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Puerto Rico Trusts - Overview

In General


A trust is an autonomous patrimony resulting from an act where the trustor transfers property or rights to a trustee for the benefit of the beneficiary or for a specific purpose, as outlined in the constitutive act and, in the absence of such provisions, in accordance with the provisions of this Law.

The property or rights that are subject to the trust constitute an autonomous and separate patrimony from the personal patrimony of the grantor, the trustee, and the beneficiary, and are designated for a specific purpose at the time of constitution. Once the Puerto Rico trust's constitutive act is executed and registered in the Trust Registry in accordance with the law, an independent legal entity is created, separate from the grantor, trustee, and beneficiary, with full legal personality. The trust's patrimony is also protected from the creditors of the grantor, trustee and beneficiary, except as provided in Section VI of the act.

During the trust's existence, the property or rights subject to the trust belong to the trustee as an autonomous patrimony, and the beneficiary has a beneficial interest that is realized upon the termination of the trust, except for rents or property that must or may be received periodically before then.

The nature and scope of the duties and powers of the parties shall be determined by the trust's constitutive act - the deed. In the absence of such provisions, they shall be determined by the Act.

The Act creates the "Registro Especial de Fideicomisos" (Special Trusts Registry), under the Office of Inspection of Notaries of the Judicial Branch, that will include regulations for the requirements and procedures for establishing the registry. Every trust constituted in Puerto Rico must be registered in the Special Trusts Registry, under penalty of nullity. The information to be included in the registration includes:

  • the trust name;

  • the date and place of constitution;

  • he notary and the number of the act;

  • name and address of the grantor, trustee, beneficiary; and

  • the object of the trust.

The notary authorizing the constitution of the trust must send a document called the "Notification of Trust Constitution" to the Special Trusts Registry.


Private Trusts


How to Create a Puerto Rico Trust


There are only two ways to create a Puerto Rico trust: (1) through a public deed made during the lifetime of the grantor, or (2) by will - which is also a public deed.

Puerto Rico trusts are irrevocable, which means they cannot be revoked or undone once they are established.

The act of constitution of the trust - the deed - must specify

  1. the date and place it was established,

  2. the grantor's explicit desire to create the trust,

  3. the name of the trust, and

  4. the specific assets that are being placed into the trust.

Additionally, it must identify the person who can add assets to the trust and the process for doing so. It must also include the complete and clear identification of the grantor, the trustee, and the beneficiary. The powers and duties of the trustee, any prohibitions and limitations on the trustee, and any rights retained by the grantor must also be outlined in the trust instrument.

It must contain details about the term of the trust, if any. It also must lay out rules for accumulating, distributing, or disposing of trust assets, and any other clauses that the grantor wishes to include, as long as they do not violate any laws or public policy.

Purpose of the Trust


A Puerto Rico Trust must have specific assets that make up its patrimony. These assets can be any kind of present or future property, including real estate and personal property. It can be created over determined or determinable assets, or over all or part of a patrimony. If a trust is formed with future assets, it will not become an autonomous patrimony until the assets are effectively transferred to the trust.

It is possible to create a trust over the complete legitimate share, including the strict and the increased share, of a minor or incapacitated beneficiary, as long as they are designated as the only beneficiary of the income and capital. The trust holds all the assets, including real estate, that have been placed into the trust. And the real estate will be registered in the Property Register under the trust's name.

The trust can be created for any purpose, as long as it is not against the law, morality, or public order.


Grantor


Anyone, either an individual or a legal entity, who has the ability to create a trust for the benefit of a beneficiary or a specific purpose, can be the grantor.

  • Natural persons have the capability to create a trust if they have the ability to transfer assets during their lifetime or by will, without any trusts.

  • Legal entities can create a trust if they have the legal ability to transfer assets for the specific trust.

  • Government entities authorized by law can also retain assets in trust and act as trustees for the development of their goals by following the formalities of the law, and they can be trustees if the trust's objectives fall within the scope of their entity

In the trust creation act, the grantor can reserve the power to modify the trust in whole or in part, either for themselves or to delegate to a third party.


