Category Archives: legal

The Mexican Will for the Property Owner in Mexico

The Mexican Will – Is it Necessary?

protecting your assets through proper planning

 

by Linda Jones Neil ABR®, CIPS, SRES, RSPS, (US) and Raoul Rodríguez-Walters, CFP® (US), Enrolled Agent

 

 

US and Canadian citizens living in Mexico frequently ask:

 

“Do I need a Mexican Will?

 

While there is no legal requirement to have a Testament, or Will, executed in Mexico, it often makes sense for people whose only Mexican asset is a home or condominium, to be proactive and draft a Mexican Will.

 

The main reason is that the laws governing transfer of properties to heirs are not always favorable to surviving spouses and property is not always distributed in a manner that the deceased would have wanted.

 

Laws of succession in Mexico are governed by the Civil Code of the state in which the property is located.  While many state laws are based upon the Civil Code of the Federal District, (Mexico City) it is important to investigate the law in the state where property is held to determine precisely how property will be distributed when the owner, or one of the owners, dies without a will (intestate)

 

WILLS FOR PROPERTIES HELD IN A FEE SIMPLE DEED:

 

If the property is located in the interior of the country, outside of the “restricted zone”, the strip of land 50 miles wide along the coastlines and 100 miles wide along the borders, then more than likely the property is held outright in a fee simple deed.

 

In Mexico, there is no such thing as right of survivorship permitting the property to automatically transfer to the surviving spouse.  At the first death, assuming the husband and wife own the property 50/50, an undivided half will be transferred pursuant to the deceased’s will or pursuant to the state’s civil code.

 

In the event the deceased does not have a will and there are surviving children, it is possible that, even in states with revised Civil Codes such as Guanajuato and Baja California Sur, the surviving spouse will have no more than an equal share with the children.  In other words, if Mr. Jones has a wife and four children who survive him, Mrs. Jones will receive only a one-fifth undivided interest in Mr. Jones’s 50% interest in the property.

 

Mrs. Jones will then have to obtain the permission of her four children in order to mortgage or sell the property her 50% interest and the portion she inherited from her husband.

 

However, in the Federal District (Mexico City) if the surviving spouse has an estate that is equal to or greater than the shares of the children, then the spouse gets nothing.

 

This can be avoided on fee simple properties by a carefully prepared Will made by each party on title.  The Will, in Mexico, is made before a Notary Public and may be handwritten with an official translation made, or the Notary may insist upon having an official translator present if the party making the will does not speak fluent Spanish.

 

In the last few years many more Mexican states have added provisions to their Civil Code introducing what is known generally as a simplified will, or “Testamento Simplificado”. Basically, the person(s) purchasing a home for personal use are allowed to set up a bequest in the deed to the real property acquired, which functions for all intents and purposes, as a beneficiary designation. As such there wil be no need to initiate a probate process as regards that property. However, please note that a clause such as this a deed to a home in Mexico will only apply to that specific property. Depending on your particular situation, a separate will might still be advisable for other property that you may own.

 

WILLS AND DESIGNATIONS IN FIDEICOMISO PROPERTIES:

Per Article 27 of the Mexican constitution, any property located within the “restricted zone” (see above), acquired by a foreign person, must be held in a Mexican bank trust (fideicomiso).  Essentially, the fideicomiso is a contract with a Mexican bank for it to hold title on behalf of the foreign person.  Thus, with bank as the titleholder, beneficiaries and substitute beneficiaries can be designated within the trust (fideicomiso) contract and no will is required, nor is probate required for disposition of this property.

 

Upon the death of a trust beneficiary, the substitute beneficiary must contact the trustee bank, provide it with a certified copy of the death certificate and request that the substitute be acknowledged as full beneficiary.  Certain costs are involved but no probate is necessary.

 

Great care must be taken, however, in the designation of the beneficiary (ies) to insure that husband will succeed to wife’s interest in the event of wife’s death and vice versa.

 

If the fideicomiso, trust contract, shows the beneficiaries as Jonathan Smith and Geraldine Smith, without specifically stating that the surviving spouse inherits the entire property upon the death of the other, the law will assume that each party owns a 50 % interest in the party and the deceased’s 50% will transfer to his heirs upon his death which may, or may not be to his wife and children depending upon the terms of the civil law in the state where the property is located.

 

While the property held in fideicomiso, the Mexican bank trust, can properly designate successors upon the death of the original beneficiary, personal property such as automobiles, furniture, art work, and so forth are left unprotected if no Mexican Will is made.

