What is a Trust and what is it for?


A Trust is a legal agreement used to transfer property or assets from one person (the settlor) to another person (the trustee), to be administered for the benefit of a third person (the beneficiary). The trustee is responsible for administering the assets in accordance with the terms and conditions set forth in the Trust agreement and always in the best interest of the beneficiary. Trusts are valuable tools that can be used for a variety of purposes, such as estate planning, asset protection, investment management and asset management for minors or persons with disabilities. 

In other words, the Trust is a sophisticated and efficient legal business, and has the capacity to adapt to the needs and objectives of those who request it, always keeping, as its main purpose, the protection of the assets and rights that have been entrusted to it.

Now, it is of utmost importance to have a clear conceptualization of the subjects that make up the Trust, as this conceptual management allows a better understanding of the structure, development and purposes of the Trust. 

Who is the settlor? 

The settlor is the person who gives rise to the Trust, i.e., the person who orders and causes the legal act to be carried out. The settlor transfers, whether assets or rights, and with this action constitutes an autonomous patrimony, which will be the object of administration and the basis for the creation of the Trust.

Who is the trustee?

The trustee is the person or figure that will administer the assets or rights that are being transferred and thus creating the independent patrimony. The trustee’s objective in administering the assets is to develop his best skills to prudently and diligently use them in pursuit of the purposes and objectives proposed in the contract. The benefits or yield obtained from the exercise carried out or the fruits produced by the patrimony will be distributed according to the terms of the Trust contract, which may be in favor of the settlor or a third party beneficiary.

Who is the trustee?

The trustee is the person in favor of whom the Trust contract is constituted. The trustee is legally bound to deliver the assets, fruits or yields of the Trust at the time so established in the clause of the contract.

What is the fiduciary legal relationship?

The fiduciary relationship is a legal and ethical relationship established between the settlor, the trustee and the beneficiary in a Trust. The trustee has the responsibility to administer the trust assets for the benefit of the beneficiary and to act in the best interest of the beneficiary. The trustee acts as a trusted agent and is expected to perform his or her duties diligently and prudently, keeping the beneficiary’s interests above his or her own. The fiduciary relationship is regulated by law and there may be legal consequences if the fiduciary breaches its fiduciary duties. The fiduciary relationship is based on trust and responsibility, and is fundamental to the protection of the beneficiary’s interests in a trust. 

Who can be a trustee in Costa Rica?

In Costa Rica, individuals or legal entities that have the legal capacity to act as trustees may be trustees. In particular, financial entities authorized by the Central Bank of Costa Rica, trust companies registered with the General Superintendency of Securities. There may also be individual trustees, provided they meet the legal and suitability requirements established by law. It is important to note that fiduciaries must meet high standards of integrity, confidentiality, professionalism and diligence in the performance of their fiduciary duties. Article 637 of the Code of Commerce establishes that “(…) Any natural or juridical person, capable of acquiring rights and contracting obligations, may be a trustee. In the case of juridical persons, their articles of incorporation must expressly enable them to receive by contract or by will the fiduciary property. -…”. -. However, it is the settlor’s power to appoint several trustees to jointly or successively perform the functions ordered in the Trust, who may establish the order and conditions under which they must be substituted.

What are the trustee’s obligations?

The basic duties of the trustee are as follows:

1) To carry out all acts necessary to achieve the objectives of the trust.

2) Inventory and determine in the most efficient way the trust assets, register them, keep them separate from its own assets or those of other Trusts.

3) To render accounts, at least once a year.

4) To actively and diligently exercise the rights and actions that legally correspond to it in order to defend the interests established in the Trust and the assets or rights that constitute it.

5) At the time of investing or committing the Trust’s assets, the trustee may not invest in any one business more than one third of the assets, unless expressly authorized by the settlor.

6) The trustee is obliged to pay the corresponding taxes and fees.

7) The trustee may not encumber the assets of the Trust, unless expressly authorized. In an emergency situation, the trustee may apply to a judge for authorization.

8) Of income from rents, fruits or liquidation proceeds realized by the trustee in the performance of his duties, he must give notice to the trustee within thirty days after the collection thereof.

What are the most common types of trusts in Costa Rica?

Trusts are a legal tool that is frequently used to protect the interests of beneficiaries and ensure compliance with financial and legal obligations. There are three main, but not unique, categories of trusts, each with its own characteristics and purposes.