Trustee


The trustee concerns the fiduciary of a trust, which is the person or organization appointed to manage the trust's assets.

Any person or entity can be appointed as a fiduciary, as long as they have the capacity to manage the assets for the benefit of the trust's beneficiaries. The Act allows for multiple trustees to be appointed, and also for substitute trustees to be named in case the original trustees is unable to fulfill their role. In case of a testamentary trust, a person appointed as a trustee has 60 days to accept or reject the position, unless otherwise determined by a court.


The trustee has a range of powers to manage, invest, and use the assets of the trust to serve the trust's purpose. The trustee is obliged to administer the trust in good faith and in accordance with the terms and purposes of the trust and the provisions of this law, trying to make all the necessary acts for the achievement of the trust's purpose, They must also review the assets of the trust and if necessary, implement decisions related to retention and disposition of assets, within a reasonable time after accepting the role of trustee, to make an inventory of the assets and rights of the trust's heritage before beginning to exercise their functions and before making restitution to the beneficiary at the end of the trust. They also must invest and administer the assets of the trust only for the benefit of the beneficiaries, If a trust has two or more beneficiaries, the trustee must act impartially when investing and administering the assets of the trust, taking into account the various interests of the beneficiaries and should not delegate acts that reasonably require their personal action.


Beneficiary


A beneficiary is a person, entity or association that will receive income, capital or both from the trust, and can be natural or legal, existent or yet-to-be existent at the time of the trust formation.

Puerto Rico Trusts have two types of beneficiaries:

  1. income beneficiaries, who have the right to receive the income on a periodic basis, and

  2. capital beneficiaries, who will eventually receive the capital of the trust upon its termination.

The Puerto Rico Trust Act allows for the grantor and the trustee to be beneficiaries of the trust, provided that they are not the only beneficiary. The trust may be designed with multiple beneficiaries, and the grantor of the trust may designate substitutes in case of non-acceptance, inability or death of the original beneficiary. Additionally, if multiple beneficiaries are designated, they are to receive equal benefit unless otherwise specified in the trust document.

The beneficiaries are afforded legal remedies which include the right to require the trustee to fulfill their obligations, to seek compensation for damages caused by the trustee's noncompliance, to appoint a trustee to manage the assets of the trust, to remove the trustee, and to demand payment or delivery of any assets from the trustee.


Effects


The Puerto Rico Trust Act also created the figure of the discusses the role of the "consultor del fideicomiso," or trust advisor.

The trust advisor is appointed by the terms of the trust or by a court order, and they have the power to make certain decisions related to the trust, such as modifying or amending the terms of the trust, appointing a successor trustee, approving reports from the trustee, and consenting to certain actions taken by the trustee.

Creditors of trust beneficiaries typically only have the rights specifically granted to them by the terms of the trust or by applicable laws. However, any interests in the trust, trust property, or income from trust assets that are not subject to the rights of the beneficiary's creditors, are subject to the rights of general creditors. Unless the terms of the trust or a court order state otherwise, a successor trustee appointed under the terms of the trust or by a court will not be required to review the records, accounts, or reports of a previous trustee, nor will they be responsible for any failure or oversight of previous trustees. They will only be responsible for the property, assets, or investments that are transferred to them by the previous trustee and they will have the powers and discretion given to previous trustees in the terms of the trust.


If two trustees are held liable for a failure to fulfill their trust obligations, each may demand proportionate reimbursement from the other, unless one is substantially more at fault or has personally benefited from the failure, in which case they will have to reimburse the other in proportion to the benefit received. A trustee acting in bad faith is not entitled to reimbursement or repayment.

The creditors of a trustee may place a lien on or execute on the trustee's interest in order to satisfy claims against them, unless:

  1. the trust assets are not subject to legal execution,

  2. the grantor has prohibited voluntary or involuntary alienation of the trustee's interest,

  3. the trust states the trustee's interest in income will end if their creditors place a lien on or execute on it or if the trustee is adjudged bankrupt,

  4. the trust is for a group of individuals and their interests are inseparable,

  5. or the trust states otherwise.



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