MEXICO Law and Practice Contributed by: Christian Lippert, Gabriela Pellón, Fabiola Jiménez and Cecilia Díaz de Rivera, Galicia Abogados
lifetime succession planning mechanisms are wills, fideicomisos (which are similar to trusts) and family companies. Wills Wills are the backbone of succession planning in Mex- ico. A will is a personal, revocable and voluntary docu- ment through which a legally capable person sets out instructions about how to handle his/her assets, rights and obligations after death. Wills also allow for the appointment of legal guardians and supervisors for underage children. Fideicomisos A fideicomiso is a commercial agreement executed among three parties: • the settlor (the individual contributing assets or rights to the structure); • the beneficiaries (those designated by the settlor to ultimately receive the benefits derived from such assets and rights); and • the trustee (a licensed credit institution responsible for the management and safekeeping of the trust estate). Of the various trust structures available, the fideico - miso de control (control trust) stands out as the most effective instrument for wealth transfer and succes- sion planning. The trust estate may be composed of virtually any asset or right, with the sole exception of those of a strictly personal nature under applicable law. The primary purpose of a control trust is to safeguard and centralise governance over family wealth by ena- bling the parties to: • establish coexistence rules amongst beneficiaries; • adopt corporate resolutions concerning family- owned businesses; • oversee the allocation and distribution of economic resources, including dividend payments; and • exercise preferential rights and manage intergen- erational wealth transfers. Fideicomisos are extremely adaptable structures that can suit different characteristics, needs and desires
related to the revocability or irrevocability of the fide - icomiso (for purposes of the appointment of benefi- ciaries) or decision-making mechanisms, among other matters. Family Companies The most suitable company type for family business- es is the Sociedad Anónima Promotora de Inversión (SAPI), since it affords more flexibility than is offered by other company types, such as Sociedad Anónima or the Sociedad de Responsabilidad Limitada . Among other things, the shareholders of a SAPI can agree to: • have different series or classes of shares with dif- ferentiated rights (including non-voting or limited voting shares); • have transfer restrictions and/or mechanisms such as puts, calls, drag-alongs, tag-alongs, piggy back, etc; • shareholder exclusion and/or separation triggers (including squeeze-outs); • deadlock mechanisms for the resolution of irrec- oncilable conflicts that prevent the company from making key decisions; • specific limits on directors’ and executives’ liability; and • provisions to limit, increase or deny preferential rights. 6.2 Tax and Regulatory Constraints Mexican tax law also includes general anti-avoidance provisions, which allow the tax authorities to rechar- acterise transactions when they lack a valid busi- ness purpose and are primarily intended to obtain a tax benefit. These rules were strengthened through reforms introducing the business purpose test into the Federal Tax Code. Accordingly, estate planning structures – such as transfers through corporate vehicles, trusts or reor- ganisations – must be supported by substantive legal and economic purposes beyond purely tax-driven objectives. Certain transfers may also trigger reporting obliga- tions, particularly where they involve large transfers of wealth or cross-border elements. In addition, financial institutions and notaries may have reporting duties
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