With Ruling n. 165 issued on August 8, 2024, the Italian Tax Administration ruled on a matter in which a trust was terminated by mutual agreement of the settlor, trustees, and current beneficiaries. The trust had been organized under the laws of Jersey as an irrevocable trust. Jersey law allowed a beneficiary to permanently renounce her appointment as a beneficiary and all of her present or future rights or claims associated thereto. Under the facts discussed in the ruling, the current trust beneficiaries waived their rights with the consent of the settlor and trustee. The Tax Administration construed the transaction as a termination of the trust by mutual consent, the effect which was to transfer the title to the trust assets back to the settlor and restore the situation that existed prior to the setting up and funding of the trust. According to the Tax Administration, due to the termination of the trust, the gift initiated with the original transfer of the assets to the trust is aborted, and the transfer of those assets back to the settlor does not constitute an “enrichment” of the settlor that might be taxable by way of the gift tax. Indeed, the settlor just regains the legal title to the assets which he initially owned. The ruling does not discuss the tax basis in the assets transferred back into the hands of the settlor, which, presumably, should be the historical basis of the assets in the hands of the trust. Equally, it does not discuss how any income earned by or accrued from the assets of the trust may be taxable upon termination and upon whom. The termination of the trust by mutual consent, when allowed by the governing law of a trust, is a viable way to get rid of a trust that no longer serves the intentions of the settlor and the beneficiaries. However, it is also a strategy to be handled with care, especially if it is conceived as a way to move to another trust arrangement with different terms to be set up sometime after the termination of the original trust. In a cross-border context, if the settlor is an Italian resident at the time of the setting up and funding of the new trust but was a nonresident at the time of the funding of the initial trust, the transaction would taint all trust assets, which would automatically become subject to Italian gift tax upon distribution to the trust beneficiaries. Furthermore, if the settlor is a resident at the time of funding the second trust, the funding of the second trust must be filed with the Tax Agency and registered in Italy. There is no gift tax at the time of the registration of the transaction, but the gift tax will be due at the time of the final distribution of the trust assets to the beneficiaries. Finally, the termination also affects the settlor’s and beneficiaries’ tax reporting obligations. With respect to the trust, depending on its characterization and rights to the trust assets and income, the beneficiaries were required to report the value of the trust and their interests in the trust assets and income. After termination, the settlor becomes the owner of the trust assets and is required to report the value of the assets on his income tax return if those assets are located abroad until the new trust is created and funded. The complexity of Italy’s trust taxation law requires careful study and planning before any meaningful transaction impacting the nature and terms of a trust is carried out.