The Mexican Trust or better known as the fideicomiso is a commercial contract
governed by Mexico’s general law of credit instruments and operations (GLCIO). Like most
contracts in Mexico governed by a particular statute, the GLCIO includes a number of
mandatory provisions which means they can not be modified or waived, but also allows trusts to
include other contractual provisions, making them one of the most flexible types of contracts in
Mexico, and one that is widely used for many different purposes.
Generally speaking, the trust or fideicomiso normally consists of three parties; the trustor
or settlor, the trustee, and the beneficiary, although the beneficiary is not required in some trusts.
The trustor or settler can either be an individual or an entity, and it’s the party that usually
transfers title or management of certain assets, rights and benefits to the trustee, who holds them
in trust. The trustee is the party that holds the assets in trust, and the party that is given the
responsibility of performing and complying with the specific purposes and goals of the trust.
And last but not least, is the beneficiary, which although common, it is not a party that appears in
all trusts. The beneficiary of a trust is the party that stands to benefit from the assets and trust,
whether its by using and enjoying the assets, by having privileges or special rights to the assets
such as a security interest, or by receiving income from the assets, to name a few.
Most trusts require that title to the property in trust be held by the trustee, but that does
not mean trustees will consider those assets as part of their net worth or reserves. In fact, Mexico
has implemented rules that require trustees to keep separate accounting books for assets held in
trust. Other trusts simply require that assets be “affected” or “subject to” the trust, which means
that title may remain with the trustor.
Also due to statutory requirements, the trustee must always be a Mexican bank or
financial entity, and it must act in accordance with the trust’s purpose. Unfortunately, the
Mexican “bank” or “financial entity” requirement is probably the biggest reason why trusts are
not always viewed as a practical mechanism for some business transactions, as many Mexican
banks are either unprepared or unwilling to take on the responsibilities and duties within certain
trusts, especially when dealing with personal property.
Like in many other jurisdictions, trusts in Mexico are always created for specific
purposes, and trustees are bound and limited to act in accordance with such purposes. However,
in practice, trustees usually take a passive role during most of the trust’s life, further allowing
management and other duties to be taken by the beneficiary or other third parties.
For most trusts to function, there is a prerequisite to transfer certain property to the
trustee, for its care and management. Trustees must exercise good faith and shall use diligent
and professional efforts to promote and protect the best interests of the assets in trust. Although
the trusts themselves will include a purpose and the trustee’s duties, trustees are always expected
to act as good “father figures”.
By law, trusts are considered irrevocable, unless otherwise provided in the trust itself, and
also by law, trusts can also hold most types of properties, and rights. When properties and rights
are transfer to a trust, the trustor may “hold-back” or “reserve” for itself, certain portions of a
particular asset, or only do so under a partial or limited assignment. This means the trustor may
also keep and maintain for itself, certain rights over the assets held in trust.
Creation and Formation.- Trusts must be in writing and must be prepared (or amended)
following the same formalities required for the transfer of the properties that will be subject to
the trust. For instance, if the property to be transferred to the trust is real property, then the trust
must be created with the same requirements as when real property is transferred in Mexico. That
includes the formalization of the trust in a public deed in front of a Mexican Notary Public.
Likewise, if the trust will hold personal property only, then it can be created by means of a
private contract and no public deed or Mexican Notary Public may be required for the formation
Duration.- Trusts are normally for specific period of time and can not exceed 50 years,
except under certain specific cases when such term can be exceeded. Also, there are certain types
of trusts that can be extended, for instance land trusts which are discussed below. Furthermore,
trusts can terminate under various scenarios including the trust reaching its purpose, when such
purpose becomes impossible to satisfy, by agreement of the trustor and beneficiary, or when
revoked by the trustor, if the trust allows for such revocation, to name a few. Upon expiration,
and unless otherwise provided by the trust, the trust assets or the proceeds thereof will distributed
to the beneficiary.
Technical Committee.- Depending on the purposes of the trust, the trustee may require
either constant or specific supervision and/or direction, or simply certain assistance in satisfying
the trust’s purposes. This is accomplished by a governing body working in the form of a
committee, and its called the technical committee. It is typically appointed at the time the trust is
created or when amended. The committee’s job or duties can be specific or broad, as determined
by the parties creating the trust, or by the parties with authority to appoint and remove members
in the committee.
Different uses for trusts:
I. Land trusts: Perhaps the most widely known use of a Mexican trust, especially
amongst Americans and other non-Mexicans, is the real estate or land trust for the restricted zone
for acquiring residential property. Under Mexican law, foreign persons and entities may not own
land that is located within the restricted zone, which is an area of 100 kilometers from either
border (north or south) and 50 kilometers from the coastline.
