Trusts, Inheritance and Donations: How Tax Allowances Work

The inheritance and gift tax, governed by Legislative Decree No. 346/1990 (TUS), is based on a clear principle: the amount due varies depending on the degree of kinship between the person transferring the assets (dante causa) and the beneficiary. This affects both the applicable tax rates and the amount of tax-exempt allowances (franchigie).

Specifically, Articles 7 and 56 of the TUS govern two distinct but analogous tax exemption regimes:

• one for mortis causa transfers (inheritances),

• and one for inter vivos transfers (donations).

  
  

With the entry into force of the 2024 tax reform (Legislative Decree No. 139/2024), Article 4-bis TUS was introduced, extending the application of these rules to asset transfers made through trusts and other destination constraints that result in a gratuitous enrichment of the beneficiary.

The Principle Behind the Reform

This regulatory innovation aligns with the general principle, now also expressed in Article 1, paragraph 1 of the TUS, which states that the tax applies to all gratuitous transfers of assets and rights, whether:

• direct (between donor and beneficiary, or deceased and heir), or

• indirect (through a trust or other legal arrangement).

  
  

As a result, the same tax allowance applies to both direct and trust-based transfers, provided they originate from the same transferor. The allowance is not duplicated, but rather shared across all gratuitous transfers.

Practical Application: An Illustrative Example

Consider a parent who:

• makes a direct donation of €800,000 to their child, fully utilizing the exemption under Article 56 TUS;

• later establishes a trust in favor of the same child, transferring €1,000,000 in assets to the trustee.

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When the trustee eventually allocates the trust assets to the beneficiary, the same allowance previously used will apply. Therefore, the child may benefit only from the remaining €200,000 exemption, with the surplus subject to taxation.

Conclusion

The reform reaffirms a fundamental principle of tax equity: all gratuitous transfers—even when carried out through complex legal instruments such as trusts—must be considered together to determine the availability of tax exemptions.Hence, for effective estate planning, it is crucial to track all transfers originating from the same transferor, to avoid unexpected tax liabilities.