Legal Process to Purchase

THE MEXICAN TRUST – FIDEICOMISO

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. 2 

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 process. 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. 

Conclusions: The Mexican government has done an impressive job, yet to be completed, by amending and introducing legislation that allows a greater and well accepted use of the Mexican trust as a common tool for the community as a whole, whether on a personal or on a business level. 

Banks have also done their part, although because of their greater participation as trustees in Mexican trusts, they are held to different standards. The more common the trust becomes, the more banks will become comfortable with the way it works. Training and support of their trust departments should greatly contribute to the success of the Mexican trust. If you read this entire article, next time someone says fideicomiso…. you will know what they’re talking about. This article is designed to provide information regarding the subject matter covered and is not to be considered as legal advise by the authors. Each case should be reviewed on an individual basis.