaca di un Paese in (s)vendita”).

Tax advantages of using a trust in generational transition include an exemption from inheritance and gift tax, provided that specific conditions prescribed by law are met. 


Experience Trust and Expertise with ILF – Italy Law Firms as Your Trustee Partner

When navigating the complexities of corporate law and business operations in Italy, partnering with ILF – Italy Law Firms offers you unparalleled advantages.

  1. Comprehensive Legal Protection: ILF staffs a robust team of English-speaking Italian lawyers, attorneys, accountants, surveyors, and notaries, ensuring that all your legal bases are covered comprehensively.
  2. Tailored Solutions: At ILF, we understand that one size does not fit all. Our services are highly customized to meet the specific needs of your business, ensuring solutions that are not only effective but also optimized for your unique challenges and opportunities.
  3. Global Reach, Local Expertise: With more than 50 countries served in 22 years, ILF has a proven track record of assisting international clients while maintaining a deep understanding of local Italian laws and regulations. This dual focus ensures that you receive globally informed advice that is perfectly adapted to the Italian context.
  4. Proactive and Forward-Thinking: Anticipating changes and challenges is key to business success. ILF stays ahead of the curve by keeping abreast of the latest amendments in Italian and European legislation, helping you navigate future landscapes confidently.
  5. Exceptional Value: Not only does ILF offer top-tier legal services, but we also provide a value that goes beyond just legal advice. With free initial consultations and strategic insights into asset management and investment, partnering with ILF is an investment in your company’s future.

Choose ILF – Italy Law Firms as your trustee partner and experience a blend of traditional expertise and innovative legal solutions that position your business for success in Italy and beyond.

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