Is it possible to appoint substitute beneficiaries in trusts should the primary beneficiary pass away?
By Rodrigo Espinoza • Robles Lazo y Gallardo Law Firm • Photos by Jesús de Avila
• February 2009
 In Mexico, foreigners are prohibited from owning pieces of real estate located 50 kilometers from the beach front and 100 kilometers from the border (the Restricted Zone). In spite of this, through trusts, foreigners may acquire the right to use, enjoy and profit from these properties as trust beneficiaries for a 50 year term, with the possibility to instruct the Fiduciary to sell, create a lien over, or in any other way affect that piece of real estate–which in practical terms implies the exact same rights as ownership- subject to the condition that an agent authorized by Mexican law acts as the fiduciary of said trust and hence as the legal owner of the property.
In order to achieve this, said foreigner must first procure a permit issued by the Ministry of Foreign Affaires. In doing so, said foreigner may appoint substitute beneficiaries should they pass away. It is important to point out that when the trust is executed, the beneficiary of the trust has the right –however not the obligation- to appoint substitute beneficiaries of the trust that can be removed and replaced at any time. However, in light of the fact that this is not a legal requirement, this provision is not always inserted in these types of trusts and this is why it is convenient to acknowledge the possibility and understand its implications.
 By naming substitute beneficiaries, we are making sure that should the primary beneficiary pass away, the corresponding rights will be transferred in the simplest manner to the people that he or she appointed. To transfer said rights, one must simply prove to the fiduciary that the person is indeed deceased; this is done by means of exhibiting a death certificate. Likewise, in light of the fact that there is no estate tax in Mexico, the transfer of rights would be solely subject to property transmission tax.
The foregoing procedure for the appointment of substitute beneficiaries is quite simple and does not entail any additional cost, however it is important for said appointment to be duly documented and reviewed by the principal beneficiary of the trust in order to avoid any adverse situations for said beneficiaries’ heirs.
Should this provision not be included, upon the death of the principal beneficiary, his or her heirs would be forced to commence probate proceedings –usually in the home country of the deceased- before a judge which, needless to say, are a lot more time consuming and would make it more difficult for the heirs of the deceased to obtain the rights over said property and also force them to incur in additional costs. Email to a friend Robles, Lazo y Gallardo - Law Firm
E-mail: jgallardo@rlg.com.mx
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• Robles, Lazo y Gallardo, S.C. is a Law Firm of specialists in various areas of Law, including Corporate Law, Real Estate, Immigration, Foreign Investment, among others. The Firm is integrated with a group of highly qualified attorneys and has offices in Guadalajara (Privada del Niño No. 676, Fraccionamiento Camino Real, telephone number 33-3121-3010) and Puerto Vallarta (Carretera a Mismaloya No. 479 interior 107, Edificio Scala. Telephone number 322-223-3218).E-mail: jgallardo@rlg.com.mx
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