Referring someone to one of my blogs on how the trust system works, I realized how far they’d have to page through to get there. So, it’s time to revisit how we hold title in Mexico. And, for the regulars, I’ll add an update on what is currently happening in Congress about changing it.
So, let’s start at the beginning…. Remember the Alamo? There is a HUGE difference in the way Mexican and American history books tell this tale. The issue that started it was a bunch of Americans who moved to Mexico, then decided they wanted to be independent. They would be called Texans. Bottom line: we fought a war and Mexico ended up having to cede over 1/3 of their land mass to the United States. This obviously, did not make them happy. This especially ticked off the wealthy landowners who were suddenly penniless. And no, it’s not going to happen again. So, when Mexico wrote their newest constitution in 1910 they forbade foreigners from acquiring property in Mexico. This sounded great at the time but turned out to be a real economic problem. So sometime mid-century-ish they amended the constitution for the 27th time. Article 27 allows foreigners to own residential property in Mexico, but only with the approval of the Secretary of Foreign Relations and Congress. And, if that property is within 50 kilometers of the ocean or 100 kilometers of an international border it must be held in trust with a Mexican bank. This perimeter is called ‘The Restricted Zone.’ Obviously all of Los Cabos is located in that zone.
The trust itself is pretty simple, or as simple as anything governmental can be. There are two important clauses. The first states that the congress of the United Mexican States grant you (by name) all the rights, privileges and benefits of a Mexican citizen as pertain to your ownership of the property (by name). Bottom line: they can’t do anything to you they cannot do to a Mexican citizen. Now the second important clause (which hardly anyone reads) says that in return for those rights, privileges and benefits that you agree to obey the laws of Mexico, and in particular not ask your native country to interfere in Mexico’s internal affairs. See, it’s just an anti-Alamo clause. Now there are a few possible catches; you’ll need to remember the trust makes you equal in the eyes of the law and does not put you above the law. You can’t turn your home into a crack house, or you’ll get the same penalty as a Mexican would. If you rent your home out you must pay tax on the income just as if you were Mexican.
IMPORTANT NOTE #1: Every once in a while you hear about someone who lost their home. And there have been some highly sensationalized cases reported in the US press. What the US press fails to report is that in those cases the people who were evicted never owned the property! There are people who try to avoid the expense of forming the trust (and paying acquisition tax) by circumventing the law and leaving the property in the name of the Mexican who ‘sold’ it to them. Legally, that person is still the owner and can re-sell it or simply take it back. Forming the trust is no great hassle and we have people here who literally do it every day and you will likely contract with one of them. It’s not that much money and well worth it.
IMPORTANT NOTE #2: The trust has additional benefits. As morbid as this sounds, the first thing we’ll do after your offer has been accepted is ask who your heirs are. The trust names you as the primary beneficiary, but then drills down another layer and names your heirs. So, in the event of your demise it will bypass probate and go directly to the heirs you named without the need to have a will or go through any legal process or pay probate tax.
RECENT EVENTS: This summer the lower house of the Mexican Congress passed a bill that would do away with the trust system. As the bill had the backing of all three major political parties it sailed through. The process of changing the constitution requires passing both levels of Congress, a signature of the President, and ratification by at least 16 states. How long that will take is anyone’s guess. Because of the strong party support, and the blessing of the banking industry (it’s really not a profit center and they’d sooner not have the business), everyone predicted it could be done in record time. I don’t know about the politicians, but I was pretty shocked at the negative response at the grass-roots level. So I’m not counting on seeing it as soon as originally predicted. And it is true that if you don’t have a trust you will need a Mexican will, so there are likely people who will continue to use the trust system for the financial planning aspect.
So that’s the trust story. It’s safe, secure, and has financial benefits as long as you do it properly. But that’s true of many things, no?
Carol Billups is Broker/Owner of Cabo Realty Pros. She has enjoyed working with both buyers and sellers for over twelve years and still thinks hers is the best job on earth. She is also the real estate columnist for Los Cabos Magazine. You can read more of her articles on the website blog http://www.caborealtypros.com. You can reach her from the U.S. or Canada at 1-760-481-7694, or in Cabo at 044-624-147-7541. You can listen to our 24/7 broadcast on http://www.livecabo.net for a mix of happy music, weather reports and local information.
© 2013 Carol S. Billups