Many foreigners invest in real estate in Mexico to benefit from the high returns on investment that this market offers, to enjoy their leisure time here by owning vacation property, to retire, or a combination of all of the above. Ironically, few foreigners give any thought to what will occur to their property in the event of death. The purpose of this article is to provide some insights on how Mexican Law will deal with property owned by foreigners upon death and, hopefully, will provide foreigners with some suggestions on how to deal with this situation.
A foreigner with property in Mexico who dies will have their property distributed to their legal heirs, depending on whether they die without a Will (ab intestate), with a Mexican Will, or with a foreign Will.
If a foreigner with property in Mexico dies without a Will, the law provides that their property is divided proportionately between their legal spouse (and not common-law spouses) and their children. The process is complicated and requires the translation and certification of foreign documents such as marriage certificates, marriage contracts, birth certificates of the children and, if they are minors, the representation of those minors by an independent tutor in Mexico. The process can take more than a year to resolve and the property, in the interim, needs to be administered until they are transferred to the rightful heir. The cost can be considerable.
A foreign Will is legally valid in Mexico. However, it is inconvenient and it can be costly to have it recognized and acknowledged in this country. The process to have a foreign Will recognized in Mexico is as follows, the steps need to be done consecutively and in order: the Will needs to be probated in the jurisdiction or residence of the deceased; once probated, the Will must be legalized in Canada, or apostilled by the Secretary of State in the United States. Other countries have the same process but different government authorities will have the documents apostilled.
Once this is accomplished, the certificate of death, the Will and the Probate decision must be sent to Mexico to be translated into Spanish by an official translator in the state and district where the property of the deceased is located. This technically constitutes a second Probation of the Will were a judge acknowledges the testator’s directions and, in some cases, will require the presence of the heirs or representatives in Mexico during the reading of the Will. A judgment is then issued instructing notaries (for real estate) or financial institutions (for bank accounts) to transfer the property to the name and benefit of the heirs. It can take six to nine months or more for this process to be completed and the costs are determined by a percentage of the value of the assets being transferred (one to three percent) plus expenses, if any.
With a Will made in Mexico, the process is simplified and the delays are shortened. If a foreigner owns property through a Bank Trust, the Trust Deed provides the names of the first and second beneficiaries of the Trust. In that case, a certificate of death needs to be provided to the Bank Trustee who then is required to change the name of the Trust to the benefit of the named beneficiaries. Property held through a Bank Trust is not included or referred to in a Will made in Mexico. For other property, including real estate that is not held within a Bank Trust, a Will made in Mexico identifies the beneficiaries (general heirs that inherit all the property) and specific legatees (individuals that inherit an identified item or amount of money). It also appoints an executor who will administer the property until it is transferred to the heirs and will assist the notary with this process.
A foreigner needs to go before a Notary in order to grant his/her Will made in México. Lawyers can act as legal counsel and advise foreigners on how to structure their Wills, transfer their property and consider certain fiscal consequences on the transfer of property. Most lawyers prepare the Will on behalf of their clients, in Spanish, explain the contents to their clients in their language of choice and then have a Notary register it to give it full legal effect. The Will needs to be signed in the presence of the Notary.
There are three steps to follow to Probate a Will made in Mexico. The first step is called Radicación where the Will is opened and the Notary reads it to all the beneficiaries in the presence of the Executor. The Executor of the Will is recognized and acknowledged and they must accept this position as administrator. Beneficiaries need to accept or refuse the inheritance of the estate. The second step is the publication or edictos. At this stage, the Notary will send an official document to two publications that are wildly circulated in the State where the Will is opened and also to the official newspaper of the State informing the general public of the existence of the Will, and to provide them with the right to claim an interest against the estate. If no-one files a claim within 40 working days, then the process will continue to the third and final stage. The final step is referred to as the escritura de adjudicación where the property is officially transferred to the name and benefit of the heirs.
If there is a claim against the estate, or if there are any minors involved, then the process is referred to the local courts who will decide on the claim or who will assist the minors for the transfer of the property.
Finally, property transferred on death is not subject to any capital gains in Mexico but, in some cities, will be subject to transfer duties if it is real estate.