These types of trusts are commonly used by foreigners purchasing residential property in
tourist destinations like Los Cabos, Riviera Maya, Puerto Vallarta and Acapulco, to name a few.
These trusts can be for a term of 50 years and can be renewed or extended.
The formation process usually takes place by having the seller/developer act as the trustor
and by irrevocably transferring title to the property, to the trustee. The trustee then holds the
property for the benefit of the beneficiary. The beneficiary will normally have the unrestricted
right to enjoy and use the property, as well the benefit of any rental and sale proceeds, if and
when the trusts assets are sold, provided the trust allows it.
Before the land trust can be created, the trustee, a Mexican bank, applies for a trust
permit with Mexico’s Foreign Relations Department (FRD). The application process is
relatively simple. Information on the parties and the property is required as part of the
application process, together with the payment of an application fee. Under statutory provisions,
the FRD has 5 business days to respond all applications, although the term extends to 30 days if
the filing takes place at any of the FRD offices located outside Mexico City. Upon the issuance
of the trust permit, the parties are then free to formalize the creation of the trust by transferring
the real property in front of a Mexican Notary Public.
Like any other real estate transaction, the creation of a land trust will also require the
standard due diligence on the property, appraisals, inspections, title searches, the obtaining of
certificates of no-liens, certificates of no-debt (on property taxes) and any other customary or
statutory requirement under local and state laws for closing on real estate.
Another important feature of land trusts is that they allow the beneficiary to appoint a
“substitute beneficiary” at the time of the trust’s creation. Upon the beneficiary’s death, the
substitute beneficiary takes over, as the trust’s beneficiary, therefore saving considerable time
and money from an otherwise complex probate proceeding in Mexico.
Although the formation process for a land trust may seem relatively easy, and one where
little effort is needed, it is advised that beneficiaries negotiate as much freedom and flexibility
relative to the assets in trust, and that such terms be clear in the trust itself. Otherwise, the
involvement of the trustee will be required, and its is well known that banks can be slow and
bureaucratic. Generally speaking, beneficiaries will have the ability to use, and enjoy the
However when it comes to renting, managing or making improvements, securing permits,
federal zone concessions, and the like, or other more specific actions, unless its negotiated and
included in the trust, beneficiaries may find out that they require the participation of the trustee.
Trustees usually grant powers of attorney to beneficiaries to perform such actions, but the
granting process takes time, and money, although bank fees are mostly reasonable. Some banks
are more flexible than others when it comes to granting powers of attorney and their overall
response time, so its important to choose wisely who the trustee will be when the trust is set up.
To sum it up, the Mexican land trust is as safe as the deed to your home in the US or
Other types of land trusts, including non-business trusts that create certain tax
advantages for US companies: Aside from the land trust used by foreigners to acquire
residential properties within the restricted zone, there are other types or variations of the land
trust. Developers whether acting alone or with other partners in joint ventures, may use land
trusts as part of their overall business structure. These land trusts may be required either to
segregate ownership of land from a business operation, to satisfy lenders requirements, or to
facilitate the ongoing operations with joint venture partners.
Foreign companies investing in land developments throughout Mexico, and not just in the
restricted zone, have favored the use of trusts because of certain tax and fiscal advantages. For
instance, a US limited liability company may decide to use a trust and become the beneficial
owner and lessor of real property located in Mexico. The US company will apply for its tax id in
Mexico, and elect to pay taxes on a net basis as provided under the US-Mexico tax treaty.
The trust will also provide that the beneficiary will be entitled sign lease agreements
relative to the assets in trust. These non-business land trusts also allow the beneficiary to enter
into construction, management, development and marketing agreements with third parties,
further enhancing the investment structure and control of the development.
In addition to any tax advantages that these companies receive in the US, some of the
advantages in Mexico include that the US company will not have pay withholding taxes on
interest payments, and will be able to take depreciation on 100% of the value of improvements
built on the site.
II. Administrative trusts: These types of trusts will generally revolve around the
administration and management of certain assets, and in certain instances, provide for payment
and distribution features.
They can either be used by individuals as part of an estate plan, or by corporations as
ways of managing their assets. Companies use these types of trusts to manage pension and
The creation and formation process for most administrative trusts is no different from the
process discussed above. In other words, the creation process is driven by the type of assets being
managed. If its real assets, the creation is more formal with the participation of a Notary Public,
and if its personal property, its much simpler