Owning In Mexico
1. What is a Trustee?
In Mexico, certain authorized banks are entrusted with the responsibility of opening fiduciary accounts and conducting trust operations. The Trustee assumes legal ownership of real estate properties during the duration of a Mexican trust contract. Additionally, the Trustee is vested with the rights and authority necessary to achieve the goals outlined in the contractual agreement that establishes the trust.
2. Understanding the Mexican Bank Trust
The Fideicomiso, or Mexican Bank Trust, serves as a mechanism enabling foreign individuals or companies to acquire property in Mexico’s restricted zones. This trust mechanism was established to facilitate the participation of foreign investors in Mexico’s rapidly expanding real estate market, all while ensuring complete and lawful control over their investments and adherence to Mexican regulations.
The trust is the legal owner of the property, held by a Mexican bank, and its primary purpose is to safeguard the property for the benefit of the trust’s owner. Real estate investment trusts open up opportunities for foreign entities and individuals to invest in Mexico’s coastal and border regions, which were formerly inaccessible to foreign investment.
Only Mexican banking institutions that are authorized and regulated under Mexican laws are eligible to serve as trustees. The beneficiary of the trust, typically a foreigner, retains the usage and control of the property held within the trust, including the right to make investment decisions related to the property. This includes the option to transfer property interest to another foreigner, thereby realizing the economic benefits associated with ownership of Mexico’s attractive coastal properties.
Trusts are initially established for a period of 50 years and can be renewed indefinitely for additional 50-year terms. The beneficiary may transfer or assign their beneficial interest to any individual, all while benefiting from the profits generated by the property sale, subject to applicable tax laws and expenses. Property held within a trust can be passed down to future generations without incurring inheritance taxes.
Fideicomisos provide a straightforward and secure means for owning property in Mexico, as they are officially sanctioned by the government and offer robust legal protection.
3. Benefits of a Mexican Bank Trust
As the Trust Beneficiary, you gain the right to use and occupy the property, allowing you to reside on the land and make any necessary alterations or improvements. You also possess the authority to instruct the Trustee regarding actions such as mortgaging the real estate, renting it out, selling it, or transferring your beneficial interest to another person or corporation. In the event of selling the property to another foreigner, you can assign your beneficial interest to the new buyer. This assignment must be formalized before a Mexican Notario, prior to settling federal and local taxes and fees related to the transfer of beneficial rights. You are responsible for paying land-related duties, including annual property tax, maintenance fees, water, electricity, annual Trustee fees, and more.
4. Setting up a Mexican Bank Trust
To establish a Fideicomiso, either you or the seller must provide the bank with the following information:
A) A copy of the real estate title or deed, specifying the exact surface area and boundaries.
B) A copy of a property draft.
C) The name(s), nationality, address, and phone number of the beneficiary(ies).
D) The agreed-upon purchase price.
Upon receiving this information and documentation, the bank proceeds to apply for the Trust Permit from the Mexican Ministry of Foreign Affairs. Once obtained, the bank executes and legalizes the Mexican Trust Contract before a Mexican Notario. Mexican Notaries hold significant legal authority, surpassing their counterparts in the United States. They are attorneys authorized by the government to provide the final formality to the title transfer process in their protocol book. The resulting document, derived from their protocol book, is registered at the public registry of properties, providing evidence of the title in the buyer’s name.
5. Cost of a Mexican Bank Trust
As an illustration of the cost of a Fideicomiso, one bank charges:
A) $500 USD for the Trustee acceptance fee, payable upon signing the Mexican Trust Contract.
B) $500 USD annually for managing and servicing the Trust, payable in advance. This fee is subject to biennial increases in line with the U.S. inflation rate. Each year, on the Trust’s anniversary, the bank sends an invoice for the annual fee to your address. All Trustee fees include value-added tax (IVA) and may change over time.
6. Other Costs Associated with the Purchase
Expect additional expenses incurred when creating the trust deed. These include fees, taxes, and expenses related to the property purchase, as well as the formalization of the Trust deed before a Mexican Notario. Additionally, you must cover the cost of the permit required from the Mexican Ministry of Foreign Affairs (SRE) to acquire the property in Trust, as well as the recording of the Trust deed at the National Registry of Foreign Investments.
7. Substitute Beneficiaries
The Trust Beneficiary has the right to designate a substitute Beneficiary who will inherit all rights and responsibilities stipulated in the Mexican Trust contract in case the original Beneficiary passes away during the trust’s duration. By designating substitute Beneficiaries, your heirs can bypass probate proceedings in Mexican courts. Instead, they only need to inform the bank, provide the death certificate, and present their identifications. The bank will then instruct a Mexican notary public on the proper protocol for handling the documents, resulting in the transfer of ownership (Beneficiary status) of the Trust property to them.