 

This is a very important reason for those living in the “restricted zone” to have a will, even if real properties are held in a Mexican bank trust.

 

ESTATE TAXES IN MEXICO.

 

Mexico currently has no estate tax imposed on residents.  However the settlement of any estate will have certain expenses such as legal and notary fees, appraisal fees, transfer taxes, bonds, etc.

 

Under certain circumstances, however, non-resident heirs may need to pay a 25% estate tax.

 

ESTATE PLANNING WHEN PROPERTIES ARE HELD IN TWO OR MORE COUNTRIES

 

Estate planning, as it is understood in the United States and Canada, is not generally available in Mexico.  In most states, when a foreigner is not fluent in Spanish  and that person goes to the Mexican Notary Public to prepare a Will, he or she will be told to handwrite their “testamento”, which is then translated, word for word.  If you do speak Spanish you will tell the Notary Public what you want and your wishes will be given legal form.   Unfortunately, however, when it is done in this manner little thought is given to the complexities of any estate plan, especially international estates: family relationships, ancillary probate processes, US or Canadian estate taxes, survivorship issues, special planning situations and so forth.

 

In preparing a Mexican Will, the following should be considered:

 

  1. Be sure you know exactly what the Will says.  If you did not write it and do not understand Spanish, have it translated.   Review your Will every few years to be sure it expresses your intentions.

 

  1. Mexican Wills often revoke any prior Wills, either explicitly or implicitly.  If there are prior Wills and the Mexican Will does not mention them, the Mexican Will revokes all prior Wills by operation of law.  Often this is not the testator’s intention.  It is essential that revocation, or non-revocation, be specified in the Will.

 

  1. Coordination of the estate plan so that all Wills, on both sides of the border,  work to achieve your goals.  A Mexican Will should cross-reference any US or Canadian Will, and vice versa.

 

  1. Review your estate plan with a competent attorney, experienced in international tax and estate issues.

 

  1. If your only Will is a Mexican one, and you own property in the US or Canada, you may wish to consider including a residuary clause.  While not applicable in Mexico, it may help avoid having US or Canadian asset distributed pursuant to intestate laws.  In addition, taxes will be paid in the US from the residuary, unless specifically directed otherwise.

 

  1.         Other clauses to consider in your Mexican testament:

 

  1. Simultaneous Death Clause, Used in the event both spouses die together.

 

  1. Testamentary Trust Clause.  Used to direct the executor to create Mexican, US or Canadian trusts.

 

  1.         No Contest Clause.  Used to discourage heirs from contesting a Will.

 

  1. Letter of intent.  Because the codicil in Mexico does not exist, provision for a Letter of Intent can be included in the Will making it simpler to change your bequests at a later date.

 

The cost for making a Mexican Will is generally less than $500. USD.  Also, the month of September is known as the “month of the wills” and most Notarios provide their services for drafting wills at a deep discount, often 50%. In most cases, it is probably money well spent for the peace of mind gained from knowing your wishes will be carried out upon your death.

 

copyright January 2006, Consultores Phoenix, S.C., reproduction prohibited without permission.

 

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Co-Author Linda Neil is the founder of The Settlement Company®.  It is the first escrow company in Mexico, and is dedicated to processing the trusts and title transfers of Mexican real estate for foreign buyers and sellers for properties located ANYWHERE in Mexico. Ms. Neil is also licensed as a Real Estate Broker in California, is an Accredited Buyer Representative through NAR, and has over thirty- five years of hands-on experience in all aspects of Mexican real estate.  She holds membership in AMPI, NAR and FIABCI and PROFECO Certificate 00063/96.

E-Mail; linda.neil@settlement-co.com

website: Web Site: http://www.settlement-co.com.

 

Co-Author Raoul Rodriguez-Walters CFP®, EA,  in business over 16 years  is the founding partner of Mexico Advisor, the only company on either side of the US-Mexico border offering international wealth management, legal and  tax services under one roof, to English-speaking foreigners wanting to live, retire or set up businesses in Mexico. .   E-mail: RaoulRW@mexadv.com

Web Site: http://www.mexadv.com

 

 

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Building or Remodeling?

BUILDING OR REMODELING?   

Be sure to get the right receipts!

by Linda Jones Neil

 

It can be exciting to buy a vacant lot or a fixer upper and build a dream home or make wonderful repairs and changes to an existing building to make the home “yours”!

Any money spent on repairs, remodel or new construction can add to the value and to the tax basis of the property, IF the right fiscal receipts are obtained!

