Avoiding inheritance disputes is possible if succession is planned while still alive. Tools such as trusts, family agreements, life insurance policies, and donations can help transfer assets effectively and often with tax advantages.
Over a lifetime, people accumulate wealth—whether in the form of savings, real estate, or a business. Many wonder what will happen to these assets after they are gone and fear that disputes among heirs could damage or even dismantle what they built.
A will is the most obvious solution, but it is not always enough. Wills can be challenged and contested by heirs. For this reason, many people explore ways to transfer wealth during their lifetime, planning succession carefully to avoid conflicts later.
There is no single best strategy. The right solution depends on several factors, including the type of assets involved (such as property, money, or a company) and the family situation. In many cases, the most effective planning combines several tools. Succession planning should also be reviewed periodically to reflect changes in family life, finances, or laws.
What Is a Trust and How Does It Work?
One of the most widely used tools for complex estates is the trust. With a trust, a person called the settlor transfers assets to another party, the trustee, who manages them on behalf of the beneficiaries, typically the settlor’s children or heirs.
A key advantage of a trust is that the assets placed in it form a separate estate. This means they are legally segregated and cannot be attacked by the personal creditors of the settlor, the trustee, or the beneficiaries.
Example:
An entrepreneur can place their company into a trust and establish rules for its management. If the entrepreneur dies, the trustee can continue managing the business until the heirs—perhaps still young or inexperienced—are ready to take control.
When Is a Family Foundation Used?
Another instrument similar to a trust is a foundation. Foundations are often used for long-term asset management or when there are no direct heirs.
They can also be created to pursue specific objectives, such as cultural, charitable, or social purposes. By transferring assets to a foundation, the founder ensures that their wealth will be managed according to their wishes even after their death.
How Does the Family Pact Work for Businesses?
When a family business is involved, one of the most effective tools is the family pact, introduced in 2006.
This is a formal contract signed before a notary in which the entrepreneur transfers the business or company shares to one or more descendants considered capable of running it.
To be valid, the agreement must involve all potential heirs at the time—usually the spouse and children. Those who do not receive the business are compensated immediately, often with money or other assets, and they give up future claims on the company. This mechanism prevents future disputes and ensures continuity in management.
Is a Family Pact Safer Than a Donation?
The family pact offers greater stability than many other tools, such as donations or wills.
Unlike gifts or testamentary dispositions, it is not subject to the actions typically used by heirs to challenge inheritance arrangements, such as:
- the action of collation, which requires heirs to return donated assets to the estate, and
- the action of reduction, used when heirs claim their legally guaranteed inheritance share has been violated.
Once properly established, a family pact can only be challenged in limited circumstances, such as fraud, error, or if the heirs who renounced the company did not actually receive the compensation agreed upon.
What Is the Purpose of a Family Holding Company? Another strategy for managing family businesses is the creation of a holding company.
In this structure, the shares of the operating company are transferred to a new company—the holding company. The heirs then become shareholders of the holding company rather than the operating business directly.
This system separates ownership from management. Governance rules and share transfer restrictions can be written into the holding company’s bylaws, helping regulate relationships among different branches of the family and preventing conflicts.
What Are the Advantages of Life Insurance Policies?
Life insurance is another common tool in succession planning. It is particularly useful for transferring financial assets.
Life insurance policies offer several advantages:
- They often benefit from favorable tax treatment.
- The capital is generally protected from seizure or attachment within legal limits.
- The payout to beneficiaries is not included in the inheritance estate.
Because the insurance benefit is paid directly to beneficiaries, it can even be used to provide financial support to individuals who are not legal heirs, such as a partner.
However, caution is necessary. If the insurance premiums paid are excessively high and damage the rights of forced heirs, the policy could be challenged for violating their legally protected inheritance share.
How Can Insurance Policies Protect a Partner?
Life insurance is particularly useful for unmarried couples, since cohabiting partners are not automatically legal heirs.
One option is to take out two cross policies, where each partner insures their own life and names the other as beneficiary. This arrangement is flexible because the beneficiary can be changed at any time.
Another option is a policy that names both partners as insured persons. In this case, the benefit is paid to the designated beneficiaries upon the death of the first insured individual
When Is It Advantageous to Donate a Business? Another possible strategy is the donation of a business during the owner’s lifetime.
This option offers significant tax advantages when the beneficiaries are the spouse or direct descendants such as children or grandchildren. In these cases, the transfer is generally exempt from gift tax.
However, there is an important condition: the recipients must continue operating the business for at least five years after the transfer.
If the donation is made to other individuals—such as siblings or more distant relatives—normal gift taxes apply. Additionally, if the fiscal values of the business remain unchanged for the recipient, the transfer does not create taxable capital gains for the donor.
Planning Ahead Is the Key
Transferring wealth to children is not just a legal issue but also a strategic one. Planning ahead allows families to protect their assets, ensure business continuity, and prevent conflicts among heirs.
Because each family situation is different, effective succession planning often involves combining several legal tools and revising them over time as circumstances change.
VGS Family Lawyers is a law firm that offers assistance to English-speaking clients with interests in Italy. In case you need assistance, please write to: info@vgslawyers.com.