Frequently Asked Questions about Trusts

What is a trust?

It is a three-party fiduciary relationship governed by a contract, by means of which one party, denominated a Constituent or a Trustor, through an act of trust, delivers or transfers one or more specific assets to a Fiduciary entity, in order to fulfill a purpose for the benefit of the constituent or a third party to whom it expressly determines.

The fiduciary entity undertakes to make its best effort to achieve the objective indicated by its client, managing the goods received for that purpose. It is a contract of means and not of results.

Who is involved in a Trust?

There are 3 parties involved in every trust:

  1. The Constituent or Trustor, who is the natural or legal person that transfers assets to the Trust. In most cases it is the client.
  2. The Trustee is the legal person that receives the assets to manage them as established in the trust agreement.
  3. The Beneficiaries are the people entitled to receive the benefits of the trust. These do not have to be part of the trust contract, if the trustor so requests, and they can even be designated in the future, as long as sufficient circumstances are expressed in the contract for their identification.

Likewise, within the trust structure, other figures such as advisers, protectors, consultants, or committees, whose functions can be established within the same contract, may be appointed.

Is the anonymity of the owner of a trust maintained?

Yes, our clients’ information is protected by law and by the rules of Professional Secrecy.

How long does the trust last?

The trust does not expire, however, the grounds for termination by law are the following:

  1. That the purpose for which it was constituted is fulfilled;
  2. That its fulfillment is impossible;
  3. The resignation or death of the beneficiary, without having a substitute;
  4. The total absence of assets in the trust;
  5. That the sole Trustee is, in turn, the sole Beneficiary; and,
  6. Any cause that is established in the trust contract.

What is the trust´s patrimony or estate?

The trust´s estate is made up of the assets transferred to the trust and the benefits they generate. The trust assets are different from the assets of the trustor, the trustee and any other trust assets managed by the trustee and, if applicable, the recipient of the remainder, so that it is protected and cannot be seized.

What can the trustee do with the property it receives?

The trustee can only perform the acts to which he is expressly authorized by means of the contract. In other words, the trustee has no freedom to vary the terms of the contract or to act in any way without the express and written authorization from the trustor.

In what cases is the trust is used?

The trust is flexible enough to be used in many cases, such as:

To assign the administration of an asset: The settlor transmits the management of their assets to the trustee, trusting them in the security of a serious and specialized institution in the financial system. Also, as the assets of the trust leave the personal assets of the constituent entirely, they are guaranteed against eventualities or contingencies that may affect the personal assets of the trustor.

Payment guarantees: they are constituted by a natural or legal person who is to become a debtor of a credit obligation. The essential purpose of this type of trust is to guarantee to the trustor’s creditors that in the event of default by the latter in the attention of their debts, the trustee will proceed to execute the assets, in order to pay, in proportion, the debts of the Settlor.

Investment funds: it consists of the management of liquid resources, seeking to allocate them to productive activities that derive attractive returns.

Probate trusts: they occur when a living trustee constitutes a trust, providing certain assets so that upon death the trustee delivers them to the persons designated as trustees.

What advantages does the trust have as a guarantee mechanism?

The first advantage it has is cost. Under the traditional scheme, granting a mortgage guarantee requires the creation of a mortgage and subsequently its cancellation, which generates significant legal expenses. The guarantee trust, by law, does not pay transfer taxes or registration fees, so the only cost is the establishment of the trust, which is substantially less than a mortgage, as well as the annual fees of the trustee. The second advantage it has is flexibility since it can be varied by mutual agreement between the parties without representing any cost.

If you require additional information, we invite you to contact us at [email protected] and we will gladly answer all your questions.

For more information, we invite you to contact us at [email protected] and we will gladly answer all your questions.