Mexico’s tax laws, most of which are patterned closely after the US IRS and Revenue Canada, are much stricter when it comes to obtaining tax deductible receipts.   We have the official invoice, known in Spanish as ihe “factura”

            For all of us in business, it is essential we obtain official facturas for all equipment, paper goods, electricity, telephone services, gasoline, office rent,   any and ALL commercial purchases for use in our business.   Additionally, if we consult with an attorney, a notary or other professional, we need a Recibo de Honoarios .   These documents must bear special markings and be sent through special services which print the invoices.   They  must also bear the vendor’s name, address and Federal Registration Number as well as the Buyer’s  information.

All of this is essential for the business owner in Mexico to have deductions against income.

What is often not understood in the real estate world is that the buyer or fixer upper of Mexican homes must also have official receipts in order for them to be applied as deductions against the capital gains tax (Impuesto sobre la Renta ISR) when the property is sold.

All contractors, and suppliers of building materials must be registered with SAT, the Mexico tax authority, have a Taxpayer Identification Number and file taxes on income each month.  Additionally, they must issue to the buyer, foreign or national, their invoice (factura) or receipt for fees (recibo de honorarios) that bear Vendor’s details, a description of the property where improvements or construction is being done, and buyer’s full name, address and Tax ID number.   If a Buyer is a Foreigner, this is no excuse for not issuing the official receipt.    According to SAT the number which must be used if the buyer has no tax identification number is XEXX010101000.

Why is this important to the foreign owner of a home in mexico??

No exemptions of tax are permitted when a vacation or rental home in Mexico is sold.   This applies to all,  Mexican nationals and foreigners.      The tax on non-exempted transactions is 35% of the difference between the value declared in the deed and the value of the new sale, less allowable deductions; or 25% of the entire amount of the transaction, whichever is less.   It is very important when acquiring property to insist upon having the full amount of the sale declared in the deed, in order to avoid overpaying taxes upon sale. and to obtain and retain official receipts for all construction and improvements made on the property.     This record-keeping can reduce the tax owed substantially.

If you are a foreigner with property in Mexico and want to increase your tax basis in your investment,  be sure to insist upon the Factura or Recibo de Honorarios when you make a purchase of materials or pay for services rendered..    Accept nothing less!

Copyright, 2014, Consultores Phoenix, S.C. Reproduction prohibited without permission.

about the author:

LINDA JONES  NEIL is the founder of The Settlement Company®, which specializes in real estate transfers and escrows. Licensed as a California real estate broker, she has pursued her profession in Mexico for over forty years. Her skills in negotiating contracts between parties from three distinct cultures have placed her services in demand as a consultant and for speaking engagements on Mexican law and customs in Mexico, the United States and Canada. She has been widely published on the subject of real property in Mexico. Memberships; FIABCI, AMPI and NAR.  Linda  is a former  member of the National Advisory Council of AMPI and has served as NAR Presidential Liaison to Mexico..

E-mail info@settlement-co.com,              website: http://www.settlement-co.com

 

 

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The Legal Aspects Of Condo Life In Mexico

THE LEGAL ASPECTS OF LIVING IN A CONDOMINIUM. Or what to expect when you buy a condominium in Mexico!

The cottage on a tiny individual lot or the mansion built on a grand expanse of land. This type of home ownership has been the dream of many in the Western world where land has been plentiful and where the family lived in ONE home and did not have other properties for vacations, recreation and retirement.

Changing life styles have changed ownership patterns over the past fifty years.

Two working parents, single parent families and the rising popularity of multiple family homes have created a great demand for ownership in condominium. In these cases the individual free-standing dwelling on a lot has been exchanged for shared walls, shared entryways, communal recreational facilities and shared maintenance.

When many live closely together rules and regulations become important. In Europe and the East coast of the United States, condominium ownership has been regulated for many years. In the west the first laws were enacted in 1965, in Canada in 1975 and Mexico’s first condominium laws were published in 1972, the same year as the bank trust (fideicomiso) law was enacted. In 1985 California’s Davis -Stirling Common Interest Development Act became a model for the rest of the western world. In the same year Mexico updated its condominium law and enacted the establishment and operation of common interest developments.

This step was highly important for Mexico City but also for vacationers in Acapulco, Cancun, Manzanillo, Puerto Vallarta, Mazatlan and Los Cabos. Because of built in maintenance provisions it has become the preferred ownership for vacationers in Mexico who may spend only a few weeks a year at their homes and prefer to spend the time in fun rather than in maintenance duties.

