SM-CI-2023-316
By Thorvald Pazos Casas – Law degree from the Universidad Regional del Sureste, is a postulant attorney in criminal, civil, agrarian, and tax matters, and is currently a research attorney and part of the Research Center of SILMEXICO.
Currently, one of the main and beneficial legal vehicles used to carry out large real estate projects and businesses is through trusts, within this attractive legal tool we can highlight the so-called right of reversion, however, what is it, how is it stipulated and what benefits does it provide?
According to the definition provided by BANCOMEXT, reversion is understood as;
“Act by which the ownership of the assets or rights remaining in a trust at the time of its extinction is returned or retransferred to the original owner”.
The right of reversion refers to the power or right of the settlor to recover the assets contributed but not disposed of to the trust under certain conditions within a specific period of time, this right can be established at the time of the creation of the trust and is subject to the terms and conditions of the trust.
There are several types of reversion rights, among which the following stand out:
- TOTAL: Without conditions or reservations, in this case, the trustor exercises it and the trustee complies with the instruction.
- CONDITIONED: Under certain conditions for the trustor to exercise this right. If you did not obtain the building permits within the first three months of the creation of the trust.
- PROHIBITED: Due to the type of trust (in guarantee, in restricted zone, transfer of ownership) the parties agree that the settlor will NOT have this right.
How is the reversion right stipulated?
The stipulation of the right of reversion must be in writing and can be agreed upon at the time the trust contract is executed or subsequently by means of a trust amendment agreement.
At the time the contract or agreement is executed, this reservation must be identified in the clause referring to the patrimony, which will explain the manner in which the trustor may request the reversion of its assets or rights.
Legal basis.
It finds its nature in several legal ordinances, among which we highlight the following:
Fiscal Code of the Federation:
Article 14, section V. The contribution of the real estate made by the trustor will not be considered as alienation, as long as he/she reserves the right to reacquire the trust property from the trustee, either at the time of the execution of the contract or in a subsequent act.
At the moment this repurchase right is lost it is considered alienation, when a person decides to “reserve the right of reversion of the assets contributed to the trust”, he is simply agreeing that he has the power to request the trustee to return to him part or all of the assets that he previously transferred in property or rights.
If the return is partial and does not hinder the achievement of the trust’s objectives, the trust will remain in force. However, if the return, even if partial, makes it impossible to achieve said objectives, the trust will be extinguished, in accordance with the provisions of Article 392, Section II, of the General Law of Credit Instruments and Operations (LGTOC).
It is important to remember that, according to Article 381 of the LGTOC, the assets contributed to a trust must be destined to lawful and specific purposes (which must also be feasible, according to Article 1827, Section I, of the Civil Code of the Federal District, which applies in a supplementary manner in commercial matters). Therefore, if the return of assets, even in part, makes these purposes unattainable, the trust is extinguished.
Benefits of the right of reversion
- Control and Protection of the Settlor: The reversionary right allows the settlor to maintain essential control over the assets contributed to the trust. This is especially valuable when the settlor desires the ability to recover the assets in the event of specific circumstances, such as defaults, legal or economic changes, or any eventuality.
- Tax Benefits: From a tax point of view, the right of reversion is essential. According to the Income Tax Law (ISR) and municipal legislation, as long as the trustor retains the reversion right, it is not considered that a disposal of assets has occurred. This implies that no taxes are immediately generated at the time of the contribution to the trust, which can be beneficial from a tax perspective.
- Flexibility: The right of reversion can be adapted to the specific needs of the settlor and changing circumstances. It can be established on a whole, conditional, or even prohibited basis, depending on the objectives and agreements between the parties involved. This provides flexibility in asset planning and management.
Therefore, the right of reversion mainly guarantees, controls, and protects the trustor against any eventuality, and as far as tax matters are concerned, the Income Tax Law (ISR) and some municipal legislations consider that the alienation of assets has not occurred as long as the right of reversion has not been lost.
