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Centro LAW Guest Series: Family business succession planning – the Italian job

Italy is home to more than ten thousand Ultra High Net Worth Individuals. Many entrepreneurs lead family businesses, some with centuries of heritage, and preserve part of the world's most iconic brands. But how is the wealth management industry positioned to assist in family business succession planning, and how do family businesses prepare for the hand-over to the next generation? Giuseppe Violetta, a Milano-based wealth and succession planning consultant with longstanding experience in wealth management, shares his insights regarding succession planning in Italy. 

Thanks, Giuseppe, for taking the time to have a chat with Centro LAW. What is your field of expertise, and can you tell us more about the Italian wealth management industry's offering for entrepreneurs?

I have been in the industry for twenty years as a wealth planner. Meanwhile, I've founded a trustee company and innovative wealth management services companies that operate as business integrators for investment managers and family offices, and I am the chairman of the curatorial committee of a Swiss art gallery. I currently advise entrepreneurs and family businesses worldwide on wealth management and succession planning. I am also part of the Italian Family Officer Association's Academy that promotes family offices and where I teach asset consolidation analysis and strategy as part of its master course.

Like in many other countries, family businesses are the backbone of the Italian economy, and there is a broad offering of financial instruments and tools for wealth planning, including local trusts. Although tax advisors, lawyers, and private banks collaborate to a certain extent, family business owners' situations are not always analyzed comprehensively. A siloed approach was the industry standard mainly for confidentiality reasons. However, the situation has improved significantly over the past years, also thanks to tax amnesties. Nowadays, companies and trusts are no longer seen as asset hiding vehicles but as legitimate tools to structure and transfer family businesses. Combining trusts, corporations, and fiduciary mandates gives entrepreneurs a wide range of options to manage both companies' transition and private wealth to the next generation - all of this by maintaining a certain level of privacy and ensuring full tax compliance. There are also good reasons for foreign wealth owners to relocate to Italy since new favorable tax regimes offer competitive and foreseeable taxation. International customers have been challenging but beneficial for the entire industry due to new requirements and planning scenarios. However, some family offices did not migrate together with their controlling families to Italy.

Italian business families are historically primarily invested in their family business. However, private wealth is increasing, and if management is performed by several advisors and professionals with a fragmented asset class focus, families may not capture their wealth as a whole. This does not help from a planning perspective and results in risks and a lack of efficiency. Families should develop a holistic view of their wealth, e.g., with the assistance of consolidation and analysis tools. With such data, they can monitor developments and define specific strategies to compensate for the strong correlation between the family business and their overall wealth.

There is also recently increasing interest in family offices to assist entrepreneurs in managing family wealth. However, this is a relatively young industry, and still, Italian business families have strong connections to established family office jurisdictions such as Switzerland.

Can you tell us more about Italian trusts and what's the main difference to foreign trusts?

Italy's trust industry is now finally mature, but it took several years and much persuading to reach this point. While trusts are recognized under the Hague Convention on Trusts since 1991, we still use foreign trust laws. In particular, jurisprudence had to become familiar with complex scenarios of local settlors, beneficiaries, and assets held under a legal arrangement governed by foreign law. Now we have established case law, although some uncertainties regarding gift and inheritance tax remain. While we are confident that the tax authorities will take a concrete position on the open issues relatively soon, this is the reason why many Italian trusts require ongoing tax monitoring since they were settled in a period of not entirely predictable tax consequences.

Italian trusts are most beneficial when dealing with local business assets and allow for a very tax-efficient transfer to the next generation. There is still a widespread myth of asset protection trusts to ringfence assets from creditors. Nonetheless, our legal system does not protect arrangements with the sole intention to escape creditors' legitimate rights. Things get more complicated when beneficiaries and assets held under the trust are abroad. Such scenarios require a team of international experts to achieve strong results. Finally, one crucial signature of domestic trusts is that they can be considered a separate tax subject similar to a corporation, which is not common in foreign trust jurisdictions. This can be advantageous since double tax treaty benefits are available for trusts as a taxable person. However, this has also triggered enhanced scrutiny of tax authorities on their recognition.

How are Italian family businesses positioned for the transfer to the next generation?

This topic is critical as there are many family businesses with no formal succession plan in place. This exposes family businesses to serious risks since next-generation members have to wait too long to assume formal responsibilities and need to be involved earlier to gain experience. They should be able to add their creativity and ambition to strengthen and empower the business rather than lose interest while the current generation is unwilling to involve them. It's common to see that succession planning is delayed and often viewed from a tax perspective only. Inheritance tax is significantly low in Italy, leading to the omission of succession planning and underestimating the required focus on family business continuity. All of these factors have to be considered early in the succession planning process to ensure long-lasting resilience.

Sometimes there's more business than family in a family business. What's your view on the human part in wealth and succession plans?

Italy loves technicalities, and many advisors love to impress their customers with sophisticated interpretations and complex solutions. However, the world has evolved, and research shows that shared purpose and values are equally important for family businesses to last over generations. Italian universities have specific family business centers, but the attention on intangibles is a very recent event. Private education initiatives alongside universities involve entrepreneurs in family business research and education. Environmental and social responsibility has become a particular driver, and next-generation family members' awareness about Environmental, Social, and Governance factors of their family business and its impact on the community is high. There seems to be a new way of thinking about the family business emerging, including a strong focus on family identity and family values.  

We, professional advisors, need to raise awareness with family business owners and embrace new approaches in collaboration with coaches, psychologists, and strategic advisors to develop family business frameworks that last for generations. These crucial topics are now making their way to the first page of the wealth owners' environment and family offices. Also, there is an increased focus on governance, values, communication, and the community's impact within the Italian Family Officer Association. I believe that the entire financial system needs to transform. Professional expertise is only the condition to work in the industry. Still, it comes with the responsibility to develop empathy and curiosity for customers' lives, business approach, and how they see their family's future. It's about building genuine relationships so that customers can relax and discuss their issues more openly. In the past, professional advisors benefitted from informational asymmetry, which may be a reason for not entirely appreciating the immense privilege of assisting outstanding and inspiring entrepreneurs in growing and transferring their wealth.

In general, what succession planning advice would you have for family business entrepreneurs?

Attending dedicated courses on family business management could be an initial step before discussing strategies with advisors. There's a wide offering across universities and private associations, which provides an excellent opportunity to engage with other entrepreneurs. Many research publications are available to inform yourself about the topic and engage in discussion with the next generation from an early stage. 

Take the utmost care of your family's purpose and values. They will determine the family business' destiny in the long run and are the secret for success over generations. If your advisors are not demonstrating the same care level, they may not be suited to contribute to clear and lasting outcomes. A careful advisor selection further considers collaboration skills and transparency. That's what I enjoy most in my daily work: cooperating with professionals who add value to our customers' challenges beyond succession planning. Technology provides new opportunities for teamwork and the next generation's involvement, but the essence is value creation for all involved parties. With that, we can make things better. We can share values and create value.

About Giuseppe Violetta

Giuseppe is an Italian certified public accountant with a business administration degree. He worked for international law firms and consulting companies within banking groups and holds a master's degree in international taxation from Bocconi University and a TEP certification from the Society of Trust and Estate Practitioners (London). In recent years he founded innovative companies that operate as business integrators for investment managers and family offices, monitoring financial assets and art collections. Giuseppe is the chairman of the curatorial committee of a Swiss art gallery. Since 2020 he is the head of wealth management of an Italian tax and legal boutique based in Milano.

10-02-2021

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