In the common interest development, it may be either commonly owned property or common rights that may be enforced as restrictions against separately owned property. For example the pool, hallways, gardens and other public areas are commonly owned property at the Las Mañanitas project in San Jose del Cabo. Owners of the individual condominium units acquire a proportional ownership interest in all the recreational facilities , as well as in the service areas, bearing walls and utility features at the project.

In other developments such as La Jolla and Terrasol, the developers retained ownership of certain areas destined for recreational use by the condominium owners and common areas are limited to the sidewalks, utilities, ducts and other construction features of the properties.

An example of rights and restrictions against separately owned property would be the building or design codes which are built into the condominium regime which prohibit for sale signs in windows, or drapes and window coverings different from those of the other units.

The presence of either element; rights or commonly owned property, makes the project a common interest development.

In Mexico direct ownership of the common property is the general rule. This means that certain property in the complex is owned in common in undivided interests by the individual homeowners. As an example, 25 condominium units and a common swimming pool and tennis court, in direct ownership each condominium owner owns his private space and a percentage of the the common areas.

SWISS CHEESE: When the owner sells, leases, mortgages his own lot or condominium his or her percentage of the common area must be included. The common property cannot be severed from the individual lot or unit! It is rather like Swiss cheese: The owners own a separate interest in the holes and an undivided interest in common in the cheese itself.

The common interest in the building normally will incude: the foundation, roof, exterior walls, bearing walls even if located within the unit, common hallways, chimneys, exterior doors, windows and all utilities and the pipes, ducts and wiring for same.

The individual owner’s unit will generally include all interior fixtures, improvements and personal property which is located within the three dimensional block of airspace. This will include built-in cabinets, plumbing fixtures, lighting fixtures and interior doors.

THE CONDOMINIUM REGIME:

This is the legal document which must be completed before an individual title can be granted out of the development. It must be made before a Mexican Notary Public and registered in the Property Tax office and Public Registry of Property.

By law it will contain the Descriptive Memory of the project. This means the measurements and description of the land, of each and every private unit and a description of the common property for the entire project.

It also must include the Condominium Rules and Regulations.

This part outlines the rights and obligations of the condominium owners, it defines the type of administration to be in place and contains the necessary rules and regulations to promote the well-being of the community.

Article 27 of the law provides for a annual meeting of homeowners. Homeowners are to be notified of the time and date of the meetings through registered mail ten days prior to the date of the meeting. This notification should also be published in a local newspaper and posted in a prominent place in the condominium project. If 90% of the homeowners are not present, subsequent meetings can be called for the same day and decisions can be made on important issues by those present which will affect every owner in the complex.

Articles 27 of the Law of the Condominium Regime also provides for voting in proportion to the percentage of common property held by each owner. Voting must be direct and personal unless otherwise provided in the Regime of the individual project. In other words, no proxies are permitted unless specifically stated in the law.

A surveillance committee consisting of one to three parties must be elected at an annual meeting and is composed of owners who oversee the work of the administrators.

A reserve fund must be established with funds invested in securities and readily available for required long – term repairs.

Maintenance fees must be paid for all common areas (swiss cheese) and failure to pay can result in loss of the unit.The law- provides that legal action may be taken against homeowners who fail to make THREE payments of monthly maintenance fees. Repreated failure to pay fees can result in putting the unit up for auction. Even if the homeowner is not happy with the administration of the complex, monthly maintenance fees must be paid.

Absentee owners with property in a foreign country should spend a few minutes to review the financial reports for their complex on a regular basis. When staying in the unit, they should open their eyes and review the condition of the complex. Is it well maintained?

Or is maintenance being deferred? This will affect the value of the complex, and the value of the unit. More and more, absentee owners are selecting professional management companies to perform all administration and maintenance services rather than having these services performed by the Homeowner Association or its Board of Directors. This makes sense especially when properties represent a second or third home for the owners who are busy and wish to spend their limited time at the unit enjoying it….not managing it!   Copyright by Consultores Phoenix, S.C. 2014, Request permission to republish.

Linda Jones Neil is founder and CEO of The Settlement Company®, consultants and land use professionals specializing in legal and tax matters affecting real properties in Mexico. The company provides escrow services and supervises the transfer of titles on Mexican properties located anywhere in the country. Ms. Neil, a Californialicensed real estate broker with 30 years of experience in Mexican real estate, is a member of AMPI, NAR and FIABCI. For further information on these subjects, e-mail: info@settlement-co.com.

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