Cross-border estate planning between the US and Mexico:  Opportunities and challenges amid shifting political landscapes

Cross-Border Trusts: A Strategic Tool

The trust remains one of the most effective tools for estate planning in a binational setting. In Mexico, trusts offer benefits such as asset protection and confidentiality, while in the United States, they are essential for tax and succession planning. However, recent legislative and fiscal changes in both countries demand strategic adjustments.

For instance, in Mexico, Sheinbaum's proposed fiscal reform suggests increased oversight of local and foreign trusts, potentially requiring greater transparency reporting, which could impact Mexican families with assets in the US. In the US, Trump’s policies tend to favor tax incentives for revocable trusts and other structures aimed at wealth accumulation, although with a more aggressive focus on the oversight of foreign accounts.

Case Study:

A family with properties in Texas and Mexico City could establish a cross-border trust to manage properties in both countries while minimizing legal and tax risks. However, it is crucial to assess how Mexican reforms might increase compliance costs and how FATCA provisions in the US could demand greater transparency.

Estate Planning and Family Dynamics

Legal and political contexts directly affect family dynamics in estate planning. Families with binational members face particular challenges, such as coordinating inheritance and estate taxes. Mexico currently does not tax inheritances, but a proposed 10% tax is under consideration and may be implemented after 2025. Meanwhile, the US maintains a federal estate tax of 40% on large estates.

Case Study:

A Mexican entrepreneur with US citizen children could structure an irrevocable trust in the US to protect assets from high estate tax rates. However, selecting the appropriate trust structure should consider bilateral treaties to avoid double taxation.

Cross-Border Investments: Regulatory Changes

International investments are also under scrutiny by the new administrations. Trump has suggested tax incentives to attract foreign capital to the US, while Sheinbaum aims to restrict uncontrolled capital outflows to foreign markets.

Case Study:

A Mexican family firm investing in tech startups in Silicon Valley may need to reconsider its investment structure. A Delaware LLC might be more effective under Trump’s policies, while changes to Mexican laws could require the family to reassess income reporting in Mexico.

Political and Economic Impact on Estate Planning

The political climate significantly influences estate planning decisions. Trump’s nationalist policies may tighten regulations on trusts with foreign beneficiaries, while Sheinbaum’s progressive agenda could seek to impose heavier taxes on high-net-worth estates. Additionally, changes in global interest rates and inflation directly affect the viability of certain estate planning strategies.

Key Recommendations

1. Continuous Review of Legal Structures: Families must ensure their trusts and other tools comply with new regulations in both countries.
2. Asset Diversification: Consider geographic and asset class diversification to mitigate tax and political risks.
3. Interdisciplinary Collaboration: Lawyers and accountants should work together to develop customized solutions integrating legal and fiscal aspects.

Conclusion

Estate planning in the binational context of Mexico and the United States requires a strategic and adaptable approach. With political and economic changes on the horizon, families and businesses must anticipate challenges to transform risks into opportunities. The new administrations offer a landscape of transformation that, with proper guidance, can strengthen the protection and growth of family wealth.

Prof Sergio Guerrero Rosas, Managing Director at Guerrero y Santana, has over 25 years’ experience advising companies from SMEs to multinationals, as well as individuals, on tax and estate planning. He is also Global Vice Chair of the GGI Trust & Estate Planning (TEP) Practice Group.