What is a TRUST?

It is a contractual agreement by which an individual or a corporation transfers the ownership of part of his or her assets to a trust institution (bank), so that they are used for a legal purpose. Such purpose is indicated by the individual or corporation in said agreement. Part I of Article 27 of the Mexican Constitution states a prohibition for foreigners to acquire legal ownership of real property in the Restricted Zone, that is, the law does not grant them legal capacity to acquire the private property of real estate in that zone, but they do have the right to acquire, through a TRUST, the right of use and enjoyment of said real property without creating real rights. It is necessary now to explain the requisites and conditions that must be met by the trusts that are formalized for these purposes. It is a contractual agreement by which an individual or a corporation transfers the ownership of part of his or her assets to a trust institution (bank), so that they are used for a legal purpose. Such purpose is indicated by the individual or corporation in said agreement. Part I of Article 27 of the Mexican Constitution states a prohibition for foreigners to acquire legal ownership of real property in the Restricted Zone, that is, the law does not grant them legal capacity to acquire the private property of real estate in that zone, but they do have the right to acquire, through a TRUST, the right of use and enjoyment of said real property without creating real rights. It is necessary now to explain the requisites and conditions that must be met by the trusts that are formalized for these purposes.

Why a TRUST?

According to Article 27 of the Mexican Constitution; “Only Mexicans by birth or naturalization and the Mexican corporations have the right to acquire the ownership of land, water and to all produced thereby, or to obtain the concession for the exploitation of mines and water. The state may grant the same right to all foreigners, as long as it is convenient to the Secretary of Foreign Relations to consider them as nationals in relation to said real estate. Any property located within a strip of 100 kilometers (64 miles) along the country’s borders and fifty (32 miles) on the coastline (restricted zone), by no means may any foreigner acquire the private property of land and waters.” Notwithstanding the above, the Federal Foreign Investment Law, allows those who are not Mexican citizens, to acquire rights as Beneficiaries in the “restricted zone”, through a TRUST, which is an agreement by means of which a Mexican Banking Institution holds title of the real property and acts as the Trustee. 

The TRUST was created by the Mexican government as a means of protection for foreigners that have properties in Mexico. Through a TRUST there is a revision of the transaction to ensure that is it legal, since the bank must corroborate the seller’s information before the agreement is signed (executed) by the buyer.

Which are the parties in a TRUST?

A) Trustor: Owner of the real property who will transfer title to the Trustee for the purposes of the trust.

B) Beneficiary: The beneficiary of the trust. The Beneficiary can be a foreign individual or foreign corporation or Mexican corporation with Foreigner Admission Clause.

C) Trustee: Banking Institution.

What is the purpose of a TRUST?

The purpose is to allow the Beneficiary the use and enjoyment of the real property subject to the trust, without constituting real rights over them. A trust allows the use and enjoyment of said real property, including the obtainment of fruits, products and in general, any revenue that may result from the lucrative operation and exploitation through a third party or the trust institution (bank).

What is the duration of the TRUST?

The term is 50 years. It can be renewed upon request of the Beneficiary and the bank must request it to the Secretary of Foreign Relations within 90 working days prior to the termination of the agreement.

How does a TRUST work?

The bank, in this case, the Trustee, keeps title for the buyer, who in this case is the Beneficiary. The property is not part of the assets of the bank and can not be subject to the liabilities of the Trustee. As long as the bank is the technical owner of the real property, it has statutory obligations to follow the instructions of the Beneficiary in relation to the property.

What happens in case the Beneficiary dies?

It is advisable that the Beneficiary designates the individuals or corporations who will receive the benefits of the TRUST upon his or her death, and who will be able to acquire title to the real property, according to law. However, in any case, the beneficiary rights of the foreigner are transferable to another person, also a foreigner, keeping in mind that the existence of those rights must be notified to the National Registry of Foreign Investment. This measure will spare the interested party of the obligation to resort to the Mexican courts, so that the authorities and the Trustee (bank) declare and recognize, respectively, his or her hereditary rights, even if the Beneficiary had made his testament before dying.