Trustco renders a broad scope of services regarding personal trust estate, managing of funds, services to meet the needs for corporations, individuals, or even their families. A trust is an excellent financial planning tool that includes the ongoing involvement of an advisor, offering access to a wide range of investment management opportunities, and administration by an experienced Trustee, regulated by the General Financial Entities Superintendence (SUGEF), the Costa Rican governmental regulatory institution. Clients are provided with specialized personal attention to assist them to achieve a long-term estate planning or financial goals.
When it comes to matters concerning to your trust, we believe it is of the utmost importance that you receive individualized support and specialized counsel on a continuous basis. That is why we place so much value on your relationship with your advisor. Unlike other financial institutions, we offer one comprehensive relationship contact, your advisor, who is the local point of contact. Thus, your trust will receive the same hands-on, uninterrupted attention you expect.
TRUSTS AS A BUSINESS TOOL
The trust is a commercial contract and it is very useful and an adequate tool for the administration of goods, assets, rights, and others (all marketable assets or rights can be held in trust). It is a legal agreement through which grantor constitutes an autonomous asset, which is assigned to the trustee for the fulfillment of a particular purpose. In a trust, the patrimony is managed according to the terms of the trust agreement. It is key to clearly determine the purpose of the trust and the rights and obligations of the trustee.
Moreover, it is important to understand the parties that constitute a trust agreement, which are:
1. Grantor or Trustor: Owner of the asset or right to be transferred once the the trust agreement is executed. The grantor establishes the terms, instructions and conditions of the trust agreement.
2. Trustee: Owner in trust property and administrator of the asset or right held in trust. In the execution of his duties, the Trustee has different responsibilities, such as:
• Fulfill the necessary acts to accomplish the purpose of the trust.
• Execute the rights and legal actions allowed by law in defense of the trust.
• A proper administration of the assets or rights held in trust property.
3. Patrimony: Or trust property. This estate is autonomous from any other patrimony of the parties who constitute the trust agreement. It is restricted to the particular purpose of the trust and it is out of reach of any judicial action that may affect the other patrimonies.
It is understood that any of the parties in a trust agreement can be an individual and/or corporations.
In Costa Rica, trusts are regulated mainly by the Code of Commerce of Costa Rica (from articles 633 to 662). Article 633 establishes the trust as follows: “Through trust agreements, the grantor transfers to the trustee the property of assets or rights; the trustee is obligated to use them for the legal and pre-determined purposes established in the trust agreement”.
In accordance with article number 636 of the Code of Commerce, , the entrusted assets subject of registration must be recorded in the Public Registry. In order to enact a trust agreement, there are some requirements that have to be fulfilled. These requirements are:
• The trust agreement must be in writing, through an inter vivos act or through a testamentary act. (Code of Commerce, Art. 635)
• To determine the purpose of the trust.
• The designation of the trustee that will be responsible for the trust. The trustee shall be capable of acquiring rights and assuming obligations. In the case of legal entities (e.g. corporations), the articles of incorporation of the company must specifically authorizes the company to receive by contract or by last will the trust property. (Code of Commerce, Art. 637)
Benefits of the trust:
• Separates the transferred assets to an independent patrimony.
• The guarantee trust offers more security and efficiency over other traditional options, such as mortgage, mortgage certificates, promissory note, etc.
• In case of breach of contract, the trustee or any other binding party will submit the difference before a predetermined conflict alternate resolution process.
• It may imply financial advantages. However, it is also very important to clarify that if a trust generates income, it may be subject to taxation.
• Reduces the cost of indebtedness as long as the level of risk improves (Investment Trust).
Although the Costa Rican legislation does not classify trusts, the common practice allows us to identify at least three different categories, which can be determined as follows:
1. Management Trust: The grantor transfers to the trustee certain asset or funds to be administered in accordance with the particular purpose by which the trust was constituted. The benefit of this trust is given by the security and protection requested by the grantor in favor of himself or to third parties such as beneficiaries.
There are several kinds of trusts, which can be established under this category, such as testamentary, management of funds, trusts based on life or accident insurance policies, education, among others.
2. Investment Trust: The grantor gives to the trustee certain amount of assets to be invested in stocks in order to deliver the profits to the trustee designated in the contract. The objective of this trust is to facilitate the participation of individual investors in larger investments with more attractive profits, counting with the assistance of a professional in that field (portfolio).
The goal can be general or specific, however the main purpose is the generation of earnings and surpluses resulting from the placement of the assets held in trust in productive activities.
3. Guarantee Trust: The trustee receives certain rights or asset in guarantee and holds title over the asset in fiduciary property for a certain period of time; meanwhile the debtor (grantor) fulfills his obligation. In this case, the creditor becomes the main beneficiary. Once the debt has been settled, the trustee returns the ownership of the asset to the grantor. If the debtor fails to settle the debt, the creditor requests the trustee to sell the asset through an auction procedure to pay the unsettled amount.
This trust is applicable in contracts or agreements in which one or both parties surrender the patrimony in trust and this serves as a guarantee, so the trust agreement serves as a guarantee to compel the contracting parties to comply with their commitments and obligations of the credit relation. Besides, it grants the advantage of avoiding judicial actions in the event of default of payment by the debtor.
So, as you can see, a trust is a broad legal and useful instrument in all types of business transactions, transfer of properties or management relationships. In Costa Rica, trusts can be used as a guarantee for the fulfillment of financial obligations, to assure the fulfillment of shareholders agreements, to avoid or neutralize risks during transition stages, such as the purchase of a company, or a real estate, or as a guarantee in real estate developments.
In real estate developments, for example, the fiduciary holds the ownership of the property and guarantees to investors and financial entities, that the funds will be properly invested and that the development will be successfully finished.