Fideicomisos

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A fideicomiso in Mexico is a legally distinct pool of assets transferred to a fiduciary institution (usually a bank) to be managed for a specific purpose or for designated beneficiaries. It is functionally similar to a common‑law trust and operates in Mexico’s civil‑law and financial regulation framework.

What is a fideicomiso?

A fideicomiso concerns property or rights that are transferred to a fiduciary—typically the Bank of Mexico, certain brokerage houses, insurers—whom are given certain parameters on how to manage it in the interests of the beneficiary. Articles 381-394 of the Ley General de Títulos y Operaciones de Crédito (LGTOC) layout the statutes for fideicomisos. A fideicomiso consists of three parties:

• fideicomitente (settlor)
• institución fiduciaria (fiduciary)
• fideicomisario (beneficiary)

The settlor and fiduciary sign a written trust agreement, which transfers the ownership or title to the fiduciary to administer, invest, or dispose of the transferred assets. The fiduciary must follow the parameters in the trust agreement. Beneficiaries receive use, income, or final ownership as specified. the fideicomiso is terminated when it expires, is revoked, is achieved, becomes impossible to fulfill, by written agreement, or is fraudulent. The modern fideicomiso was directly influenced by the Anglo-American trust.

History

The Roman law of fideicommussim is the antecedent of fideicomisos. The Roman law stated that a testator would name a formal heir but charge the heir to transfer assets to an ultimate beneficiary.

In 1905, Finance Minister José Yves Limantour attempted to introduce a concept similar to fideicomisos, but it was not passed into legislature. At a national banking convention in 1924, Enrique Creel promoted the idea of trust and savings banks to be able to act as trustees, executors, and be given similar fiduciary roles.

When Mexico built a modern banking framework in 1925, they included fideicomisos and continued to develop the statutory definition throughout 1932. In 1925 the term "fideicomiso" appeared in the Ley de Instituciones de Crédito y Establecimientos Bancarios. The next year a statutory definition was included, and in 1932 LGTOC provided a comprehensive regulation of fideicomisos detailed with amendments.

Legal statutes and framework

LGTOC Article 381-394 is the statute for general rules, parties, duties, and extinction. These statutes outline the duties of the fiduciary institutions, such as, asset segregation, fiduciary duty, beneficiary rights, extinction and reversion.

Mexican doctrine usually talks about a small set of main “types” of fideicomisos, grouped by their practical purpose rather than by different statutes. Most authors and banks describe three core functional categories, each focusing on how the assets are used or where they are meant to end up.

• Fideicomiso traslativo de dominio

Transfer‑of‑ownership trust. Ultimately meant to convey title to a beneficiary once conditions are met (common in real estate and developments).​

• Fideicomiso de administración

Administration/management trust. Used to hold and manage assets or projects (like portfolios or family wealth) without primarily serving as collateral.​

• Fideicomiso de garantía

Security/guarantee trust. Assets are placed in trust as collateral so that, on default, the fiduciary can enforce against them more efficiently.​

"Restricted Zone" and U.S. tax implications

The Mexican Constitution states that only Mexican citizens can own land within 100 kilometers of international borders and within 50 kilometers of the coast. This changed in the early 1970s when the Mexican Government saw economic benefits by allowing non-Mexican citizens to purchase this restricted land. This allowed foreign persons to purchase "beneficial interests" in real property within these areas, but the legal title to the real property is held in the name of a Mexican bank to fulfill the conditions of the Mexican Constitution. In 2012, international estate planning attorney, Amy P. Jetel, published an article on the implications this would have on U.S. taxpayers.

For a common law trust to be created the trustee holds certain responsibilities and duties:

• Hold legal title to the property and operate in good faith of the beneficiary

• Manage the property, as deemed appropriate, regardless of the beneficiary's desires

• Pay all taxes and liabilities concerning the property

• Be entitled to receive any income and proceeds from the property

According to the Internal Revenue Code, the trustee must have full fiduciary duty to maintain the property in the best interest of the beneficiary. If the trustee has no such duty, and if the beneficiary is responsible for the protection and conservation of the property, then, for purposes of federal tax law, a trust hasn't been created. Revenue Ruling 92-105 states that in Illinois a trust is not created if the trustee holds the legal title to the property while the beneficiary maintains the property, has the power to direct the trustee's actions according to the property, can directly receive earnings from the property, and is responsible for paying any taxes and liabilities relating to the property.

these conditions are not met by a fideicomiso's agreement. The beneficiary of a fideicomiso:

• Holds the duty to conserve the property
• Has the exclusive right to control the trustee's actions according to the property
• Has the exclusive responsibility to pay all taxes and liabilities of the property

The role of the Mexican bank to hold the legal title of the property simply satisfies the conditions set by the Mexican Constitution. Fideicomisos do not fulfill the requirements for a trust to be formed.

Accordingly, U.S. beneficiaries of these fideicomisos are not required to report them as such to the IRS.

Amy P. Jetel obtained a Private Letter Ruling for one of her clients in 2012, in which the IRS found that her client's beneficial interest in the fideicomiso was not reportable as a foreign trust. The IRS turned this holding into a Revenue Ruling that is available for other taxpayers' use.

Foreign trust filings

Foreign trusts fall under IRC Section 6048 and direct taxpayers to which forms they must file for their foreign trusts. These forms being 3520 ("Annual Return to report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts") and 3520-A ("Annual Information Return of Foreign Trust With a U.S. Owner). Fideicomisos are not classified as trusts, so Internal Revenue Code Section 6048 does not apply and the related forms are not required. Ffideicomisos are not filed under Section 6048.

Taxpayers who do not file forms 3520 or 3520-A are not utilizing fideicomisos as tax avoidance devices. IRC Section 6048's reporting rules were broadened in 1996 to implement IRC Section 679, which was established in 1976 to prohibit U.S. taxpayers from deferring their U.S. income tax liabilities by relocating income-generating assets to trusts outside the U.S. Fideicomisos, allowing the beneficiary to directly receive income from the property, prohibits the beneficiary from concealing this income. This income would be reported on their U.S. tax returns.

References

This article "Fideicomisos" is from Wikipedia. The list of its authors can be seen in its historical and/or the page Edithistory:Fideicomisos. Articles copied from Draft Namespace on Wikipedia could be seen on the Draft Namespace of Wikipedia and not main one.

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