In recent years, the trust has become an incredibly useful vehicle in the scope of wealth planning and asset management, particularly for artworks, antiques, and other collectibles, as it is a very efficient instrument both from the point of view of safeguarding the “real asset”, preserving its value and its transfer to future generations within a family, and from the tax point of view.
A trust is a legal relationship of Anglo-Saxon origin created by a settlor, the person who owns the assets, where assets are settled into the trust and placed under the control of another person, called a trustee, who administers and manages them for the benefit of one or more beneficiaries, usually the settlor's heirs, or for a specific purpose.
It is important to bear in mind that starting from the moment the assets are placed into the trust, they constitute a separate fund and are not a part of the settlor’s own estate, or trustee’s own estate, and as a result the assets placed into the trust are kept safe from creditors of the aforementioned parties.
The trust arrangement has increasingly attracted both art collectors and artists, as well as a large number of private clients also interested in investments of a non-financial nature, in order to maintain and increase the value of artworks over time, but above all as a vehicle to prevent the family art collection from fragmenting into sub-collections assigned to heirs, thus guaranteeing the unity of the collection and, consequently, the maintenance of its economic value in the long term.
Finalities
It is possible to identify four different purposes that the trust, concerning artworks, can pursue:
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Trust for the purpose of asset protection, i.e. to protect and preserve the settlor's art collection and artistic heritage from possible attacks by creditors and at the same time to plan for the enjoyment of future generations of the family, avoiding or minimising the splitting of the well-established family art collection. It is also possible for the settlor to put into the trust even only the bare ownership of the artworks, reserving the usufruct.
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Trust for the purpose of guaranteeing loans (security trust), where artworks are provided as a security for a loan (e.g. these assets can be given as collateral to banks specialised in art banking in order to get funds to be dedicated to the purposes of the trust).
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Trust for philanthropic purposes, with the aim of developing socially useful initiatives in the sectors of the promotion of art and culture, in order to provide financial support and visibility to young artists. By means of this instrument, artworks are placed into the trust and thanks to the realised profits from their exhibition, with the support of a special management committee and professionals in the sector, funds are created to enable minor/young artists to exhibit and sell their works.
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The fourth type can be regarded as a form of investment trust, where the trust invests all or part of its assets in artworks (non-financial assets) or in dedicated funds with the economic purposes mentioned above. In this case, the trust cares for the artworks while also generating income which is subsequently used to allocate funds to lesser-known artists or to acquire new assets to add to the collection.
Economics
It should also be emphasised that assets of an artistic nature (unlike financial assets) require special care and attention that entail additional costs, even considerable ones, which cannot be ignored.
They must in fact be considered, by way of example:
- Costs of obtaining certificates of authenticity;
- Transaction costs that can be as much as 15% additional to the purchase price if the artwork is bought at an auction house;
- Costs of insurance premiums;
- Costs of storage of the artwork;
- Costs related to any reporting obligations to the Superintendency of Fine Arts.
These costs increase the financial commitment of this type of investment and, consequently, the need to protect their integrity and preservation over time.
The use of the trust in this context can be an efficient solution, since, the trustee, in compliance with both the terms of the trust deed and the trust law, can carry out transactions such as renting the artwork to art galleries, so that the income thus produced can repay these costs, or even increase the trust fund.
Fiscal aspects
Finally, it remains to analyse the italian taxation regarding the transfer of artworks and collectibles into the trust, as well as any subsequent sales.
In light of the Italian Revenue Agency Circular letter no.34/E/2022, both the trust deed and the deed of gift of assets into the trust are subject to registration tax (imposta di registro) at a fixed rate and not also to inheritance and gift tax (“IHGT”).
On the contrary, the deed of distribution in favour of the beneficiaries meets the requirements of the IHGT, as it is only at that moment that an actual transfer of wealth takes place. The assignment of the assets to the beneficiaries may be subject to proportional tax calculated on the market value of the artwork, calculating the proportional rates and exemptions based on the degree of kinship between the settlor and the beneficiaries.
If the artwork is subject to historical and cultural restrictions, the assignment of the artwork will not be subject to IHGT, even if its value exceeds the value provided for by the deductibles.
As regards the taxation of any proceeds arising from the sale of collectibles by the trustee (specifically of an 'opaque' trust that qualifies as a 'non-commercial' entity), provided that the trustee does not exclusively or principally engages in a commercial activity and is not motivated by speculative intentions, then such transaction will not be taxable.
In any case, in order to correctly assess the tax regime applicable to the specific scenario, it will be necessary to carry out a factual analysis of the acts performed by the trustees, as well as of the concrete activity they carry out in accordance with the provisions of the trust deed.
As can be seen, even in the cultural sector, and particularly in the area of artworks and other collectibles the set-up of a trust has considerable advantages, both for the owner of the artwork and for the beneficiary heirs, and more generally for the entire community that can enjoy the artistic heritage.
The information provided in this article is of a purely general nature and is not a substitute for specific advice that may be requested here.