Transferring Trusts are those in which the trustee receives goods or rights in Trust with the purpose of transferring them to the trustee once the requirements established by the settlor are met. These requirements may include the fulfillment of certain conditions, such as the age of the trustee or the completion of a specific project. This type of Trust is commonly used in situations where the settlor wishes to leave a property or asset in the hands of a specific person, but only after certain criteria have been met.

On the other hand, Guarantee Trusts are used to guarantee the fulfillment of a principal obligation. In these cases, the trustee receives assets or rights in trust for the purpose of ensuring that a debt or financial commitment is fulfilled. The trustee holds these assets in trust until the obligation is fulfilled, at which time they may be released or transferred to the trustee.

Management trusts are those in which the trustee receives assets or funds in trust to invest them in accordance with the guidelines established in the trust agreement, or to take charge of their custody, conservation, or any other management task. These assets are usually easily realized, such as cash or marketable securities, and the trustee can have a great deal of freedom to make decisions about how to invest or manage them. This type of Trust is commonly used in situations where it is desired to protect assets or funds for future use, as in the case of a retirement fund or a fund for children’s education.

In general, trusts are a versatile and useful tool to protect the interests of the beneficiaries and guarantee compliance with financial and legal obligations. When choosing the right type of trust for a particular situation, it is important to take into account the needs and objectives of the settlor and the trustee, as well as the applicable legal and tax regulations.

How does an International Trust work in Costa Rica?

An international trust in Costa Rica functions similarly to a domestic trust, but with some additional particularities and requirements due to its international nature.

In general terms, an international trust in Costa Rica involves three parties: the settlor, the trustee and the trustee. The settlor is the person or entity that establishes the trust and transfers the assets or property to the trustee. The trustee is the entity that manages the trust assets and acts for the benefit of the trustee, the person or entity that will receive the benefits of the trust.

International trusts in Costa Rica must take into account the guidelines of the Superintendencia General de Valores (SUGEVAL) and comply with applicable laws and regulations.

It is important to note that an international trust in Costa Rica may be subject to additional taxes and fiscal regulations due to its international nature. Therefore, it is important to seek legal and tax advice to ensure compliance with applicable laws and regulations.

Who registers a Trust?

Although the Trust contract can be drafted and structured by specialists or lawyers, the truth is that only a Notary Public can give validity and legal effectiveness to this figure through a notarial act (deed). Once the deed has been drawn up, and all parties involved have signed it, the Notary Public will then proceed to register it in the Public Registry.  As well as the incorporation of the Trust, there are other notarial acts that can be performed, such as:

 Notarized Certification of Trust.

 Purchase and sale of vehicle in trust.

 Incorporation of a Trust.

 Incorporation of a Guarantee Trust.

 Return to the trustor of property transferred in trust.

 Return to the trustor of a vehicle transferred in trust.

Trust for distribution of assets upon death of the settlor.

Testamentary trust.

Trust Settlement.

Application for the assignment of an identification number for a Trust.

Transfer of real estate in an asset management trust.

Transfer of vehicle to an asset management trust.

Sale of real estate owned by a trust.

Among others.

Does a Trust have to file the Transparency and Beneficial Ownership Registry in Costa Rica?

In accordance with the applicable regulations in force, it is established that private trusts, both domestic and foreign, must register or update the Transparency and Beneficial Ownership Registry in Costa Rica. This obligation is reinforced when property, assets or trust rights exist and are located in Costa Rica. The trustee is obliged to carry out the diligence and must finally make the declaration by the established legal means. 

How is a trust terminated or extinguished in Costa Rica?

Some of the grounds for extinguishing the Trust are the following:

1) For the consummation or realization of the object and/or purpose for which the Trust was constituted.

2) For the fulfillment of the resolutory condition.

3) By express agreement. 

4) By revocation of the trustor.

5) In the absence of a trustee, due to the impossibility of substitution.

Are there any prohibitions to incorporate a Trust in Costa Rica?

There are some established legal prohibitions that determine that Trusts cannot be constituted in Costa Rica, such as:

1) Trusts for secret purposes shall not be allowed.

2) In Trusts in which benefit is granted to persons who are to be successively substituted due to the death of the previous one, unless the substitutions are made in favor of persons alive or conceived at the time of the creation of the trust.

3) Trusts whose duration exceeds thirty years when a legal entity is designated as trustee, unless it is a state entity or a non-profit institution dedicated to charity, science, culture or art.

4) Trusts in which the trustee receives profits, commissions, prizes or other economic advantages, in addition to the fees established in the contract, are not permitted. If the fees have not been specified, a judge will fix them, after hearing the opinion of experts, following the procedure established for acts of voluntary jurisdiction. 

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