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Trusts are a perfect vehicle for getting deals done

by Garland M Baker on February 11, 2008

Trusts can save the day in many cases in Costa Rica and avoid lawsuits or arbitration. In cases where litigation has already started, using a trust is a great way to get out of court. Most large development projects in Costa Rica — and small ones too — use trusts as the financial vehicle of choice. Literally, the possible uses of a trust is only limited to the imagination of the creators.

Most people — especially expats — think of trusts as they do wills. They are legal documents full of mumbo jumbo to take care of beneficiaries after one’s death. Trusts are much more than this here. They are dynamic legal instruments with many uses.

Here is a quick course. Once taken, pass it on to your legal professional. Most Costa Rican attorneys and notaries do not have a clue how to use a trust in this country.

Fideicomiso is the word for a trust in Costa Rica. There are five basic parts to a fideicomiso:

1.) trustor or fideicomitente,

2.) trustee or fiduciario,

3.) beneficiary or fideicomisario,

4.) trust property or bienes fideicometidos, and

5.) the trust contract or contrato de fideicomiso.

The fourth item, trust property, is the thing administered by the trust. To be valid, a trust must hold some property. Property may be any real or personal property like stocks, real estate, even cash, to name a few examples.

Of course, trusts that are more complex involve more parts, but these are the basic elements of basic trusts. An understanding of them is sufficient for most expats investing or doing business in Costa Rica.

In a nutshell, trust property is put into a trust by trustors, also referred to as grantors, donors or settlors, so a trustee or trustees can administrate the assets for the beneficiaries of the trust, according the terms of the trust contract.

Seems simple, but the devil is in the details, the details being the trust contract. That is why trust lawyers throughout the world make big bucks doing trust work.

Here are three ways to use trusts in Costa Rica:

Example one: a nasty legal matter of the heart: A woman – X – feels she has the right to everything an expat – Y- owns because she lived with him for a couple of years. The law clearly states it takes three years to quality for a “union de hecho” or common law union. However, due to the one-sided laws of Costa Rica regarding disputes between couples, she is successful in throwing the expat out of his house and onto the street with no place to live until the courts resolve the matter. In some cases, this can take years.

Really, the woman just wants a payoff, but the expat does not have all the money she wants. He wants his house back, and he does not want to wait for the courts to decide whether they will give it back to him.

The way to solve this dilemma with a trust is to have mediators, usually the couple’s attorneys, get the two to agree to a settlement amount. The attorneys than move the property into a trust they call Trust XY at the Registro Nacional with the agreement the lady will move out of the house immediately. There are no taxes associated with transferring assets into a trust.

Once the expat pays off the amount agreed to, the trust ends and he get clear title to his house back.
In this case, X and Y are the trustors as well as the beneficiaries. The attorneys are the trustees, the house and the payment amounts are the trust property, and the signed agreement is the trust contract.

Example two: building a condo project with little or no money: Two people get together, one owning a great building site close to the beach and another with building skills. The two go to the bank offering to put the land into trust for a construction loan. The trust also receives the title of the completed condominiums. Upon sale of the units, the two business people pay to the bank the agreed upon proceeds of each sale, and the bank transfers the deed out of the trust to the new owners.

Example three: trusts work great in a property sale when pieces of the puzzle are missing to complete the sale, as in when permits or other bureaucratic red tape is missing. Sellers wishing to sell put the property into a trust, and buyers wishing to buy put their money. They write a trust contract connecting transfer of the property and the payment based on completing the missing components. Once all the pieces come together, the trustees transfer the property to the buyers and pay the sellers.

Most banks in Costa Rica work in trusts. Banco Improsa is the most well-known in real estate development. Banco de Costa Rica is also very active and does not require their bank lawyers to write the trust contracts, which in many cases can save a lot of money. The cost to set up a trust vary wildly, so customers should shop around.

Trusts are incredible vehicles for those that know how to use them. Public notaries can hold them to make a trust private between parties. For more security or transparency, banks or trust agents make an excellent choice.

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